Strong growth in athleisure sales amidst a COVID-19 driven online acceleration has been a rare bright spot in a challenging operating environment for the apparel industry. Yet the related increase in synthetic fibre use is likely to extend and deepen water-related risks to human and animal health. As circularity strategies are just beginning to appear, the fashion industry must ensure that it aligns its water-related practices and disclosures with the expectations of increasingly environmentally conscious consumers and governments, in order to address water-related financial risks and ensure medium-term ‘licence to operate’.
The apparel retail industry has been one of the hardest-hit casualties of COVID-19, as clothing purchases are often driven by activities that have been impacted by social distancing. The Centre for Retail Research estimates that by the end of June 2020, more UK retailers had gone into administration, putting more stores at risk and more employees under threat of job loss, than in the whole of 2019 (itself already a low base). The picture is similarly bleak in other major European markets and in the US, with established clothing brands (e.g. Zara, Gap, H&M, amongst many others) announcing major permanent store closures. Recent news coverage highlights the problem of an inventory glut as well as unpaid wages in supplier countries., However, water-related risks, whilst under the radar, are also significant for the industry, particularly chemical pollution-related water risk.
Along with e-commerce, athleisure currently presents a rare pocket of growth in the industry. The pandemic has accelerated the transition towards e-commerce that was already underway in the industry and online-only players (e.g. Asos, Zalando and Boohoo) have beaten market expectations in 2020 in terms of revenue growth (with 2020 guidance ranging from 10 to 25%) and margin expansion, significantly outperforming a declining underlying market. With consumers working from home, reduced socializing and a renewed sense of self-care, demand for athleisure, athletic clothing, casual wear and home wear in the UK, Europe and the USA has surged, as clearly reflected in apparel companies’ Q2 2020 earnings results.
These types of clothing are predominantly made from synthetic fibres and synthetic-natural fibre blends. Synthetic fibres are made from fossil fuel-based raw materials such as petroleum and petrochemicals.  Cotton and other natural fibre supply chains are increasingly subject to environment related supply-side shocks (e.g. drought, pests, desertification and fires), trade wars and other logistical supply chain complexities that have pushed their prices higher in recent times, thereby making them less affordable to garment manufacturers that supply the mid and fast fashion segments. The business case of using synthetic fibres becomes even more attractive when the premium pricing of sustainable cotton and a low oil price regime are added into the mix. Furthermore, the elastic nature of synthetic fibres and blended fabrics makes them more ergonomically suited for these types of clothing. Some textile manufacturing locations, like India, are actively incentivising a transition from natural fibres to synthetic, enabling them to leverage the strength of their burgeoning petrochemical industries.
Figure 1: Asos, a Leading Global Online Fashion Retailer, Reported Growth in Activewear Sales of over 100% and Casualwear of over 40% in the 4 Months Ended 30 June 2020.
Synthetic fabrics shed microfibres, a known ecological threat, which enter freshwater ecosystems when clothes are washed. Microfibres then enter human and animal digestive systems, leading to blockages and slowly breaking down to release toxic chemicals. A recent 2020 study found that nanoparticles associated with synthetic fibre use have been found in human organs and tissues. Given that research is still developing, the direct economic costs of depleted human health and productivity, increased healthcare and retrofitting wastewater treatment plants (WWTPs) with advanced filtration systems, are yet to be determined. A 2019 study by Ocean Wise suggests that even if WWTPs filter 95% of microplastics, 533 million microfibres will pass through those filters and flow into rivers, lakes and oceans every year from an average home in developed markets.
Marine ecosystems also bear the brunt, as rivers flow out to sea carrying microfibres in waste-water. In a 2020 study, new measurements of the top 200 metres of the Atlantic Ocean found between 12 and 21 million tonnes of microscopic particles of three of the most common types of plastic, in about 5% of the ocean. That indicates a concentration in the Atlantic Ocean of about 200 million tonnes of these common plastics, including microfibres from clothing. Whilst the impact from clothing alone is challenging to quantify (existing research studies have estimated a range of c.20%-35% of all primary microplastics in the world’s oceans arise from laundry of synthetic textiles), the cost of overall plastic pollution to marine ecosystems’ value, i.e. the financial value derived by global fisheries, aquaculture, tourism and human wellbeing, is estimated to be up to $2.5 trillion per year.
Given the current difficulty of recycling blended fibres (due to the lack of mechanical scalability and large amount of energy required to separate different fibres from each other), the low rate of recycling (globally just 12% of clothing material ends up being recycled) as well as corporate circularity initiatives (which include collecting used and unsold clothes and recycling them) being in their infancy, the fashion industry currently has three main options to deal with synthetic/mixed fabric clothes at their end of use/sell-by-date: (1) incinerate (2) resell (in which case there is zero waste accountability and circularity) or (3) dump. Incineration releases toxic emissions and heavy metals, which again enter freshwater ecosystems and the atmosphere. Dumping leads to the eventual release of greenhouse gases and toxins leeching into groundwater and terrestrial ecosystems, which again ultimately threatens water security and biodiversity.
Compared to natural and semi-synthetic textiles, synthetic-based textiles are also more threatening to freshwater ecosystems during the use and disposal stages of their lifecycle. Through a planetary boundaries lens, clothing microfibres are classified as chemical pollution and the release of novel entities. The weight of anecdotal and emerging statistical evidence of detrimental impacts to freshwater ecosystems, marine ecosystems, human health and biodiversity suggests that precautionary action is warranted.
Major fashion brands have made commitments to transition to 100% sustainable cotton and other sustainable natural fibres over the next two decades, but as yet no major brand has addressed the issue of synthetic fibres in their products, whether through a commitment to phasing out the use of pollution-causing synthetic materials or a rapid scaling-up of circularity initiatives and related technological innovations. If water-related externalities of using synthetic fibres are included in company financial reporting, the case for transitioning to sustainable natural fabrics should become very apparent for the fashion industry and its beneficial owners. However, barring a few industry leaders like Kering, a French international luxury and fashion goods company, environmental profit and loss accounting and biodiversity impact reporting (which take water consumption and wastewater impacts into consideration, since depleting and polluting this life-supporting natural capital asset directly impacts biodiversity) are not yet mainstream.
Major apparel manufacturers and retailers have made progress towards sourcing more sustainable cotton (2017-20), but industry commitments on the synthetic fibre issue are currently non-existent.
Figure 2: Source: International Institute of Sustainable Development (2020)
*Inditex: VSS-compliant volumes refer to organic cotton only. Inditex is known to source from BCI, but sourcing volumes were not found. Inditex’ sustainable cotton strategy and sustainable sourcing commitment targets sourcing organic, BCI and recycled .cotton.
Note: Adidas shared sourcing information without disclosing restrictions
Please note that a few apparel and clothing companies listed report in aggregate VSS-compliant cotton volumes and recycled cotton. When companies report disaggregated data distinguishing VSS-compliant volumes from recycled, only the former was considered.
We see demand-side risks ahead. Firstly, as consumers become more aware of the negative impact of synthetic fibres, companies risk losing customers who want to wear comfortable clothes, guilt free.
In a 2020 U.S. survey conducted by Monitor Research, 62% of respondents were bothered by brands and retailers using synthetic fibres in their clothes, and 78% stated that cotton is their favourite fabric to wear. The same survey also highlights that 30% of respondents were aware of microfibres from synthetic clothing polluting the planet’s oceans and waters, up from 17% in 2018.
Secondly, governments and regulators that are increasingly applying the precautionary principle (which enables decision-makers to adopt precautionary measures when scientific evidence about an environmental or human health hazard is uncertain and the stakes are high) may introduce tax regimes and make polluters pay for the negative externalities associated with synthetic fibres. In 2018, the UK government was strongly petitioned to introduce a rising tax on synthetic fibres, like the landfill tax. Should such a tax regime materialise, the transition to sustainable natural fibres would accelerate. Fiscally strained governments that are forced to invest in WWTP advanced filtration enhancements and secure public health against the threat posed by microfibres may well decide to externalise these costs to industries that perpetuate the status quo. If that burden falls on water utilities run by the private sector, then an increase in business water rates could have the same effect as a water tax imposed by the state. In addition, targeting this increase on the fashion/textile manufacturing industry would introduce accountability for microfibre water pollution.
What solutions are there? Firstly, industry innovations, for example alternative natural materials (e.g. bamboo), can meet the performance specifications for athleisure wear, whilst also fulfilling consumer preference for more sustainable clothing. As long as the natural materials are sustainably grown and sourced, a more water and ocean friendly alternative to synthetic fabrics may be just over the horizon. In addition, innovations in blended fabric recycling which enable it to be carried out at greater scale could significantly boost circularity in the industry.
Secondly, greater transparency. Recent research from the University of California Berkeley has found that without real action from apparel brands around transparency, potential to transform the industry’s environmental impact will be limited. In our view, investors must push for a more comprehensive disclosure framework of water-related risks and policies. This would also enable them to assess and quantify risks better when it comes to water dependency and security (e.g. due to regulatory or consumer pressure).
As we enter a new season of global Fashion Weeks this month – London, Milan, Paris, Shanghai and Seoul – investors should reflect on the environmental impact of these products and the associated financial risk. If investors are aligned to the Sustainable Development Goals (SDGs), then they should scrutinise the use of synthetic fibres by apparel companies, as they may soon become unfashionable to both consumers and shareholders.
 Financial Times, Aug 10, 2020 – Asia’s Garment Workers Lose Out on $6bn After Pandemic Cuts
 SIWI/World Water Week, Aug 28, 2020 – Futurecasting a World with Water Aware Financial Institutions
 Gap 2Q20 results, Asos 2Q20 results, Zalando 2Q20 results, H&M 2Q20 results, Boohoo 2Q20 results
 Rayon and viscose are classified as ‘semi synthetic’ because it is plant based but undergoes a chemical intensive process used to produce the yarn
 Financial Express (2020) – Government to offer production linked incentives to man-made textiles
 McKinsey & Company (2020) – India’s chemical industry: Unleashing the next wave of growth
 American Chemical Society (2020) – Micro and nanoplastics detectable in human tissues
 Pabortsava et al (2020) – High concentration of plastic hidden beneath the surface of the Atlantic Ocean
 Boucher and Friot (2017) – Primary Microplastics in the Oceans: a Global Evaluation of Sources
 Beaumont et al (2019) – Global ecological, social and economic impacts of marine plastic
 CIEL (2019) – Plastic & Health: The hidden costs of a plastic planet
 The planetary boundaries concept presents a set of nine planetary boundaries that regulate the stability and resilience of the Earth system. One of them, ‘chemical pollution and the release of novel entities’ refers to emissions of toxic and long-lived substances such as synthetic organic pollutants, heavy metal compounds and radioactive materials, which plastic microfibres from clothing are characterized as. Henry et al (2019) – Microfibres from apparel and home textiles: Prospects for including microplastics in environmental sustainability assessment and WHO: Presistent organic pollutants (POPs)
 European Commission (2019) – Assessment of Biodiversity measurement approaches for businesses and financial institutions
 BCI is Better Cotton Initiative, a global not-for-profit organisation which aims to transform cotton production worldwide by developing Better Cotton as a sustainable mainstream commodity. It is the largest cotton sustainability programme globally.
 Sourcing Journal (2020) – Stop the synthetics: Consumers want technical, natural fibre activewear
 Bloomberg (2018) – Polyester, nylon clothes may be caught in U.K. curbs on plastic