Sustainable Fashion Has a Long Runway

For many consumers, the biggest contributor to their environmental footprint may not be their daily commutes or cross-country flights—it’s their wardrobe.

In fact, the apparel industry uses enough fresh water to quench the thirst of 5 million people a year, produces 20% of global wastewater and has a carbon intensity that exceeds aviation and shipping combined. It’s also a major contributor to microplastic pollution in soil and water.

Fashion’s social impact isn’t lost on consumers—particularly younger buyers representing a key demographic. Many are consciously buying fewer items of new clothing and embracing “thrifting” as a more sustainable alternative. At the same time, investors focused on environmental, social and governance (ESG) factors are also taking a closer look at the industry’s impact and, whether through engagement or exclusion, further incentivizing apparel makers to rethink how they make, market and dispose of their wares.

This puts the fashion industry in an interesting predicament: How to stay relevant to consumers clamoring for the latest styles while reducing the environmental and social impacts of clothing’s life cycle. “It isn’t an easy problem to solve,” says Jessica Alsford, Morgan Stanley’s Chief Sustainability Officer.

Then again, the apparel industry is no stranger to reinvention—and now it’s applying that same ingenuity to a wide range of ESG innovations and initiatives. Here are five sustainable fashion trends Morgan Stanley Research analysts are following.

Materials are the largest contributor to the environmental footprint of the fashion industry. Between 60% and 70% of all items of clothing are made using synthetic petroleum-based fabrics. When washed, these fabrics shed microplastics that make their way into soil, rivers and the ocean, where synthetic textiles account for more than a third of all microplastics.

To address the problem, fashion brands and material science companies are looking at using alternative materials, such as biodegradable polyester, and at scale and even making products, such as eyeglasses, out of captured carbon instead of plastic.

Leather is another big area of ​​focus, particularly among luxury apparel companies, which account for 30% to 50% of the $100 billion market for animal hides. “Companies are researching and developing leather-like products grown in labs, or made from apple skins or mycelium, which is the vegetative part of a fungus, and actually offsets carbon as part of its growing process,” says Lucy Beauvallet, an equity strategist on the Global Sustainability Research team.

Sustainable materials are a big part of the solution, but so are circular business models, which make it viable for companies to refurbish and resell their own products. Many large retailers are encouraging customers to drop off or send in their old clothing and are investing in their own second-hand sales channels. Even luxury brands are increasingly finding value in refurbishing and reselling select pieces.

Integrating circular business models at scale isn’t without its challenges. “Retailers need to coordinate the ‘reverse logistics’ of reselling, as well as managing transport cost and operations for second-hand items,” says Lauren Schenk, who covers small- and mid-cap internet stocks, including those focused on apparel. She and her colleagues estimate that the US apparel and accessory re-sale market could grow more than 14% annually over the next four years, making it one of the fastest growing sub-segments of US apparel.

While reselling or refurbishing apparel is often the most sustainable option, it often isn’t feasible. Here’s where recycling becomes a critical part of the sustainable playbook. Indeed, roughly 80% of all fibers end up in a landfill.

Many of the largest apparel companies—including some of the companies that popularized “fast fashion”—have committed to delivering 100% recycled or sustainably sourced materials within the next decade.

It’s an ambitious goal, to be sure.

“Recycling is still a very mechanical process, particularly for cotton, and few technological advancements have been achieved in recent history,” says Elena Mariani, a European equity analyst covering apparel and luxury brands. “In order for large retailers to achieve their ambitious recycling targets, the industry will need to find new ways to make recycling efficient and cost effective.”

At first glance, the concept of brands designing and selling apparel exclusively for the metaverse—a virtual world that incorporates augmented and virtual reality—seems like a novelty with no positive real-world outcomes. However, digital-first technologies, such as digital rendering services, allow companies to design, present and review collections in a compelling and realistic way—reducing the environmental footprint of the design and marketing phases of clothing production.

Digital renderings could also significantly reduce waste associated with returns on ill-fitting products or those that were poorly represented onscreen. “Theoretically, customers will be able to dress their digital twins before they buy, in which case they may be less likely to return products that don’t fit or look like what they expected,” says Schenk.

Alternative materials, circular business models, efficient recycling and digital design can go a long way in making the garments produced by the fashion industry more sustainable.

Still, as is the case in most industries, making meaningful changes will also require looking at the operational side of the apparel business—thinking about everything from energy use and hiring practices, to marketing and governance.

“Many large retailers are taking the view that sustainability should be embedded within the core operations and corporate culture of the company, rather than siloed to single product lines,” Alsford says.

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