Want to get finance teams behind your brand’s climate initiatives? Start speaking finance.
The fashion industry has finally come to the realization that setting climate targets, discussing corporate responsibility and publishing sustainability reports — while important — will only go so far toward securing funding. Making a measurable business case for mitigating climate impacts will go further.
“Climate has traditionally been discussed based on environmental issues and directed toward CSOs. But the people that ultimately decide where to invest are the finance teams, the treasury teams and the people who manage the capital flows,” said Kristina Elinder Liljas, senior director for sustainable finance and engagement at the Apparel Impact Institute (AII). “Not sustainability departments.”
The Apparel Impact Institute’s report, “The Cost of Inaction,” reframes sustainability in financial rather than environmental terms, focusing on ROI, KPIs and other common business metrics to help the financial C-suite executives recognize that climate risk has become financial risk.
“The goal of this report was to translate the climate exposure into a language that resonates within finance teams. We’re talking about COGS [cost of goods sold], margins, cost volatility—all those words these people live with every day,” said Elinder Liljas on a recent Shaken Not Burned podcast. That shift is key because finance teams measure progress on profitability, shareholder returns and long-term enterprise value, not carbon emissions.
Climate strategy has become capital strategy, and the cost of inaction may prove far more expensive in the long run. But to prove that, “everything needs to have a business case,” she said.
The Real Cost of Inaction
For many fashion brands and retailers, climate action has traditionally been put off until there was more certainty, but that approach misses how businesses make investment decisions. Like an insurance policy, acting now saves money later.
After all, absolute certainty—the drought, the extreme heat, the carbon taxes that send prices upward—don’t arrive until it’s too late. So rather than waiting for 100% surety, companies should incorporate climate risk into financial forecasting the same way they model currency movements or demand fluctuations.
“[Businesses] set forecasts on a lot of things. You set forecasts on a marketing campaign, hoping it will sell certain volumes. You don’t know for sure, but you still put money behind the marketing campaign,” said Elinder Liljas. When it comes to climate impacts, companies need to do a ‘what if’ scenario, then ask how to mitigate that risk.
“It’s about future-proofing your own business,” she said.
Three climate-related pressures directly affect the cost of goods sold. The first is energy. Manufacturing processes such as dyeing and finishing rely heavily on thermal energy, making factories vulnerable to volatile fossil fuel prices. The second is materials, particularly cotton, where floods, droughts and other extreme weather events can send prices soaring. Third is carbon pricing, where carbon taxes, emissions trading and mechanisms like the EU’s Carbon Border Adjustment Mechanism (CBAM), all impact calculations.
These forces are changing the economics of apparel production, and there is a “high risk if brands do nothing” in response. According to the report, brands that fail to respond to climate issues could lose up to 34% of net profit by 2030, rising to 67% by 2040.
One of the report’s strongest arguments is that sustainability cannot be a “reporting exercise” disconnected from operational decision-making, and to produce action, companies need much greater visibility into their supply chains.
“The first thing that needs to be done is to look into the supply chain visibility and perform risk modeling,” she explains. “It comes down to data, and looking at the data to help guide where the most impactful investment opportunities are.”
The Case for Collaboration
Fashion’s fragmented manufacturing structure also hampers financial solutions. Most fashion brands don’t own the factories producing their garments, and since suppliers often manufacture for numerous brands, it’s hard for any single buyer to justify funding expensive upgrades.
To address this “free-rider problem,” the Apparel Impact Institute has developed financial tools such as brand-backed guarantees and deployment grants that reduce financing costs for suppliers while encouraging collaborative investment.
“No one brand, no one buyer is able to do this alone,” said Elinder Liljas. “It’s all about collaboration. Let’s work together, pool the funds, and then it’s not such a high risk.”
Yet aligning corporate attitudes is not so easy. The report puts companies into three buckets: conventional operators, pragmatists and pioneers.
While everyone will be affected by climate impacts, the pioneers who are investing today will come out on top, while conventional operators—”whose business as usual is to do nothing”—don’t have big enough margins to survive. “Everybody will have to pay, so it’s not like you win anything,” said Lilias. “But for pioneers, who are more resilient, the hit will be less.”
