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Cotton 2040 'Insights to Action' Masterclass Series: Transition Risk and Decarbonisation

By Lukas Brochard , Ada Kinczyk and Grace Youell | November 3, 2022

WTW and Forum for the Future held a masterclass series on climate change and the cotton industry in October 2022. The second masterclass provided guidance on how brands and retailers can manage the transition to net zero.
Climate
Climate Risk and Resilience

‘Transition risk and Decarbonisation: the Cotton and Apparel Industry’ masterclass was the second in a series of six sessions co-hosted by WTW and Forum for the Future in October 2022. The sessions cover various topics tailored for brands and retailers to encourage a shift towards a sustainable, regenerative and climate-resilient cotton sector. The focus of the second masterclass was transition risk and the opportunities and challenges associated with decarbonisation.

The entire cotton value chain – from producers and processors to brands, retailers or traders – is facing increasing exposure to climate risks. At the same time, the sector itself can also contribute to climate change. To thrive in an increasingly climate-disrupted world, the cotton sector, and the textiles industry, require radical change, which can only be achieved through sector-wide collaborative action.

Transition risk in cotton production

In the masterclass, the presenters highlighted that transition risk stems from multiple factors, including the high carbon intensity of cotton production, regulatory pressures, shifting market dynamics and changing consumer demand for cotton-based products. Pressure from a broad range of stakeholders is mounting on brands and retailers in the fashion industry to respond to transition risks and decarbonise.

We expect to see significant capital shifts towards companies that are decarbonising effectively and managing their exposure to climate impacts.

The growing pressure on brands and retailers was reflected in the poll of masterclass participants.

Participants voted the top three drivers for action: regulatory pressures, climate hazards to the value chain, and market demand.

Organisations face regulatory pressure and reporting requirements in a growing number of countries that have announced Task Force on Climate-Related Financial Disclosures (TCFD)-aligned disclosures.

The fashion industry, in particular, faces growing pushback on green claims and new regulations, including the EU strategy for sustainable textiles and the UK’s Green Claims Code, which is aimed at helping businesses more accurately communicate their green credentials. In July 2022, UK regulators announced they were launching investigations into the ‘green’ claims of three fashion brands – ASOS, Boohoo and Asda.

Overconsumption needs to be addressed

Despite increasing regulatory pressure, the current emissions trajectory is far from what the transition requires. Overconsumption, encouraged by fast fashion, is responsible for the largest share of emissions in the cotton value chain.

Emissions are driven mainly by the fibre production and consumer use phases. The volume of clothes produced will remain an issue until we have abundant renewable power and effective end-of-life solutions.

Fast fashion is incredibly competitive, with small margins and changing trends.

The era of fast fashion has to end in order to deal with climate-related transition risk. This means a fundamental shift in the sector’s approach to supplying customers.

Brands and retailers should reduce the production volume by increasing their products' quality and longevity and encouraging reuse and repair. This creates opportunities to pivot to higher-margin, less volatile business models. Working along the value chain, they should support efforts that encourage regenerative agriculture, longer-lasting fibres, and consumer engagement and education.

Decarbonisation alone is not sufficient

However, decarbonisation alone will not address social equity challenges or the environmental damage that has already been done. There are broad socio-economic and environmental consequences as shifts to alternative business models require capital and changes in yield forecasts which can disproportionately impact producers and place additional pressure and risk on their livelihoods.

There is a need to examine social and environmental impacts of new business models holistically. Brands and retailers can support approaches that have positive, regenerative effects on the environment and communities along the value chain. This is moving beyond sustainable practices to regenerative practices that help to reinvigorate ecosystems and communities, making them stronger than before.

A holistic approach helps manage climate risk and creates new opportunities: responding to regulatory requirements and consumer demand for just and regenerative value chains.

Masterclass 2 Transition Risk and Decarbonisation

This is the session recording from Masterclass 2: Transition Risk and Decarbonisation held on October 13, 2022. This was the second of a six-part “Insights to Action” masterclass series on climate risks to the cotton and wider apparel sector.

Authors

Director of Climate, Decarbonization and ESG
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Associate Director at WTW Climate and Resilience Hub
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Senior Associate, Climate Practice
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