Fashion supplier emissions rose 7.5% between 2022 and 2023, according to the Apparel Impact Institute's latest industry review — a reversal that frames a new white paper from EY and H&M Group arguing that supply chain decarbonization must be treated as a financeable investment, not a voluntary commitment.

The paper, Accelerating Fashion Decarbonization, developed with HSBC and Aii, puts a number on the cost of inaction: Aii research cited in the document projects that climate risks could erode fashion brand bottom lines by up to 34% by 2030 and 67% by 2040.

Why are Scope 3 emissions climbing despite brand pledges?

The 7.5% jump tracked by Aii between 2022 and 2023 reflects rising virgin polyester use and overall sales growth, the nonprofit said. The structural problem runs deeper: roughly 80% of a fashion brand's emissions footprint sits in raw materials and manufacturing, while brand-owned operations account for less than 5%.

That ratio explains why corporate pledges have struggled to move the needle. EY, H&M, HSBC and Aii point to three structural frictions:

• Highly fragmented supplier bases selling to multiple buyers and sourcing from their own sub-suppliers
• A "free-rider" effect in which emission reductions financed by one brand get attributed to other buyers
• Conventional climate finance sized for industrial wind or solar projects, not the micro biomass plants or mini storage systems a textile mill might need

How is H&M structuring the decarbonization investment case?

H&M partnered with Aii to standardize data collection, build carbon benchmarks and align internal KPIs with sustainability outcomes. The retailer then introduced unit measurements for carbon intensity, enabling shorter-term performance tracking across projects.

H&M's internal Green Fashion Initiative maps the relative cost of each intervention in USD per ton of CO2-equivalent reduced. That cost-to-return framing, the paper argues, recasts decarbonization from a negative-value compliance cost to a source of long-term enterprise value.

The result: H&M drew up a detailed investment roadmap and secured CFO sign-off on supplier-side mitigation projects that previously lacked a clear business case.

What financing structures can bypass the free-rider problem?

HSBC has helped fashion brands and manufacturers identify common capital expenditure needs in real time and brought in multilateral development banks to derisk joint investments. The approach borrows from blended finance models used in international development, combining public, private and philanthropic capital.

Aii's Deployment Gap Grant, co-created with participating suppliers, offers partial grants for decarbonization projects repayable over four to six years. That structure sidesteps the slow payback of rebates and the short windows of conventional market loans.

What demand-side signals are brands reading?

Consumer research cited in the paper offers commercial cover for the investment pivot:

• 66% of European Gen Z and Millennial shoppers say they consider the planet when updating their wardrobe
• 36% of high-spending, highly engaged luxury buyers globally rank sustainability as a top purchasing consideration

Climate disruption is already hitting upstream yields. Cotton, hemp, flax and jute output could fall by up to 8% between now and 2050 under projected weather patterns. In Mississippi, a 1°C rise in maximum temperature between 1970 and 2020 cut cotton production by 6.1%.

What does the CFO mandate look like?

EY frames the core message in four steps:

• Establish alliances with a third-party bridging organization
• Pursue precompetitive collaboration on shared data, risk diversification and joint delivery
• Bring the CFO into the conversation early to link impact with value creation
• Rethink financing through aggregated vehicles, risk-sharing and sector-specific structures

The white paper credits contributors including Jon Copestake (Global Consumer Senior Analyst, EY), Jan Henry Fosse (Partner, EY-Parthenon), Malin Ahlberg Setterström (Manager, Sustainable Supply Chains, EY) and Gillian Lofts (Global Sustainable Finance Leader, EY).

As fashion leaders convene in the coming months, the paper argues, aligning on shared data standards, scalable financing mechanisms and clear investment frameworks will determine whether supply chain decarbonization moves from cost center to enterprise value driver.