A worker at a RMG factory in Dhaka —FE File Photo Last year's COP marked a significant milestone for the global community. For the first time, all countries acknowledged the need to move away from fossil fuels to meet the goals laid out in the Paris Agreement.
Considering the politics surrounding this particular COP summit, this seemingly small phrase was, in many ways, a remarkable achievement. But it failed to address the elephant in the room - the finance gap.
The funding gap between the Global North and the Global South has always been a contentious topic. Emerging to lower income countries, many of which are already feeling the impacts of climate change on their doorstep and which include Bangladesh, recognise the need to decarbonise. But to do this at the speed and scale to be consistent with the Paris Agreement requires financial support from wealthier nations.
For an industry like apparel, the Global North and South divide couldn't be more pronounced. According to the United Nations Environment Programme, the fashion industry is responsible for 10 per cent of greenhouse gas emissions globally. Many of the world's biggest apparel and footwear brands source from hundreds of factories in countries like Bangladesh, Vietnam, India and Cambodia. In Bangladesh alone, the readymade garment (RMG) and textiles industries are a significant driver of the local economy, employing approximately 4.4 million workers and accounting for nearly 10 per cent of the country's GDP But the sector also accounts for more than a quarter (27 per cent) of the country's industry emissions.
Countless funds, initiatives and pledges have emerged over the last few years to support things like the energy transition and loss and damage for lower-income countries. But it's widely known that the funding available is inadequate and that the finance needs to be a blend of public and private sources
At the same time, as the world moves towards a Paris-aligned pathway, apparel brands are facing enormous pressure from investors and consumers to deploy more sustainable practices in their supply chains. New regulatory frameworks - especifically, the EU's Corporate Sustainability Reporting Directive (CSRD), the EU's Corporate Sustainability Due Diligence Directive, the SB 253 in California and the proposed New York Fashion Sustainability Act - aim to hold companies accountable for environmental and social risks in their supply chain. In some cases, these rules will require companies to report on ESG activities through a standardised framework, with significant financial penalties for non-compliance. For an industry that's been based on self-regulation for the last two decades, this is powerful signalling.
These new frameworks coupled with more frequent extreme weather events, increased biodiversity loss and global energy and supply shortages have completely moved the needle on perceptions about climate change for apparel businesses. Addressing climate change is no longer a 'nice to have'. Climate is now a material risk that brands need to manage and plan for. Research shows that addressing climate risk helps apparel brands to protect production and growth and mitigates the risk of stranded assets. In Bangladesh for example, investment into climate adaptation measures could prevent the loss of $27bn worth of export earnings by 2030. Not to mention, finance could also unlock new innovations and economic opportunities, while at the same time protecting jobs and ensuring a just transition for production regions. Put simply, it makes economic sense for apparel brands to provide financial support to the hubs that they source in.
But on the ground it is a different reality.
Anecdotally, factories in Bangladesh have told us that more brands are demanding things like renewable energy sources and green certifications, in the light of the above. But alarmingly, the financial burden of transitioning is falling onto the factories.
In an industry where factories are already squeezed to achieve tight margins, the cost of transitioning is not insignificant. Smaller factories will struggle to bear these costs and there's a risk that brands could simply source elsewhere instead, leaving those who cannot afford to transition behind. This is the essence of the just transition debate happening globally and it's particularly pertinent in Bangladesh's apparel sector.
Historically, these types of costs are not something that brands pay for, because they are viewed as externalities. In an ideal world, a more equitable system is needed where global brands, who economically benefit from factories supporting them in addressing climate and regulatory risk, share the financial burden and responsibility of deploying more sustainable supply chain practices. But the issue requires a seismic shift in the apparel sector which means addressing fashion's biggest secret - its data problem.
There's currently a lack of accessible, objective, granular data that can provide total supply chain visibility and can be openly challenged. Industry discussions regarding the new regulatory frameworks have only reinforced this further; it's widely known that there is a notable gap between the data being disclosed by brands versus the volume of data required for compliance. And, it is also a key barrier for finance. Data informs every aspect of business decision-making, including investment flows. Fashion's data gap is no doubt a major contributor to the transition finance gap.
Globally, we are at a tipping point. Last year's COP summit and new regulatory initiatives mark a new era of corporate accountability and reiterate the role of global business in tackling climate change. Apparel companies will have no choice but to rely on a range of independent datasets to understand what is really happening in their supply chain. And for some, that may mean discovering some uncomfortable truths during the process. But this data also presents a unique opportunity for businesses to identify, mitigate and remedy risks. A total reset means a more resilient, more sustainable apparel industry, where the benefits are shared by companies, manufacturers and workers. This is what a just transition looks like for fashion.
Professor Matin Saad Abdullah, PhD, Brac University and Technical Lead at Mapped in Bangladesh.
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