Article 
The 2025 Sustainable Apparel and Textiles Conference in Amsterdam came to a close with clear calls for scaling funding for supply chain decarbonisation. Conversations considered how the industry might de-risk investments to ensure manufacturers receive fair financing to advance the energy transition.
This remains urgent, but unfinished business as scientists now warn that seven of nine planetary boundaries have been breached. With reports that global GDP could fall by 25% with 2C of warming by 2050, resulting in up to $25tn in economic losses annually due to climate-related impacts, it is evident that the fashion industry will not be immune to such losses.
Inaction costs
The costs of inaction have now been quantified in a new report authored by the Apparel Impact Institute (Aii) and Accenture. The findings outline that by 2030, inaction could erase three percentage points of a company’s operating margin, which could lead to 34% profit loss, increasing to 67% by 2040.
Critically, the authors note that even modest climate shifts can impact raw materials such as cotton, with scenarios of a 3% drop in global cotton production, potentially raising costs of goods sold (COGS) by 1% and erode earnings before interest and taxes (EBIT) margins by up to 0.5 percentage points by 2030.
Calculating the financial material risks builds on the foundational work of the Low Carbon Thermal Energy Roadmap, which quantified the costs of heating in fashion’s supply chains for different technologies such as electric boilers and heat pumps, across different time frames and geographies to ascertain their potential for electrification.
The industry has the information it needs to guide decision-making, including cash flow modelling scenarios to assess different technologies and instruments such as the textile heating electrification tool.
$tn funding gap
To close the funding gap, Aii and Fashion for Good, estimate that $1tn total investment is needed to encourage the shift towards renewable electricity and away from coal, towards alternative fuels. 61% of this is required to implement existing solutions, with the remaining 39% required to further develop, scale and integrate innovative solutions.
Experts have highlighted that financial barriers remain one of the most significant obstacles to textile manufacturers’ decarbonisation. Often, manufacturers in the global south are being asked to decarbonise for northern markets, without appropriate funding support. For many manufacturers, the high cost of electricity compared to fossil fuels, coupled with the upfront investment and installation costs of new equipment, can make electrification feel out of reach.
As highlighted in a recent UNFCCC publication, one manufacturer spent €15m to phase out coal in a single facility, whilst others could be expected to invest upwards of €1m for projects and equipment such as high-capacity biomass and natural gas boilers.
Supplier support?
Despite this, brand investment into supply chain decarbonisation remains limited and opaque. The Stand.earth 2025 Fossil Free Fashion Scorecard discovered that a mere six of 42 brands provided financing for supplier decarbonisation projects. This chimes with findings from Fashion Revolution, which identified that only 6% of 200 companies disclosed how much upfront investment support has been provided to suppliers for activities such as replacing coal-powered boilers with electric boilers or heat pumps.
Brands and retailers must dig deeper into their pockets to address the disconnect between delivering on decarbonisation targets and the capital currently being allocated. Aii sets out clear priorities for the industry’s CFOs, including quantifying exposure, integrating climate risk into capital allocation, establishing shared accountability and financing supplier transitions at scale.
Ultimately, this means looking beyond projects with shorter-term payback periods and recognising the financial materiality of what is at stake. Broader governance mechanisms can help heighten accountability for this too. Few brands disclose internal carbon pricing and only a minority link executive compensation to absolute emissions reductions, as highlighted by recent research. Both areas can be remedied to create internal incentives and alignment.
Regional nuance
Funding the energy transition and decarbonisation of manufacturing operations, particularly in tier 2, where the majority of emissions accrue, is complex. Key garment hubs such as Vietnam, Bangladesh and India differ in grid composition, renewable infrastructure and the policies or incentives available to shift away from fossil fuels.
Electrifying thermal energy often requires higher capital and operational expenditure, while rooftop solar and power purchase agreements (direct or virtual), alongside policies such as net metering or feed-in tariffs, can help to shorten payback periods.
But these mechanisms depend on national regulation, energy infrastructure and access to finance, which vary widely across sourcing markets. H&M Group’s 2024 MoU under Vietnam’s DPPA scheme offers one example of proactive engagement to cultivate conditions for renewable energy uptake.
Funding initiatives must recognise the nuances of geography. For instance, Bangladesh presents different constraints for renewable expansion, such as high import duties on solar infrastructure and land constraints that limit solar installation. This differs from India, which is seen as promising for a low-carbon thermal energy transition due to its growing supply of lower-cost renewable electricity, which creates a stronger foundation for the adoption of electrification technologies like heat pumps, experts have observed.
The route to funding decarbonisation is also a sequencing question. Commentators have noted that while transition fuels such as verified, sustainable biomass may be a valid decarbonisation solution when the hurdles to electrification are too high in the near term, there is the risk that if generated from unsuitable biomass boilers, direct combustion emissions can be slightly higher than coal. This can make it an unviable alternative in the long term and poses infrastructure risks if it locks manufacturers into assets that may not align with long-term net-zero pathways.
Smarter financing
Brands are being urged to move beyond isolated projects towards blended and pooled financing models. Some are already engaging with initiatives such as Aii’s Fashion Climate Fund and the Future Supplier Initiative. Companies are also running in-house programmes, such as H&M Group’s Green Fashion Initiative, which supports investments in solar, electrification of high-energy processes and coal boiler replacement.
Industry groups argue that loan-based financing alone is insufficient. In Fair Share for Just Energy Transition in Bangladesh, Stand.earth calls for collective, grant-based funding mechanisms to avoid placing additional debt burdens on SMEs already operating on thin margins. An over-reliance on loans risks concentrating access to transition finance among larger, more well-capitalised factories.
Aii’s Deployment Gap Grant takes a different tack to loan-based agreements. Having piloted a project in India, it aims to support financing the provision of solutions that are hard to implement and have longer payback periods, such as processing factory retrofits that reduce process demand for energy and electrification projects.
Alongside Oxfam in Bangladesh and the Bangladesh Centre for Workers’ Solidarity, Stand.earth also advocates for nationally administered pooled funds, financed by brands according to market share, to provide grant-based financing for energy transition projects for manufacturers. Similarly, the UNFCCC recommends partnerships between brands, financial institutions and governments to scale newer, higher-cost technologies.
Climate leadership
Fair financing for supply chain decarbonisation is not just about ensuring the right infrastructure and technology upgrades are made within manufacturing operations.
Funding and capital allocation need to consider the systemic social risks that workers face, too. Financing models that fail to account for heat stress adaptation, worker protections, worker insurance and just transition principles risk shifting the cost of transition onto those least able to absorb it.
The industry has access to the technologies; it understands the exposure to the physical and transition risks and now has the financial modelling and pathways to act. What remains unresolved is whether brands are prepared to rewire their financial models, historically built for quarterly reporting, in favour of long-term resilience.
As Lewis Perkins, president of the Apparel Impact Institute, writes: “What’s missing isn’t innovation; it’s aligned capital to pilot where needed, scale what works, and long-term commitments that de-risk investment for suppliers.”
Apparel 
Podcast
