Why Green Business Models Matter
by Muchaneta Kapfunde | Nov 22, 2021
Fashion is notorious for its wasteful practices and its struggle to embrace more ethical approaches to doing business. Responsible for around 10 percent of the world’s carbon emissions and nearly 20 percent of the world’s water waste, recent accusations of greenwashing from CMA have turned the conversation around sustainability into a sensitive topic for some fashion brands whose business choices aren’t truly green.
Fashion, Under Pressure
The COP26 international climate talks, also known as the Conference of the Parties to the UN Convention on Climate Change, were held in Glasgow this year. COP famously grabbed headlines when the Paris Agreement was struck in 2015.
Considered to be monumental, the Paris Agreement happened during COP21 and was quite pivotal compared to other agreements that have been described as being painfully unproductive.
Like every other climate focused event, COP26 confirmed the growing consensus that the fashion industry needs to change. The problem is that fashion brands are proving to be slow on the uptake, even though it is easier today than it was yesterday to explore greener business models specifically designed to do less harm.
I understand that taking the first initial step towards a more circular production, consumption and end of life approach is not easy. But the new business models that are emerging are not only transforming the way consumers consume products, they are also making the transition to greener pastures easier for brands. So what are greener business models and why do they matter?
Rethinking Traditional Consumption Models
I know, for a fact, that this has been said more than once before, but I will repeat it; companies need to move beyond the linear business model of “take, make waste”. Operating on the assumption that there will always be an infinite supply of energy, labour and raw materials, the linear business model not only supports shorter life cycles; but most of the materials used are nearly impossible to recover.
We need the penny drop. Fashion brands need to fully understand that it is time to be out with the old, the linear model, and in with the new, greener business models. By adopting a cleaner and greener route, brands are likely to reach the endgame of using less energy, raw materials, and water quicker.
New business models are making a restorative and regenerative future seem possible. The more fashion brands that transition from conventional business models to more socially and environmentally focused business models, the quicker these outdated practices become passe.
To make this happen Kate Osborne, Sustainability and Fashion Expert, explained to Green Story; “To create the resilient businesses we need for tomorrow, Green Business Models and innovation is imperative. These tools afford us a framework with which to rethink business as usual”.
Which brings us to the question, what exactly is a greener business model? Experts identify two different types of processes; incentive model and lifecycle model, frequently called a circular economy model.
Based on the idea that ‘Green Business Models’ offer new and more environmentally friendly ways to conduct business, fashion brands who have transitioned have been able to minimise their strain on natural resources. A technical report, called The Green Business Model Navigator, describes the term ‘Green’ referring to “the improved quality of business activities which deliver products and services with a better economic, environmental, and social value proposition”.
“Normally, a green business model involves one or more of the following elements: recycling of products and materials, sharing economy and substitution of unwanted or toxic substances”, explains Charlotte Merlin, Senior Project Manager at Force Technology
With sustainability as its defining characteristic, greener business models are leveraging technology to strengthen the sustainable transformation of the fashion industry. An alternative to the linear model, they have been designed to divert brands away from fast fashion and offer fashion businesses the opportunity to drive innovation and simultaneously reduce their environmental impact.
Greener Business Models With Market Potential
Although some argue that some greener business models are still at the pioneering stage, it does not necessarily mean that the fashion industry shouldn’t start slowly investing and adopting greener business models. “By virtue, we need to move away from a system that extracts, in raw materials, employment and ethics, to a system that has a value at its core and recognises the importance of all stakeholders equally”, explained Kate Osbourne.
I am sure that those who don’t will struggle to exist in a space that demands transparency and a greener approach to business. So, if you wonder which new business models are challenging the current linear system, here are a few examples.
The upcycling business model. It has been created to encourage businesses to take material waste and repairs, reuses, repurposes, refurbishes or upgrade it into a sellable product. Although still quite a niche model, upcycling startup’s like La Réunion are normalising the idea of bringing new life to already existing fabric by increasing the quality and lifetime of materials.
Another disruptive model is rental and resale. Made famous by a US-based company, Rent the Runway, rental and resale business models are considered the most financially attractive. Catering to a population that loves to shop, research by WRAP found that extending the life of clothing has a significant positive impact on the planet.
“Extending the life of clothes by an extra nine months reduces its carbon, water, and waste footprint by around 20-30% each, and cuts the cost in resources used to supply, launder and dispose of clothing by 20%”, points out the research.
With a direct incentive to move the industry towards circular business models, other companies that have played a crucial role in facilitating the success of the clothing resale and rental business model are Depop and Vestiaire Collective.
‘We can see that this resale is happening, whether or not we are engaged. So we might as well understand it and be part of it,’ commented Annette Tenstam, Strategy Lead Circularity & Environmental Sustainability at Lindex.
On the conversation around rental/resale, Kate Osborne adds: “There are some excellent examples of fashion brands already proving the business case for this. For instance, here in the UK, we see new business models pilot rentals whereby you can rent and hire articles from others in the community as a community. So a whole new sharing economy evolves from the items you already own and your own unique style as a consumer. Additionally, businesses are increasingly waking up to the importance of resale for their brand integrity and visibility”.
Then there is the On-Demand Manufacturing business model. As most of us know, fashion is an industry built around quick turnaround, making this particular business model quite attractive to some.
Tackling unnecessary overproduction by making goods when required, the On-Demand Manufacturing business model has been helping more fashion businesses commit to greener ways of doing business, by making a significant step in producing what is needed when required, reducing inventory and waste across the supply chain.
Lastly, there is the Factory-to-Consumer (F2C) Model. Defined as a commerce transaction between a manufacturer and a consumer, the F2C model is assisting companies scale a more sustainable growth model for the fashion market. It is an approach that embraces the concept of manufacturers selling their products and shipping them straight from their factory to the consumer.
The Value of Piloting and Experimenting
Going green is no longer a niche trend. More fashion brands are starting to pilot and experiment with greener business models that promote sustainability and circularity. A stellar example of a fashion company taking this approach is the European e-commerce platform Zalando.
The Berlin-based company recently announced investing in circular business models to increase company circulation throughout its product lifecycle. On their decision, Laura Coppen, Head of Circularity at Zalando, said in a press statement, “We don’t have all the answers yet, but we’re working with leading innovators in the industry to test and scale new solutions to help us move to a fully cyclical business model.”
Other fashion businesses piloting and experimenting include luxury fashion house Gucci. The Italian label, in June 2020, launched Gucci Off The Grid, a collection created using circular design innovation that championed the regeneration of materials and textiles.
Then there is Tommy Hilfiger. The PVH brand took upcycling to another level when they piloted the Remixed Line. Expanding their business model, the American premium clothing brand introduced an upcycled collection. They wanted to create a range that was made with materials that would have otherwise gone to waste. Offering one of a kind upcycled styles, the collection gives life to damaged materials, by restoring them to their former glory.
Another company also adopting a greener approach to business is the global fashion retailer, the H&M Group. They are currently testing circular models through various initiatives such as COS Resell, a digital space for buying and selling preowned items. “We invest in new business models in which fashion never goes to waste, such as rentals, subscriptions and re-commerce as well as new garment-to-garment recycling technologies”, H&M Group President and CEO Helena Helmersson in an October 2021 interview.
When it comes to high street brands, Zara is one of the frontrunners in experimenting with new business models. Usually quite hush-hush about what they are up to, the Spanish brand has been experimenting with on-demand technology. They hope to find ways that could allow them to make designs in small batches.
Lastly, there is Patagonia. Famous for its eco-friendly approach to fashion, the progressive company has been working tirelessly to close the resource loop through repair and recycling. Promoting anti-consumerism Patagonia’s whole business model and identity revolves around taking an ethical approach to change cultural patterns of consumption.
So although there is a pressing need to transition, we should not ignore the small wins. They are part of the roadmap that could potentially facilitate longer-term potential for change.
The Financial Viability of Greener Business Models
When deciding which greener business model you should adopt, it is crucial to first understand that the perception that brands can either have profits or sustainability is inaccurate.
Research on sustainability and corporate performance by Arabesque and University of Oxford found profit and sustainability to be interrelated. The studies highlighted three essential findings: ‘90% of the cost of capital studies show that sound Environmental, Social and Governance (ESG) standards lower the cost of capital.’ Furthermore, ‘88% of the studies show that solid ESG practices result in better operational performance’ and ‘80% of the studies show that good sustainability practices positively influence stock price performance.’
Supporting this school of thought is a report by Fashion for Good and Accenture Strategy. Exploring the financial viability of circular business models, the report found that new business models designed with an “explicit sustainability focus” have the potential to “fundamentally change the commercial incentives of the fashion industry.”
The report was based on interviews conducted with 15 leading fashion retailers and innovators. It offers a deeper understanding of how greener business models can deliver positive financial performance and competitive advantage through innovation.
Challenges to Greener Business Model Innovation
One of the reasons why fashion companies hesitate to implement greener business models is because the overall process isn’t simple. Challenges and barriers include decision-makers overlooking the environmental impacts of their internal processes, which results in them not putting forward enough capital allocations to support greener initiatives.
Besides the financial team’s unwillingness to allocate sufficient funds for such initiatives, another obstacle is the lack of reliable methods to measure the expenses involved by taking a greener approach. Lastly, it’s worth noting that, although fashion brands attempt to greener their internal processes, some lack comprehensive and integrative strategies.
Moving Towards Better Practices
If you are going to take away anything, let it be this; there might be challenges to adopting greener business models, but the good news is that green technology is growing in the face of increasing concern related to climate change. More and more green tech companies that are in tune with market needs, are making it easier for the fashion industry to overcome its shortcomings when it comes to being more sustainable.
All in all, adopting a greener business model makes excellent business sense and is no longer optional. This is because greener business models are shaping vital parts of the fashion industry’s future, and also consumer preferences have changed. Customers now expect fashion businesses to deliver a more authentic, purpose-driven approach towards sustainability while remaining critical and self-reflective when investing in new, innovative ways to help them meet greener standards and practices.
So as we head towards a future built by a new generation of positive climate business, Kate Osbourne is hopeful that the fashion industry might be able to turn it around.
“There is increasing adoption of B Corporation certifications by big fashion brands. This is especially significant because it rewrites the foundation that a business operates and gives importance to stakeholders at all levels of a business”.
So to those reinventing themselves, you should not be asking, ‘why should we?’, instead you should ask, ‘how do we do it? Doing so will arm you with the kind of knowledge that will help you decide how to shift your business away from the traditional ‘linear’ approach towards a more ‘circular’ model that will benefit your company, the people, and the planet.
About Muchaneta Kapfunde
Muchaneta is the founder of platform, FashNerd.com, a digital news site that focuses on the merger of fashion with technology.
Currently considered one of the leading influencers speaking and writing about the merger of fashion with technology, Muchaneta is also a contributor at Vogue Business and a senior contributor at The Interline.
Additionally, as a fashion innovation consultant, Muchaneta has worked with LVMH Atelier and most recently has taken on the role of Associate Lecturer at London College Fashion at UAL.