How adopting circular business models can be hard and how it can be good.
How adopting circular business models can be hard and how it can be good.© Images AGN

As consumers, lawmakers, and investors put more pressure on fashion brands to be more environmentally friendly, more and more of them are switching to new circular business models.

As companies build more relationships across their supply chains with recyclers, sorters, collectors, and other business partners, these changes bring both exciting new opportunities and new challenges in terms of doing the right thing.

At the OECD Forum on Due Diligence in the Garment and Footwear Sector, which took place in Paris from February 16 to 17, this was one of the topics that were talked about.

Mauro Scalia, the director of sustainable business at Euratex, a body representing European apparel and textile manufacturers, said about 16 pieces of legislation are currently being worked on to improve the textile sector, which he described as both “exciting” and “challenging”.

Scalia said that only about 1% of Europe’s 7.5 million tonnes of textile waste is recycled each year. By 2030, the goal is to recycle 2.5 million fiber-to-fiber tonnes. “That is a clear goal,” he said, “but it requires a new infrastructure and value chain.” It is estimated that 150 to 250 more facilities will be needed to collect, sort, and do other things with the waste.

That means the industry is moving towards “uncharted territories”, Scalia said, as the value chain gets bigger and fashion companies begin collaborating with business partners they normally wouldn’t work with, for example ones from the sorting and chemical industries.

Urgent need for training, upskilling

Global Fashion Agenda’s director of public affairs, Maria Luisa Martinez Diez, agreed that the change from linear to circular models will bring new problems. So, she said, “there’s a need for training and upskilling” to make sure due diligence is done and to reduce the risk of unemployment and exclusion.

This includes training in the technical skills needed to operate and maintain new equipment. It also includes training in digital literacy, which teaches workers how to use modern, data-driven systems that are used more and more in the circular fashion industry, like when recycling fibres.

Diez said that in 2020, the Circular Fashion Partnership was started in Bangladesh by the Global Fashion Agenda to do just that. Its goal was to help develop textile recycling in the country. Now, 80 manufacturers, almost 20 recyclers, and 20 global brands all work with the partnership. The project will go on until 2025, and Vietnam and Cambodia have been added to it since then.

Tobias Fischer, who is in charge of sustainable development at the Swedish fashion giant H&M, said that the industry faces more problems because of new laws and changes in consumer behaviour towards circular models. “We see a lot of business opportunities, but where there are opportunities, there are also risks,” he said, as companies move beyond dealing with due diligence for tiers one and two.

“It’s mostly a matter of reskilling,” he agreed, as companies start to work with new partners in less formal sectors. He also pointed out how important it is to deal with human rights in those sectors, where it’s less regulated at the moment.

“We have been working with our foundation on a few projects in India to look into this and figure out how to get the waste pickers into a more formal industry,” he said, adding that it’s a big job that “will take some time.”

During the forum, there was a lot of talk about waste pickers. This is an area that can be dangerous not only because of the physical nature of the work, but also because criminal gangs from all over Europe and the world often work there.

Mauro from Euratex said that the issue of how to deal with waste will be discussed at the national level in the EU. He also talked about how important EPR schemes are, which are an environmental policy approach in which a producer is responsible for a product even after it has been used by a consumer.

New chances and a change in leverage

When entering the circular market, bringing in new, often less formal business partners can be difficult, but it can also lead to exciting new opportunities.

“From a social point of view, there are things that could be done better in a circular economy,” said Diez from Global Fashion Agenda. For example, with circular business models, traceability could be improved and value could be spread more evenly.

Scalia from Euratex said that as linear value chains change into more complicated ones that require more technical knowledge, the power balance between big fashion brands and their suppliers is also changing.

For example, there are more and more small companies in the fashion industry that can make new materials or recycle fibres. Bigger fashion brands have noticed this trend and have even started investing in these small companies. In July 2022, Inditex, the fashion company that owns Zara and is based in Spain, put money into Circ, a tech company that runs patented textile recycling processes.

Scalia went on to say, “We’re seeing fashion brands work with fibre makers in new ways.” “It makes people work together in new ways because I’m not buying something that I can get anywhere in the world. I need to talk with my suppliers about what is technically possible and how I can help them.

He went on, “We’ve seen this a lot: professional brands helping suppliers grow their capacity and even help them get loans.”

Scalia summed up circular economies by saying that they are a place where “profitability and sustainability meet” and that they were “nowhere on the agenda five or six years ago” but will need more and more rules.

“We see this in Europe, which is a big lab where many experiments are done, but we also see it in Japan, Bangladesh, India, South Africa, and other places around the world,” he said. “So I think this is a really great chance.”

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