Apparel Impact Institute (Aii) published new research, The Cost of Inaction – The Financial Risks of Delaying Decarbonization in the Apparel Industry, a landmark analysis shifting the climate narrative from corporate responsibility to financial necessity. Drawing on strategic insights from ten leading global apparel brands, the report illustrates how climate risks are increasing costs for companies in the fashion industry, with the potential to affect bottom lines by up to 34% in 2030 and up to 67% by 2040.
This report transforms climate risk into financial terms, quantifying the growing financial losses brands will incur unless they act against climate change and its risks.
Drawing on insights from participating brands, the report identifies three primary risks – increasing carbon prices, and higher raw material and energy costs – to quantify how inaction on climate change impacts companies’ operating margins and drives material profit losses.
Encouragingly, the report also finds that early investment, particularly in supplier decarbonization, can unlock business resilience and help brands maintain long-term competitiveness. Key findings from the report include:
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Inaction could reduce the value of the $1.77 trillion fashion industry by 70% by 2040 for a conventional operator under a net-zero scenario.
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Conventional operators that delay the energy transition face higher costs and multiplying exposures, including volatile and rising fossil fuel prices tied to coal reliance and raw material risks.
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Incremental improvements deliver meaningful near-term cost relief, build resilience, and unlock capital for future, larger-scale decarbonization efforts. Examples include enhancing energy efficiency and adopting heat recovery.
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Derisking supply chains and decoupling profitability from climate-volatile inputs helps companies become more resilient and face four to five times less exposure by 2040 across risks.
The Cost of Inaction also identifies investment-ready supplier measures to protect near-term margins including electrification and renewable energy adoption, underscoring the importance of pooling funding and collaborating on investment. The report identifies chief financial officers and finance teams as critical sponsors for mitigating climate risks, outlining how early investment offers a path to financial resilience and long-term competitiveness.
“The fashion industry has long discussed climate risks, but awareness without strong action will not make the industry reach science-based climate targets. This report highlights the financial consequences of that gap. We welcome Aii’s recognition of our financial solutions to accelerate the decarbonization of our supply chain, and we fully support that meaningful change requires collaboration from all relevant actors across the entire supply chain,” said Ulrika Leverenz, Head of H&M Group’s Green Investments.
“Collaborative investment remains a crucial pillar to maintaining business stability in the face of climate change. Mitigating these impacts will take effort from players in the industry ecosystem working together to scale deployment-ready decarbonization strategies while investing in long-term operation stability,” said Lewis Perkins, President & CEO, Aii.
This report outlines what many industries stand to lose if no action is taken – not just the fashion sector. The Cost of Inaction calls upon executives across industries to acknowledge the risks that come with delaying climate mitigation and take action to improve resilience and safeguard business prosperity.
“The Cost of Inaction puts a clear price tag on the risks and losses of a delayed net zero transition, demonstrating the importance of decarbonization for long-term value,” said Kristina Elinder Liljas, Senior Director of Sustainable Finance at Aii. “From boardrooms to CFOs, this report is a call to action to accelerate impact across the entire supply chain through collaboration and co-financing, and leverage resources like Aii’s Fashion Climate Fund.”
The Cost of Inaction report is available for download here. This work builds upon Aii’s report Brand Playbook for Financing Decarbonization, outlining brand-led financial strategies to encourage producers to invest in carbon reduction projects.