Dutch investment fund takes up the fight against fast fashion

A growing demand for sustainable fashion prompts brands and retailers to change the way they work. The Good Fashion Fund wants to give manufacturers access to capital and expertise to scale up the new way of making clothes.

Woman working in a garment factory in Bangladesh. The Good Fashion Fund helps manufacturers to scale up energy-efficient and sustainable technologies by providing long-term loans. GFF focuses on small and mid-size factories in India, Bangladesh and Vietnam. Fred Hoogervorst / ANP

New investment deal with H&M supplier

  • With a target size of $60mn, Amsterdam-based Good Fashion Fund provides long-term funding to manufacturers investing in sustainable technology for dyeing, recyclable materials, energy-efficient spinning methods, closed-loop manufacturing and creation of better working conditions and fair jobs.
  • 80% of the fund's investments are earmarked for companies in India, Bangladesh and Vietnam.
  • The fund recently signed its first investment deal with Indian clothes manufacturer Pratibha Syntex, a supplier to C&A, H&M, Patagonia and Zara.

Fast fashion – the constant provision of new styles at very low prices – has become an environmental headache. Huge quantities of water, harmful chemicals and energy are used to produce short-lived garments.

The sector, which already accounts for approximately ten percent of global greenhouse pollution, continues to grow despite rising awareness of the environmental impacts.

The Good Fashion Fund was established in 2019 with the aim to drive sustainable manufacturing practices in Asia.

Last month, the fund signed its first investment deal with Indian manufacturer Pratibha Syntex. The company supplies textiles and garments to popular brands including C&A, H&M, Patagonia and Zara.

Replace old machinery

The $4.5mn long-term loan will enable Pratibha Syntex to replace old machinery with sustainable equipment for their spinning, processing and garmenting divisions.

“[Pratibha Syntex] is a very good partner for us. It is a strong company and they are very committed to sustainable change," said Bernadette Blom of Good Fashion Fund.

"They also have a social focus and take care of their workers. Covid-19 has had a significant effect on the garment industry and not all manufacturers are still strong enough financially.”

The Good Fashion Fund, initiated by Fashion for Good and which is a collaboration between the Laudes Foundation, Hong Kong-based The Mills Fabrica as core investors and impact investment firm Fount, helps manufacturers to scale up energy-efficient and sustainable technologies by providing long-term US dollar-denominated loans. The focus is on small and mid-size factories in India, Bangladesh and Vietnam.

European action plan

Up to 92 million tonnes of waste and 79 trillion litres of water are consumed per year to make garments, according to a study from Aalto University, Finland, and the Swedish Chalmers University of Technology.

The authors argue that “fundamental changes to the fashion business model, including an urgent transition away from 'fast fashion', are needed to improve the long-term sustainability of the fashion supply chain.”

The article, published in Nature Reviews Earth & Environment in 2020, concludes that a system-wide transition is needed immediately to reduce environmental costs of the fashion industry.

To tackle the impact on the environment, the EU adopted a new circular economy action plan in March last year, aimed at stimulating innovation and boosting reuse within the clothing sector.

In February the European Parliament signed a resolution demanding additional measures to achieve a carbon-neutral, environmentally sustainable and fully circular economy by 2050. The resolution includes tighter recycling rules and binding targets for material use and consumption by 2030.

Overproduction a major challenge

Gregory Peters is a professor of environmental systems analysis, technology management and economics at Chalmers University of Technology in Sweden and co-author of the study published in Nature Reviews Earth & Environment. He told Impact Investor that overproduction is one of the most fundamental problems in the fashion industry today.

“The fast fashion industry is a vicious cycle. You start off with relatively inexpensive materials and then you make cheap products that are thrown away. It is striking how the relationship between the amount of produced textiles and the number of people on the planet diverged twenty years ago. I think one of the biggest challenges is to convince people to buy fewer but more robust garments,” he said.

Recycling of mixed materials is laborious and only one percent of fibres from textile waste is being reused, according to Peters. He argued that innovative technologies to separate cotton, nylon and polyester is a “step in the right direction.” But even more important is to move to renewable energy sources throughout the supply chain.

“At the end of the day, you cannot get away from the fact that turning disorganised fibres into cloth requires a lot of energy. To save the climate we need to produce less textiles and swap the energy supply throughout the value chain to renewable power.”

Growing consumer demand for sustainable fashion

Good Fashion Fund director Bernadette Blom said there is a growing demand from consumers and fashion brands for more sustainable materials and less harmful manufacturing practices.

“What is different from other industries is that the brands do not own the factories and therefore cannot take control of the supply chain. To make a change, coordination amongst different stakeholders is needed. This takes time. Also, it is a price-sensitive industry and the margins are slim. Manufacturers often lack technical expertise and long-term capital for investments in new equipment and sustainable technologies,” Blom said.

With a target size of $60mn, the Good Fashion Fund provides long-term funding to help manufacturers invest in safe and recyclable materials, energy-efficient spinning methods, closed-loop manufacturing and create fair jobs.

“Every investment that the Good Fashion Fund does needs to lead to at least 50% reduction in either water use, energy use or materials or chemicals. So that’s a significant reduction,” Blom said.

Companies that lend money from the fund are also obliged to develop an environmental and social action plan together with local partners. At least 80% of investments are earmarked for the focus countries India, Bangladesh and Vietnam, with the additional 20% in other Asian countries.

“A key objective of the fund is to really contribute to the improvement of workers’ health and safety conditions. But also gender equality within the industry. We want to demonstrate that it is possible for manufacturers to become more sustainable by implementing new impact technologies," Blom said.

"We engage directly with brands and investors to share our key learnings and practices to unlock additional funds and replications to scale up the investments.”

A $60m target

The Covid-19 pandemic has been a big challenge for the sustainable fashion fund.

“Some pipeline companies that made it through our internal approvals have experienced financial difficulties and need time to recover. Despite this, we have been able to reach several milestones. Blom said.

“In 2020 we secured a senior loan from a commercial bank in the Netherlands and also contracted our first investment. Everything is moving in the right direction, but it moves at a slower pace.”

The fund's next steps are to conclude more investments and to attract new investors and increase the fund to $60mn. “The industry is looking to become more sustainable, but more capital is needed," Blom noted.

"We have several manufacturing companies in the pipeline, one that is active in recycling, incuding one with wastewater treatment in India. Sustainability is really a global trend in the fashion industry. There is no way back.”