Fashion industry embraces finance-led decarbonisation to unlock supply chain value

The fashion sector faces mounting financial and operational risk from climate change, and a new white paper from H&M Group and EY argues that addressing those risks through coordinated, finance-led action can protect corporate value while delivering returns. Titled Accelerating Fashion Decarbonisation – An Efficient Approach to Unlocking Corporate Value and Financing the Supply Chain Transition, the paper is positioned as a practical handbook for finance chiefs seeking to convert net-zero ambitions into investable programmes across often fragmented supply chains. According to H&M Group, the research was developed with input from EY, HSBC and the Apparel Impact Institute and draws on existing initiatives to show how scaled investment can be mobilised.

“The cost of inaction on climate change is simply too high – for the planet and for our industry,” said Adam Karlsson, chief financial officer (CFO) at H&M Group, framing the issue as a fiduciary as well as an ethical imperative. The white paper stresses that CFOs can and should embed climate risk into capital-allocation decisions, treating supply-chain decarbonisation as a core element of risk management and long-term resilience rather than a peripheral sustainability programme. “CFOs have a fiduciary responsibility to safeguard long-term business resilience, not just short-term profitability. As CFOs, our role is not to debate whether sustainability targets should be met, but to ensure how they are delivered. This requires a conversation combining cost efficiency and value creation: reducing risk, strengthening resilience, and safeguarding long-term corporate value,” Karlsson added.

The authors identify three principal obstacles slowing progress: the difficulty of quantifying the corporate value of Scope 3 reductions, the complexity and fragmentation of global apparel supply chains, and a shortage of financing instruments tailored to upstream decarbonisation. To overcome these, the paper recommends three complementary approaches: translating environmental impact into financial metrics that influence investment decisions; coordinating industrywide programmes to aggregate demand and lower transaction costs; and developing new blended and performance-linked finance models to scale capital deployment.

Industry commentators cited in the paper argue that elements of this toolkit already exist and have precedent. Clare Smith, head of sustainable trade solutions at HSBC, said embedding climate considerations into financing decisions can both lower long-term costs and reduce exposure to disruptions. The recent growth of sustainability-linked debt is presented as evidence of market appetite: legal advisers reported last year on H&M’s successful issuance of €500 million sustainability-linked notes, a transaction the advisers say demonstrates how conditional financing can be integrated into mainstream funding strategies.

The white paper also brings practical case material to the fore. H&M Group’s own reporting is used to illustrate impact: preliminary 2025 figures released by the company show a decline of at least 30% in Scope 3 emissions relative to a 2019 baseline, supporting the argument that concerted upstream action can yield measurable results. Independent research cited elsewhere in the dossier highlights the urgency of supply-side shifts: the H&M Foundation’s support for a Circle Economy report emphasises that recycled inputs remain marginal in textiles and that the sector’s heavy reliance on fossil-fuel-based synthetics constrains decarbonisation unless raw-material sourcing and product lifecycles change.

Beyond corporate balance sheets, the paper situates the fashion challenge within broader efforts to accelerate emissions reductions across value chains. According to a joint call from EY and the World Business Council for Sustainable Development, global collaboration and digital tools such as AI will be central to identifying emissions hotspots and prioritising interventions. The white paper’s authors argue that fashion firms can leverage those cross-sector frameworks to harmonise metrics, reduce duplication and create transferable financing templates.

For executives and finance teams in industrial decarbonisation roles, the report offers a sequence of pragmatic steps: align measurement frameworks to make Scope 3 impacts investable; pool demand and standardise contracting to lower costs for suppliers; and design finance structures that link returns to verified emissions reductions. The paper stresses the need for industry-level stewardship: “Fashion brands must be active stewards of their value chains, not just customers of them,” Anna Ryott, Nordic chief impact officer and partner at EY, said, urging companies to move from isolated pilots to coordinated programmes.

The central proposition is that supply-chain decarbonisation is not merely a compliance or reputational exercise but a strategic investment in continuity and competitiveness. According to the white paper, when climate risk is treated as a financial variable and financing is structured to share cost and benefit across the chain, brands can protect margins, reduce long-term exposure to regulatory and physical risks, and unlock new forms of value. The authors hope the framework will prompt CFOs and capital providers to pilot collaborative financing at scale, converting technical feasibility into mainstream capital allocation and, ultimately, measurable emissions reductions across the sector.