H&M Group & EY: Reframing Supply Chain Decarbonisation

Fashion brands are reframing supply chain decarbonisation as a strategic investment that protects long-term value rather than just an expensive transformation.

Global supply chains are adapting to mounting sustainability pressures, driven by government regulations and consumer demand for environmentally responsible products.

For years, sustainability implementation has been perceived as an expensive transformation rather than a necessity.

However, H&M Group and EY argue that supply chain decarbonisation investments could solidify business value and deliver long-term returns.

Accelerating sustainability investment in fashion

The fashion industry faces significant carbon emissions stemming from its intensive supply chains, making decarbonisation vital. Yet despite widespread acknowledgement that action is required, the sector encounters obstacles including uncertain decarbonisation value, fragmented supply chains and insufficient financing mechanisms.

H&M Group has partnered with EY, incorporating insights from HSBC and the Apparel Impact Institute (AII), on a white paper examining the business rationale for accelerating supply chain decarbonisation.

The white paper, Accelerating Fashion Decarbonisation - An Efficient Approach to Unlocking Corporate Value and Financing the Supply Chain Transition, establishes that industry-wide collaboration is necessary to address fragmented supply chains, alongside reframing decarbonisation's role to connect it with financial value.

"The cost of inaction on climate change is simply too high – for the planet and for our industry," says Adam Karlsson, CFO of H&M Group.

"CFOs have a fiduciary responsibility to safeguard long-term business resilience, not just short-term profitability. This requires a conversation combining cost efficiency and value creation: reducing risk, strengthening resilience and safeguarding long-term corporate value."

The paper positions sustainability as a potential strategic value driver, which could enhance operational resilience, reduce long-term risk exposure and improve financial competitiveness across fashion value chains.

Climate disasters are escalating, causing constant supply chain disruption globally. Since 1980, climate disasters have cost the global economy nearly US$3tn.

"Investing in climate mitigation today can help to reduce long-term costs and business risk," says Clair Smith, Head of Sustainable Trade Solutions at HSBC.

"CFOs can play a critical role by embedding climate risk into capital allocation decisions and championing collaborative financing models."

According to the AII and Fashion For Good (FFG), the total investment required to achieve net zero in fashion by 2050 stands at an estimated US$1.04tn. Encouraging suppliers to invest in decarbonisation can prove challenging, despite energy efficiency measures often offering quick payback periods.

More substantial changes, such as replacing carbon-based energy sources with renewables, present longer payback periods. The report indicates fashion brands must be willing to share financial responsibility by committing to co-finance decarbonisation efforts and reduce supplier burden.

Building industry-wide collaborative frameworks

The fashion industry accounts for from 2% to 8% of global greenhouse gas (GHG) emissions. More than 95% of GHG emissions from leading fashion brands are categorised as Scope 3 – resulting from complex, fragmented and extensive supply chains.

Brands must demonstrate willingness to collaborate closely with one another, alongside organisations including NGOs, governments and financial institutions. Through transparency building, brands could help themselves and others to decarbonise operations and potentially reap benefits.

"Fashion has a unique opportunity to work together to solve these challenges. We are seeing growing momentum for industry-wide collaboration and an openness to explore new financing models that can help accelerate the green transition," says Anna Ryott, Nordic Chief Impact Officer and Partner, Ernst & Young.

"Many industry leaders already recognise that supply chain decarbonisation not only strengthens resilience but also builds long-term confidence. The case studies in this paper show that the foundations are already in place, and the ongoing initiatives signal that this is the time to strive for greater impact and global collaboration."

Unlocking value through collaboration

Fragmented supply chains create increased risk opportunities, including errors, hidden financial costs or missing data. By implementing collaboration across both supply chains and the industry, there could be greater opportunity to unlock value, mitigate risk and develop resilience.

Businesses that collaborate can establish shared infrastructure, standards and financing models required for more resilient supply chains. By pursuing this collectively, they could split costs significantly whilst growing potential for stronger infrastructure.

The white paper demonstrates that whilst challenges remain substantial, the pathway to decarbonisation becomes clearer through coordinated industry action. Financial institutions, brands and suppliers working in partnership can create the momentum needed for meaningful change.

This collaborative approach not only addresses the immediate environmental imperatives but also builds the foundation for a more sustainable and economically viable fashion industry. The time for action is now, with the tools and frameworks increasingly available to support this critical transition.