Chief financial officers are faced with the challenge of reframing their sustainability goals to mitigate risks from current and future regulations.
In a study by EY and clothing company H&M which dove deep into how executives must rethink traditional financing models and boost industry-wide collaboration to scale impact, it was found that decarbonisation plays a vital role in risk management.
With recent data showing climate crisis worsening and climate-related risks set to triple by 2050, the fashion industry’s contribution to global greenhouse gas emissions could be anywhere from 3% to 10%.
The EY-H&M research revealed that although the fashion industry’s supply chain produces most of its emissions, it is not likely that traditional financing could lead to sustainable transitions for tens of thousands of small suppliers scattered across the globe.
Moreover, it was found that sustainability and its risks and payoffs are difficult to quantify for CFOs.
To create incentives for decarbonisation, the research recommends that CFOs find a way to capture the reality of sustainability-related risks and benefits in financial terms. According to H&M and EY, the financial issue can be solved by treating sustainability like research and development — another uncertain investment — thus making it “a normal lever for value creation.”
The paper also suggests collaboration on both the investor and supplier end to allow capital to flow and for change in the supply chain to occur on larger scales.
