Fast fashion: investing for positive change

As with any investment, your capital is at risk. Past performance is not a guide to future returns.

Do you own more than the average number of pairs of jeans, and are any of them second-hand?

With everything going on around the world, you may wonder why an asset manager is interested in your jeans.

Firstly, the Positive Change Team recently added a company to the portfolio that is reshaping North America’s thrifting landscape. Secondly, this seemingly trivial question is at the heart of a crucial conversation about the fashion industry’s enormous environmental and social footprint. While companies in the sector producing apparel often bear the brunt of criticism, we, as consumers, play a significant role in shaping the industry’s behaviour and impact. 

The average person in the UK owns seven pairs of jeans. How does your collection measure up? Every pair of jeans in your wardrobe tells a complex story of resource consumption, labour practices, and global supply chains. From the thousands of litres of water used in production to the working conditions of garment workers, our wardrobes and the choices we make are inextricably linked to pressing sustainability and inequality challenges worldwide. However, this connection also presents a powerful opportunity.

The Positive Change Team looks for investment ideas by tapping into uncommon sources of insight, allowing us to identify companies innovating to meaningfully improve the status quo and make attractive investment returns in the process. Investment decision maker Kate Fox’s visit to the 2018 Copenhagen Fashion Summit proved instructive in setting out the challenges, innovations, and potential investment opportunities that can positively impact fashion. 

The fashion industry’s dark side

The fashion industry is worth $2.4tn annually and employs 300 million people to bring us the apparel that we so love and need. However, it is responsible for a staggering 10 per cent of global greenhouse gas emissions – more than all international flights and maritime shipping combined. It consumes 215 trillion litres of water annually, with a single pair of jeans requiring over 3,000 litres (or nearly three years of drinking water for one person) to produce. Worse still, 87 per cent of textiles end up incinerated or in landfills, making it one of the most wasteful industries on the planet.

The rise of fast fashion has only exacerbated these problems. With brands now releasing new outfits weekly in up to 52 "micro-seasons" per year. The pressure to produce cheap, trendy clothing has led to exploitative labour practices and environmental degradation. 

The industry has a huge impact, which, left unchecked, will continue to drive human suffering and environmental degradation. Clothing production has doubled during the last 20 years, driven by growing middle-class populations globally, while the number of times an item of clothing is worn before being discarded has reduced, with some fast fashion items worn as little as seven times before being discarded.

Circularity is trending and can be profitable

This matters because one significant challenge is that we are not keeping clothes as long as we used to, and they more often than not end up in landfills. This needs to be addressed. 

Younger generations, particularly Gen Z and millennials, embrace second-hand clothes shopping as both a sustainable and fashionable choice. In fact, 34 per cent of clothing in UK wardrobes among these groups is second-hand. This shift is driving a booming resale market projected to grow three times faster than the wider apparel market and reach $350bn by 2028. This is a great time to invest in circularity.

Enter Savers Value Village, North America’s largest thrift store chain and a new addition to the Positive Change portfolio. With its innovative business model and loyal customer base– 70 per cent of sales come from its 5 million members– Savers has diverted nearly 1.5 billion kilograms, or about the same weight as ten thousand Boeing 747 aeroplanes, worth of apparel from landfills between 2018 and 2024. Despite its size, it holds just a 2 per cent market share in North America, signalling immense room for growth. 

Conversations with the company ahead of our investment revealed a commitment to keeping apparel out of landfills and ambitious plans to go from 300 stores to 2000 in North America. This is very much the beginning of Savers’ growth journey. It is well-placed to provide a more sustainable alternative to fast fashion by offering access to trendy and good-quality clothing that can be worn for longer. Crucially, it addresses the issue of cost, which is a significant driver of growth in the fast fashion segment.

Transforming manufacturing: the promise of biosolutions

While second-hand clothing addresses waste at the consumer level, innovation at the production stage is equally critical. Traditional textile manufacturing is resource-intensive, relying on harsh chemicals and vast amounts of water and energy. Biosolutions offers an interesting and profitable alternative. Positive Change holding Novonesis is a leader in this field.

Novonesis offers enzyme-based technologies that drastically reduce water and chemical usage in denim and cotton production – between 67 and 90 per cent less water in some cases. Their solutions eliminate harmful chemicals like those used in traditional stone washing while achieving high-quality finishes with lower environmental impact. Not only do these innovations make production more sustainable, but they also improve worker safety by reducing exposure to hazardous substances.

The knock-on effects are significant: better manufacturing processes lead to longer-lasting garments, which align with consumer demand for durability and sustainability. Biosolutions is a fast-growing opportunity. Novonesis currently has a 20 billion Euro market opportunity in this space. In time, biosolutions may eat into the fossil fuel-dependent $1tn specialised chemicals market, led by demand for sustainable approaches and regulatory pressure.

Sparking positive change in fashion 

The challenges facing the fashion industry are daunting but also present a unique opportunity for investors willing to back innovative solutions. From Savers Value Village’s leadership in second-hand retail, to Novonesis’ groundbreaking biosolutions for sustainable manufacturing, there are clear pathways to drive positive change while generating returns. Our focus and thoughtful approach allow us to find the best of these opportunities – those that have the greatest growth potential and present a truly positive impact. 

Whether you own more or less than the UK-average seven pairs of jeans, how you consume fashion and where you invest can make a real difference. The solutions are out there, and the industry is responsive to consumer demands. Join us in our journey as we look for more opportunities to spark positive change in the fashion industry and beyond.

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