The Textile Strategy introduced in 2022 calls for a shift in how the EU will govern and monitor the textile and fashion industry.

The new sets of regulations will be massive, and time compressed since the industry has been largely governmentally unregulated but self-regulated. In contrast, other industries have gone through incremental regulations for decades.

The governmental and private financial sector has already understood that financial risk and climate risk are linked. For example, look at the insurance sector, where payouts have increased dramatically due to climate change over the last decade with flooding, heat and drought, landslides and other extreme weather phenomena that occur more frequently and for more extended periods.

The financial sector has already started to assess how their capital is distributed, which will make it more expensive and harder for industries and companies to acquire capital if they don't report on their ESG performance according to new reporting regulations (ISSB) and will also decline capital access to companies that do not meet thresholds to ESG.

The link between financial risk and climate risk is something companies and their owners will have to take seriously going forward.

But that is not the full picture.

Germany's new Supply Chain Due Diligence Act (initially called the Supply Chain Act) requires large companies to observe social and environmental standards in their supply chain.

The German government sued IKEA and Amazon for not meeting the act's requirements.

So there are both political and juridical risks that CFOs need to account for able to conduct business in their markets going forward.

The new legislation the EU will implement will impact the fashion and textile industry. Those who fail to comply will see reduced revenues and increased costs to enter the market, and several will likely seize to operate in the European market.

The days of overproduction and mass consumption will be curbed to reduce the industry's negative footprint on people involved in the industry and the environment.

Brands will have to reduce overproduction and ensure that the garments they sell last longer, and they will have to be transparent across their entire value chains.

This is not new, but how shall CFOs steer to mitigate these risks?

The landscape is complex and multifaceted, and there are no «one-stop shopping» solutions, as brands are different.

At Fashion Innovation Center, we work with a vast network of professional organizations to help with answers and solutions that ensure compliance, reduced cost and increased revenues.

We recommend starting with a company assessment and pre-study to determine the status quo and make a roadmap forward to close the gaps in a prioritized manner.

Things that are generic to most brands are setting up the required reporting structure with the required data, and more and more brands are getting to this point.

Reducing overproduction that, today, is at 30-40% is crucial to reducing CO2 emissions. We help brands that struggle to find new reporting and analytics tools as well as new distribution services that help with transparency, tracking and traceability.

Moving production closer to the market and closer in time requires a shift from far east Asia mass production towards on-demand production. We are already working with promising solutions and network partners in Europe and the US.

This shift will reduce overall cost in addition to reduced CO2 emissions, even if item cost increases by 30-40%. 

And CFOs will have to assess the product calculus in new ways, considering that currently, on average, only as little as 25% of the products are sold at budgeted retail price; the rest is discounted and landfilled with no revenue at all.

CFOs should also open their eyes to consider new revenue streams to monetize the garment along its lifespan.

Rentals, Second hand and repairs are just some examples of how the introduction of subscription services can bring more revenues on top product revenues at the checkout.

Assessing the demographics and customer market will, in addition, enable brands to see how content and extended experiences can be made available to their customers, now turned users, when entering the subscription services.

We work with gaming and esports organizations to build content that users find meaningful, and that can be fused with digitalized garments, making the brand more relevant to its core market.

The timeline to being ready to comply with the new legislation is short, and we advise CFOs and business owners to start the process as soon as possible.