Transforming the Textile Industry: Apparel Impact Institute in Conversation

Lewis Perkins:

We need to move away from a materials matrix that looks like 67% fossil fuel-based materials and start accelerating the use of circular materials, materials with recycled content. And so there's going to be a tremendous amount of investment opportunity in collecting and sorting and upcycling textiles and fabrics, to become next generation materials.

Michael Torrance:

Welcome to Sustainability Leaders. I'm Michael Torrance, Chief Sustainability Officer with BMO Financial Group. On this show, we will talk with leading sustainability practitioners from the corporate, investor, academic and NGO communities, to explore how this rapidly evolving field of sustainability is impacting global investment, business practices and our world.

Speaker 3:

The views expressed here are those of the participants and not those of Bank of Montreal, its affiliates or subsidiaries.

Melissa Fifield:

Hi, I'm Melissa Fifield, head of BMO's Climate Institute, and I'm pleased to be joined by Lewis Perkins, president of the Apparel Impact Institute, which I'm also proud to serve on the board of directors of. Welcome Lewis.

Lewis Perkins:

Thanks, Melissa. It's great to be here.

Melissa Fifield:

I was hoping you could start by giving our listeners an overview of the Apparel Impact Institute, why it was established, and really how it came to be.

Lewis Perkins:

Absolutely. I would say Apparel Impact Institute, and you'll hear me refer to it as Aii, for simplicity. We were founded just five years ago, which makes us a relatively new organization within the ecosystem of NGOs, nonprofits, and convening membership associations that are working on sustainability in the textile, apparel and footwear sector. The origin story of why we were founded, several brands recognizing that convening around sustainability and understanding the impact of the environment was the first step, but ultimately there were some key solutions that we could bring to scalability within the supply chain particularly. And what I mean by that is there were a couple projects and programs that had been in pilot phases.

They had really good results in terms of lowering carbon emissions or saving water, organizing chemical management use, but they just weren't necessarily scaling yet. And the industry recognized that since we don't own our supply chain, but we share it with one another, this is a prime opportunity for us to collaborate and to convene together as a sector that would be approaching solutions that we had helped get to scale. And so we were launched as a offshoot of a group of brand retailers that were working under the Sustainable Apparel Coalition, and with that established Aii as an entity that would help get programs to scale.

Melissa Fifield:

That's great. Maybe you can provide a sense of what the scale of the opportunity is when it comes to climate and energy transition specifically.

Lewis Perkins:

Yeah, and I think that's a great question to start with, is what are we talking about in terms of impact? There's several issues related to climate, obviously. One of the things that this industry wanted to take a look at was, what are we talking about in terms of our carbon footprint? And depending on the report that you read and what you're including in your calculations, this sector is anywhere between 2 and 10% of global emissions. Our research is really leaning into what's called Scope 3 emissions, and we estimate that to be hovering around 2%. But when you add in logistics, and you also look at the overlap that we have with food and agriculture, in terms of the growing of things, other industrial applications in terms of fiber inputs, material inputs, chemical inputs, you can certainly see how the total carbon emission impact of this sector could get as high as 10%. So knowing that, this sector then has an opportunity to really step into systematically lowering carbon where the carbon resides in the supply chain.

Speaker 3:

There's an agriculture component, there's an industrial manufacturing component, maybe you can break down the supply chain a little bit to give the audience a sense of what that looks like.

Lewis Perkins:

Yeah, absolutely. When you're looking at the making of apparel across the planet, you're intersecting with land use, you're looking at crops, you're looking at 67% of the materials going into fiber or petroleum based or fossil fuel based materials. So it really is about like, "Hey, this is an important sector because it actually has its fingers in so many of these other areas." So when we talk about what it is we're trying to solve for, we went to what we thought was one of the best partners out there, the World Resource Institute, who had been working on science-based targets for many sectors. And this particular industry had been looked at with the team out of the WRI. So we worked with them on a report called the Carbon Roadmap to Net Zero, and it identified six key areas in which we could lower carbon.

Three of them are on material side, and three of them are on the energy side. So on the material side you have material efficiency, right? If we're putting better materials in that use less inputs. If we're using recycled content materials, if we're paying attention to the efficiency of the materials we're using, we can eliminate the inputs of how much raw material from cotton to polyester we're using, and that's just going to be a lower carbon footprint.

Two, would be better or preferred materials. So materials that are made with regenerative agricultural practices or organic practices, recycled content, I mentioned a minute ago, but that's very true for nylon, polyester. These are materials that are obviously going to use less, but they're also going to use more efficient and better material inputs, thereby generally having a lower carbon footprint. And then the third area in the materials is next generation materials.

There are some really interesting next generation concepts for raw material inputs coming from agricultural waste, like think of pineapple husk or orange peel that could be upcycled into a fiber. If you go to the store and you find your bamboo sheets, that's actually a chemically altered bamboo fiber. So those are the three key areas that we want to accelerate solutions that are ready for scale on the material side. And then on the energy side, which is where the majority of the CO2 emissions is showing up, is the obvious one, which is fossil fuel burning grids, right? So we need to transition to 100% renewable electricity where we're making our clothes around the world, but also a big part of it, in fact, over 50% of it, is coming from onsite thermal heat. So anyone who's paid attention to or has worked in industrial application of materials oftentimes knows that boilers are used, generally fueled by coal onsite, to get temperatures hot enough to process materials to create steam and thermal heat in those industrial processes.

So one of the key areas that we want to address is scaling solutions that might look at electrifying those boilers, using some kind of alternative clean energy source, concentrated solar, or maybe even just innovating or disrupting, looking at waterless dyeing systems or dry processing. In the fashion industry, in apparel, most of those boilers and the thermal heat is being used to dye and finish fabric. And so those are the key areas that we're really focusing on with our work at Aii, is finding solutions that are getting ready to scale and then helping to fund those solutions, which is in our mission statement to identify, fund, scale and measure.

Melissa Fifield:

So you're speaking to a lot of work that requires deep collaboration with a lot of different leaders in the sector. Can you speak to the types of organizations that you partner with? What does the universe of those that you're collaborating with look like?

Lewis Perkins:

We're deeply integrated with other membership associations and NGOs. It's really important that we don't duplicate efforts, that we really look at how Aii can help solve for a unique niche of scaling solutions. So anyone that's out there that we may partner with that's doing early stage development or incubation, acceleration work, like the fashion for Good Center out of Amsterdam, I mentioned the Sustainable Apparel Coalition and their membership association. There's a lot of organizations in that category. So we do work with them. Now, our number one audience is going to be manufacturers. And the way we meet manufacturers and get to collaborate with them is generally through brand retailer relationships. So in the industry, our biggest partners are really coming from some of the world's largest brand retailers along with their shared supply chain. And so that's where we're delivering solutions so that if a brand retailer has established a science-based target and they're trying to achieve that, it's only going to happen if they're also working with their suppliers. And so Aii does that. We sit in the middle between this sort of universe of brand retailers and then a shared supply chain.

Melissa Fifield:

I think, again, a lot of people don't recognize the shared supply chain dimension to this. I'm wondering if maybe you can expand on that and help our audience understand that these are not unique factories by brand or by retailer, that it really is a shared supply chain. Maybe you can speak a little bit to that to give a sense of the dynamics at play.

Lewis Perkins:

So one of the reasons why this work is best done through collaboration and convening, is because most suppliers are making for multiple brand retailers. And a lot of it is coming out of Europe and the U.S. but they may also make for local brands in the area. So if I'm a cut and sew factory that is putting together denim jeans, I probably don't just work for a company, like Levi's, I'm probably making jeans for Levi's and Wrangler and another brand like H&M. So that ultimately if I'm being asked to do something towards environmental improvement or social labor improvement, and I'm being asked to do three slightly different things by three big customers, it could be a problem because there's going to be investment involved.

And so the problem that we're also solving is, for many of these suppliers who are being asked to take on investment, improvement to update equipment, many things they're being asked to do, we want this to be like one industry directive, which by the way, is also going to stabilize a lot of the investment coming from financial institutions who are looking for the same thing, which is longer term stability in the partnerships between the industry and the suppliers. So part of what Aii seeks to do is really help, not only give the same direction to the market on what we're trying to solve for, what those solutions look like, but also to align the debt equity and philanthropic investment community around stabilizing these supply chains.

Melissa Fifield:

That's a great segue to my next question. I'm curious if you can share an example of something that you're particularly proud of in terms of impact that the Apparel Impact Institute has had.

Lewis Perkins:

One of the things that I'm really proud of is the Signature Program that Aii took on from the Natural Resource Defense Council called, Clean By Design. And this is an energy efficiency, water efficiency and chemical management program. And it was developed about 15 years ago, 2008, the lead scientist from the NRDC, Dr. Linda Greer, put together a best practices for wet processing facilities. We call this the Tier 2. This is where we're dyeing and finishing the fabrics where over 50% of the CO2 emissions are coming from. And Linda put together an efficiency program that would be similar to a building efficiency program where you're looking at wrapping pipes, installing meters, replacing light bulbs. And when we approached that program five years ago, the NRDC was ready to let it scale with the industry. And so they gifted it to our organization.

And at that time, we had a couple dozen factories in China, which had taken on the program, which was enough proof points on our part to show that it would lower carbon emissions by 20% on average. It would lower water usage by also 20% on average. And depending on the size of the factory and the volume of production, it would return anywhere between half a million and a million and a half in U.S. dollar equivalent in cost savings on water and energy bills. And so when you look at the number of factories that we've been able to roll that program out to, we've expanded beyond China to Bangladesh, Pakistan, Vietnam, India, South Korea, Italy with luxury brands, and we're even running a program in Southern California and L.A. in the Garment District with support from you all from the bank. So we're really excited about that work as well.

Melissa Fifield:

That's incredible. Aii recently released a report, Taking Stock of Progress Against the Roadmap to Net Zero. I'm hoping you can share with our audience some of the key headlines from that. What does progress look like so far?

Lewis Perkins:

Yeah, I think that's a great point. We went back in with new and improved data sets to look at what are the updates to that report. And what we found was that there were some improved data sets around raw materials that were coming from partnerships with organizations like Textile Exchange. But all in all, what it told us was that it was still pretty significantly on target in terms of where our calculations were for the carbon. What we also recognized that while many brands were getting started in this work, we also knew that we were still way far behind and that our first initial goal as an industry is to lower CO2 emission by half by 2030. So we have got a lot of ways to go on that. So I think just restating those numbers of carbon percentages and putting that back out there was a good way in order to really remind the industry that this work is, while happening there's a tremendous amount more work that we need to do.

The other piece that we identified in that report was the need to deploy sustainable finance. And on the heels of a report that we had written following the roadmap report entitled, Unlocking the $1 Trillion Opportunity to Decarbonize Fashion, we use this opportunity for this new report update to announce that we would be working at Aii to deploy roughly 2 billion in sustainable finance towards the factories that we're working with between now and 2030. And that would be both philanthropic and corporate contribution, which we're calling our Fashion Climate Fund, but that we would also work with banks and other financial institutions and philanthropy to develop blended capital tools or programs by country in order to deploy that other 1.75 billion. So we were excited that we were able to leverage the report to announce that work, and we're already putting some key partnerships with institutions in place towards that progress.

Melissa Fifield:

So it sounds like finance is a key element to some of the solutions when it comes to decarbonization. What do you see as some of the other solutions, or maybe you can expand on the opportunity for finance in particular?

Lewis Perkins:

Absolutely. And again, this is an area that I'm really particularly excited about because I often hear in working in this sector that solutions aren't scalable. You'll hear about some great idea, but oftentimes you'll hear people say, "Well, it's just not scalable." And the reality is it is scalable if we decide to scale it, right? Once the technology has been proven, once we know that it actually does achieve its performance goals in terms of the production of that apparel, but also that it does lower environmental impact, than investing in those solutions to get them to scale. I think a big key area for innovation unlock is going to be related to disrupting coal, getting the use of coal out of the making of fashion products, apparel, textile, and footwear. And there are solutions that are working in other sectors around industrial heat, around thermal heat technologies. We just need to start deploying those solutions in this sector.

And then secondly, around next generation materials, which we need to move away from a materials matrix that looks like 67% fossil fuel-based materials and start accelerating the use of circular materials, materials with recycled content. And so there's going to be a tremendous amount of investment opportunity in collecting and sorting and upcycling, textiles and fabrics, to become next generation materials. And then I would say from the innovation around financial tools, we're going to need to subsidize a lot of this work, and that subsidy is well positioned to come from multiple players. Too often, I think, the lack of scalability was because we were looking at a solution with grant-making dollars or maybe subsidy or a government fund or philanthropy, but once it actually needed to accelerate through traditional financial institutions, it sometimes hit its wall because it didn't make sense in terms of being a viable long-term investment.

What we're now seeing and many of you listening to this may well know, that by subsidizing certain aspects of the financial packages through a blended capital approach, we're actually able to allow different partners to achieve their own investment goals. But we're stacking it, and that's where we're looking at the role of the Development Bank, the philanthropy as a first loss tranche, as well as traditional financial institutions as going in together. And so I think big opportunity exists.

Melissa Fifield:

Well, it sounds like lots of opportunity on the horizon. What's next for the Apparel Impact Institute, Lewis?

Lewis Perkins:

Excellent. So thank you for asking. This is the other thing I'm very excited about. So this year with our Fashion Climate Fund, which the goal of the Fashion Climate Fund is to raise and deploy 250 million in catalytic capital to seed the unlock of debt and equity towards these solutions. And so we're building the fund, our partnerships, and we're growing every day with bringing new partners in. Hopefully we'll have some announcements, but it was launched by H&M Group along with the H&M Foundation, Lululemon, PVH, PVH being Tommy Hilfiger and Calvin Klein's parent company. Target Corporation, and Wendy and Eric Schmidt through the 11th Hour Project. And so we have a really nice mix there of corporate philanthropy, of private family office and family foundation philanthropy, as well as corporate treasury dollars. And so with that, we're then able to bring more partners like financial institutions and other equity investors to the table.

So how are we using the 250 million? This is what I'm excited about. So each year we're going to be building a set of new climate solutions and a portfolio approach. The Climate Solutions Portfolio is designed to build those proven solutions and help get them to scale across all those areas. From the raw materials side and the next gen materials to the renewable electricity projects and pilots, to thermal heat technologies, we now have this catalytic grant making that we can start to put out grants each year to solution providers, to subsidized factories, to programs that are running best practices. And so we put out our first call for proposals in March, and we're soon to announce the top five finalists of that first call. We're going to put a second call out in August, and we're going to do a second round of funding on the second half of the year. So I'm excited about the announcement, and so there's a great opportunity for us to reach outside of this sector to also bring more partnerships in around these core issues.

Melissa Fifield:

It's very exciting and also really incredible what's been built over the past five years and what the potential for scale is. So thanks for sharing.

Lewis Perkins:

I just encourage anyone listening who finds this interesting and would like to be a part of it in any way, to reach out through our various handles or website or LinkedIn directly to me, because as I say all the time, "If you're working in this area in any kind of solution, we need you with us." And so I think it's just a really exciting moment to bring more partners to the table.

Melissa Fifield:

Thanks so much for joining us today, Lewis, really appreciated the conversation.

Lewis Perkins:

It was a lot of fun and a pleasure. Thanks, Melissa.

Michael Torrance:

Thanks for listening to Sustainability Leaders. This podcast is presented by BMO Financial Group. To access all the resources we discussed in today's episode and to see our other podcasts, visit us at bmo.com/sustainabilityleaders. You can listen and subscribe free to our show on Apple Podcasts or your favorite podcast provider, and we'll greatly appreciate a rating and review and any feedback that you might have. Our show and resources are produced with support from BMO's Marketing Team and Puddle Creative. Until next time, I'm Michael Torrance. Have a great week.

Speaker 5:

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