Why Supply Chain Decarbonisation is a Strategic Value Driver

Global supply chains are under immense pressure. As governments tighten green regulations and consumer demand for eco-friendly products intensifies, the need for adaptation is no longer optional.

Historically, sustainability initiatives were often pigeonholed as expensive add-ons, a "nice to have" strategy that drained budgets rather than boosting them. However, a shift in perspective is underway.

H&M Group and EY now contend that investing in the decarbonisation of supply chains is not merely a cost but a solidifier of business value. They argue that while the initial outlay may be significant, the long-term results prove that short-term costs are a worthy investment.

Decarbonising supply chains

The fashion sector is a heavy emitter, with intensive supply chains contributing significantly to global carbon footprints. The urgency to decarbonise is clear, yet the industry faces substantial hurdles. Fragmented supply networks, a lack of appropriate financing tools and uncertainty regarding the tangible value of decarbonisation have all slowed progress.

To address this, H&M Group has partnered with EY to produce a whitepaper, incorporating insights from the Apparel Impact Institute (Aii) and HSBC. The report explores the business case for accelerating the transition to low-carbon supply chains. It posits that sustainability is a critical component of risk management and essential for safeguarding long-term value.

Titled Accelerating Fashion Decarbonisation – An Efficient Approach to Unlocking Corporate Value and Financing the Supply Chain Transition, the paper concludes that industry-wide collaboration is the key to overcoming supply chain fragmentation. It also calls for a reframing of decarbonisation, linking it directly to financial performance. By pooling supplier projects into sector-specific models, capital can be co-invested at a scale that unlocks real value.

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

"CFOs have a fiduciary responsibility to safeguard long-term business resilience, not just short-term profitability. As CFOs, our role is not to debate whether sustainability targets should be met, but to ensure how they are delivered. This requires a conversation combining cost efficiency and value creation: reducing risk, strengthening resilience, and safeguarding long-term corporate value."

Adam emphasises that this approach is vital for future resilience.

The financial burden

The whitepaper offers a roadmap for scaling sustainability investment. It aims to demonstrate how fashion brands can derive corporate value from decarbonisation efforts. The argument is straightforward: sustainability drives strategic value by enhancing operational resilience, mitigating long-term risk and boosting financial competitiveness.

With global temperatures rising, reducing greenhouse gas (GHG) emissions is critical. Climate-related disasters are becoming more frequent, causing widespread disruption to supply chains. Since 1980, these 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."

Clair notes that the most significant shifts in sustainable finance are currently driven by electrification and renewable energy adoption. Estimates from the Aii and Fashion For Good (FFG) suggest that reaching net zero in fashion by 2050 will require a total investment of US$1.04tn. Persuading suppliers to invest is challenging, even though energy efficiency measures often offer quick returns.

More substantial changes, such as switching from carbon-based energy to renewables, often have longer payback periods. The report suggests that brands must share this financial burden by co-financing decarbonisation efforts to support their suppliers.

Closer collaboration

Fashion accounts for between 2% and 8% of global GHG emissions and contributes to issues ranging from water consumption to microplastic pollution. Over 95% of emissions from major brands fall under Scope 3, stemming from complex and lengthy supply chains.

To tackle this, brands must collaborate closely with peers, NGOs, governments and financial institutions. Transparency and dialogue are essential for decarbonising operations effectively.

By working together, businesses can build shared infrastructure and standards. This collaborative approach splits costs and strengthens the potential for robust infrastructure development.

"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," adds Anna Ryott, Nordic Chief Impact Officer and Partner, EY.

"Many industry leaders already recognise that supply-chain decarbonisation not only strengthens resilience but also builds long-term confidence, and they understand that this is the moment to act. 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.

Fashion brands must be active stewards of their value chains, not just customers of them."

Anna points out that fragmented supply chains increase the risk of errors and hidden costs. Through industry-wide collaboration, companies can unlock value, reduce risk and build lasting resilience.