The decarbonisation of the fashion and luxury industry has evolved from a peripheral concern into a critical business imperative that is set to reshape industry dynamics in the coming decade. According to a recent comprehensive Bain & Company report, while the fashion sector contributes approximately 2% of global carbon emissions, only 11% of the industry’s current market value is on track to meet the 2030 decarbonisation targets. This gap highlights the urgency and complexity of aligning environmental sustainability with commercial viability.
At the heart of effective decarbonisation are strategies that integrate carbon impact reduction with business value creation. Central to this approach is the role of artificial intelligence (AI), which has emerged as a significant accelerator in improving demand forecasting, reducing overproduction, and enhancing inventory management. The report notes that about 60% of fashion brands are already utilising or experimenting with AI-powered sales forecasting tools to more accurately predict consumer demand across different styles, sizes, and geographies. Additionally, around half of these brands leverage AI for more precise stock allocation, helping to minimise waste by better matching supply with actual demand.
AI-driven innovations do not stop at forecasting. Made-to-order and made-to-measure production models, enabled by AI, are being piloted by some brands to drastically cut waste by producing only what is necessary. Furthermore, AI technologies have demonstrated tangible environmental benefits beyond inventory management; for instance, predictive analytics can reduce fabric waste by up to 30%, and AI-assisted processes have contributed to up to a 25% reduction in water usage during textile dyeing. Virtual fitting rooms powered by AI also help reduce the high rate of online returns—estimated at a reduction of 25-30%—which in turn decreases the indirect emissions linked to logistics and packaging.
The initial stages of the fashion supply chain present another critical opportunity for carbon reductions. Bain’s research underlines the significance of influencing supplier behaviour, particularly in adopting lower-emission manufacturing methods alongside the shift to recycled materials. This is where the biggest environmental and business value returns are likely to be found.
Luxury fashion, by contrast, inherently benefits from its business model, which emphasises durability and lower environmental impact per wear. Nonetheless, luxury brands face challenges related to overproduction—a persistent issue despite their high gross margins. Unsold inventory not only eats into profits but also carries a growing environmental and regulatory cost, especially under tightening European legislation. The report stresses that curbing overproduction and scaling resale initiatives are essential levers for luxury brands to meet decarbonisation goals.
Resale, while promising, remains a complex frontier for sustainability. Most secondhand sales happen via third-party platforms, rendering the channel less profitable for original brands and creating a low or even negative return on investment. The environmental benefits of resale only materialise when secondhand sales directly replace new product sales rather than supplement them. The key, therefore, is for brands to develop profitable, brand-owned resale channels that enhance customer lifetime value while driving emissions reductions.
Integral to undergirding resale and circularity efforts are emerging digital tools such as Digital Product Passports (DPPs). These standardised digital records, accessible via QR codes or blockchain technology, provide detailed information about a product’s materials, origin, and lifecycle. Bain and eBay have highlighted that DPPs could potentially double the lifetime value of fashion products by facilitating resale, trade-in, and buyback schemes, and offering consumers greater confidence and ease in purchasing secondhand goods. As regulatory frameworks, especially in the EU, increasingly mandate such digital traceability, these passports will also remove frictions and reduce costs associated with circular fashion models.
Digital authentication technologies are another piece of the puzzle, aimed at combating counterfeiting and building consumer trust in resale products. Cost-effective and scalable authentication platforms, developed through collaborations between brands and marketplaces, are expected to bolster the resale market’s growth and sustainability credentials.
Despite these advances, the industry confronts several challenges. Overproduction remains a deeply entrenched issue, with estimates from 2023 suggesting 2.5 to 5 billion surplus items were produced, equating to $70 to $140 billion in unsold inventory. Tackling this inefficiency requires not only improved AI-driven demand insights but also a cultural and strategic shift within companies to embed decarbonisation as a fundamental business discipline rather than a peripheral initiative. This means integrating sustainability into sourcing, supply chain management, inventory control, and product development in a way that maintains, or even enhances, commercial value.
Matteo Capellini, a partner specialising in Sustainability & Responsibility at Bain, encapsulates the report’s findings: “Secondhand is fundamental to reaching the SBTi near-term target, and digital product passports are a critical element to removing friction and cost to the overall channel. Done right, resale can shift from margin drain to margin growth—and become a credible and scalable decarbonisation tool.”
Ultimately, the path to decarbonising fashion and luxury is multifaceted, demanding immediate action guided by both environmental impact and financial performance. AI stands out as an unexpected but crucial enabler in this transition, helping brands to reduce waste, cut emissions, and build new sustainable business models anchored in circularity. However, the most significant progress will come when sustainability becomes an integral, habitual part of business practice rather than a standalone objective. This systemic change is essential if the fashion industry is to meet its ambitious climate goals and respond to the evolving demands of consumers and regulators alike.
Source: Noah Wire Services
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