OECD Forum: The challenges and opportunities of adopting circular business models

As fashion brands face mounting pressure from consumers, legislators, and investors to improve their sustainability credentials, they are increasingly shifting to new circular business models.

These transitions simultaneously bring with them exciting opportunities, as well as new challenges in terms of due diligence as companies build additional relationships across their supply chains with recyclers, sorters, collectors, and other business partners.

That was one of the topics being discussed at the OECD Forum on Due Diligence in the Garment and Footwear Sector, which took place in Paris from February 16 to 17.

Mauro Scalia, the director of sustainable business at Euratex, a body representing European apparel and textile manufacturers, said about 16 pieces of legislation are currently being worked on to improve the textile sector, which he described as both “exciting” and “challenging”.

Only about one percent of the 7.5 million tonnes of textile waste in Europe each year is being recycled, Scalia said. The aim is to recycle 2.5 million fiber-to-fiber tonnes by 2030. “That’s a clear goal we have,” he said, but it requires “a new infrastructure and value chain” which is calculated to require about 150 to 250 additional facilities for collection, sorting, and other processes.

That means the industry is moving towards “uncharted territories”, Scalia said, as the value chain gets bigger and fashion companies begin collaborating with business partners they normally wouldn’t work with, for example ones from the sorting and chemical industries.

Urgent need for training, upskilling

The transition from linear to circular models will bring new challenges, agreed Maria Luisa Martinez Diez, the public affairs director from Global Fashion Agenda. For that reason, she said “there's a need for training and upskilling” to ensure due diligence is met and to minimise the risk of unemployment and exclusion.

This includes training in technical competencies to operate and maintain new equipment, but also includes digital literacy - training workers to use modern, data-driven systems increasingly used in the circular fashion industry, for example when recycling fibers.

Global Fashion Agenda launched the Circular Fashion Partnership in Bangladesh in 2020 to do just that by supporting the development of textile recycling in the country, Diez noted. The partnership now works with 80 manufacturers, nearly 20 recyclers, and 20 global brands. The project will continue through 2025, and has since been expanded to Vietnam and Cambodia.

Tobias Fischer, the development sustainability manager at Swedish fashion giant H&M, also noted the industry faces additional challenges that come with mounting legislation and shifting consumer behaviour towards circular models. “We are seeing a lot of business opportunities, but where there are opportunities, there are also risks,” he said, as companies expand from dealing with due diligence from tier one and two, to beyond.

“It’s mainly a question of reskilling,” he agreed, as companies begin working with new partners in less formal sectors, and noted the importance of addressing human rights in those sectors where it's currently less regulated.

“We have been working together with our foundation on a few projects in India where we are looking into this and how to get the waste pickers into the more formal industry,” he said, adding that it’s a significant process that “will take some time”.

The issue of waste pickers was mentioned a lot during the forum, as it is an area that can be dangerous not only because of the physical nature of the work, but also because the industry can often be infiltrated by criminal gangs, both in Europe and further afield.

Mauro from Euratex noted that the issue of waste handling is going to be part of policymaking at the national level in the EU, and mentioned the importance of EPR schemes, an environmental policy approach in which a producer's responsibility for a product is extended to the post-consumer stage of a product's life cycle.

New opportunities and shifting leverage

While there are undoubtedly challenges faced when bringing in new, often less formalised business partners when entering the circular market, there are also exciting new opportunities.

“There's potential to do things better in a circular economy from a social standpoint,” said Diez from Global Fashion Agenda, such as increasing traceability and ensuring better value distribution with circular business models.

And as linear value chains evolve to more complicated ones where additional technical knowledge is needed, we’re also seeing a shift in leverage between big fashion brands and suppliers, said Scalia from Euratex.

For example, the industry is seeing a growing number of smaller companies who can create innovative new materials or recycle fibers. Bigger fashion brands have taken notice and have even started investing in such companies. One example was in July 2022 when Spanish fashion giant and Zara owner Inditex invested in Circ, a tech company that powers patented textile recycling processes.

“We are seeing fashion brands collaborating with fiber makers in a different way,” Scalia went on to say. “It's stimulating a new type of collaboration because it's not like I'm buying a commodity that I can find everywhere in the world. I need to work with my suppliers; I need to discuss what is technically feasible and how I can help them.”

He continued: “We've seen this a lot: professional brands helping suppliers in expanding their capacity, even obtaining financing for them.”

Scalia summarised circular economies as a space where “profitability and sustainability come together” which was “nowhere on the agenda five or six years ago”, but emphasised ever more regulation will be needed moving forward.

“We are seeing this in Europe, a big laboratory for many experiments, but we see many other regions of the world from Japan to Bangladesh, to India, to South Africa and other regions doing the same,” he concluded. “So I think this is a very exciting opportunity.”