Comparing fashion’s emissions to earnings in 5 charts

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How do you increase profits while curbing emissions? That is the crucial question for fashion businesses today, as they grapple with increasingly volatile financial markets on one side and the existential threat of the climate crisis on the other. Bringing these (often contradictory) motives in step is no easy feat, as shown by the lack of reporting overlap. But just how misaligned are they?

That is the question that sustainability advisory firm Swanstant seeks to answer with its inaugural report, which tracks the earnings and emissions of 115 fashion and consumer goods companies over the last decade. Together, they represent over €5 trillion in revenue. Managing director Francois Souchet, former lead of the Ellen MacArthur Foundation’s Make Fashion Circular initiative, plans to turn his analysis into an annual progress report.

The aim is to prompt a more nuanced conversation about the often overlooked relationship between earnings and emissions, and push the fashion industry towards a framework for success that accounts for both, not just one at the expense of the other.

Findings

The report accounts for Scope 1, 2 and 3 emissions. “As much as possible, I used data reported by the companies themselves, data submitted to [environmental disclosure non-profit] CDP, and data that is aligned with the Greenhouse Gas Protocol,” says Souchet. “But not all companies give you that level of transparency, so this comes with the caveat that assumptions can create variations.” In this case, some potential variations include how customers travel into physical stores (which some companies count in their Scope 3 and others don’t) and the use phase (how consumers interact with products after the point of purchase).

There are caveats on the financial side, too. For the indexed growth of revenue and profits, Souchet kept the base currency of each company, but for the absolute emissions charts, he converted everything into euros to make for a smoother comparison. To do this, he used the average transaction rate for the year in question. “In doing so, I introduced a degree of currency risk that also needs to be taken into account,” he explains, pointing to the devaluation of the Japanese yen in 2021/22.

The companies included in the European luxury index are Burberry, Chanel, Ferragamo, Hermès, Kering, LVMH, Moncler, Prada and Richemont. The premium index includes Capri Holdings, Hugo Boss, Levi’s, OTB Group, PVH, Ralph Lauren, SMCP and Tapestry. The mass index is made up of Abercrombie Fitch, American Eagle, Asos, Fast Retailing, Gap, H&M Group, Hanesbrands, Inditex, Kiabi, Next, OVS and Primark. The ultra-fast fashion index solely comprises Shein.

The first chart looks at economic growth in various segments of the fashion industry from 2014 to 2024. The segmentation is based on another project Souchet has been working on with industry associations Paris Good Fashion and Defi Mode, building out bespoke decarbonisation trajectories for each sub-section of the fashion market. The roadmap is split across ultra-fast fashion, sportswear, mass, premium and luxury, to account for the “significant differences in supply chains, business models and materials mix”, he explains.

While the much-debated luxury slowdown of late 2024 rings true, the luxury segment is still the fastest-growing in fashion, having accelerated post-pandemic to almost double that of the premium and mass. On average, luxury’s operating profit margins have also been double the rest of the industry’s since 2014. On the flip side, premium brands appear to be struggling in recent years, despite having regained revenues lost during the pandemic.

The second chart looks at profit margins rather than turnover, which Souchet says is a key difference to how the market currently views financial success. “What allows a company to remain resilient in the face of market fluctuations and withstand crises is profitability,” he explains. “If you start growing your revenues at the expense of profitability, you weaken the company.”

This shift in perspective could help fashion companies tackle the thorny topic of decoupling financial growth from material resource use, he continues. “To improve your profitability, you need to improve your efficiency, which means lowering waste, ensuring your stores don’t cannibalise each other, improving distribution and not relying on discounting so much. You can see in the premium segment especially, that companies relying on discounting and outlet sales to draw customers have relatively flat profit margins. Decisions that put you on that decoupling trajectory will also benefit your bottom line.”

Efficiency is only one part of decarbonisation. Other elements require significant investment along the supply chain, which comes at a cost and doesn’t necessarily have a clear business case in the short term. “But if you have a stronger, more profitable business, investing in improving your supply chain is not as big of an ask,” counters Souchet.

Souchet looks at both emissions intensity and absolute emissions, because the latter (which shows companies’ total emissions rather than the emissions per million euros of revenue) is ultimately the one that counts. “Companies are managing to reduce their emissions intensity quite well, but their absolute emissions are flat,” he explains. Among the fashion companies included here, 53 per cent are reducing their absolute emissions, but Souchet says this is not enough. “Absolute emissions are critical and they need to come down. After all, the earth doesn’t count emissions in the context of revenue.”

The final chart looks to show the true cost of fashion’s emissions and earnings by comparing them to the social cost of carbon, a measure developed by scientists to represent the economic impact of emitting a ton of the gas. “The social cost of carbon is essentially the fair price we should allocate to each ton of carbon emissions, covering all of the externalities those emissions cause and the impacts they have on the planet,” explains Souchet.

While the premium and mass indexes hover just above the social cost of carbon, the luxury index far exceeds it. Data for ultra-fast fashion is not available, because those companies did not really exist — or at least, had not hit their stride — in 2014, so would not be comparable. “For some companies, their profits are too low compared to the amount of carbon they are using, so they need to step up their efforts to get back into the ‘green zone’, from a planetary standpoint.”

The social cost of carbon Souchet references comes from a study published by the US Environmental Protection Agency (EPA) in November 2022, setting it at $190 per ton of CO2e (carbon dioxide equivalent) — once again, there are variations in different models, and the cost will likely go up over time, as the climate impacts accumulate and the crisis deepens. “This is really just an indication,” says Souchet. “It’s a way of illustrating how the bottom line would be affected if companies paid a fair price for their carbon emissions. Would you still be profitable if you paid the true cost?”

It’s a challenging question, and one that the industry is already grappling with. At present, many brands defer to circularity when asked how they plan to extract more value from fewer resources, but recent studies have questioned whether circularity can deliver on this promise, at least to the extent it would need to. Where brands go next is yet to be seen.

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