Monday, June 17, 2024

Fashion for Good and Spring Lane Capital Unveil Financial Blueprint for a Net-Zero Fashion Industry

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Fashion for Good and Spring Lane Capital have partnered to address the pressing need for capital in scaling sustainable fashion innovations.

In a new report titled “The Great Unlock: Closing the innovation commercialisation gap through project finance solutions” Fashion for Good and Spring Lane aim to educate stakeholders on the role of project finance in advancing eco-friendly technologies in the textile sector.

The report comes as the fashion industry grapples with the urgency to limit global warming to under 1.5°C. To achieve that goal, the report says achieving net-zero emissions by 2050 is non-negotiable. Current solutions are making strides but unlocking next-level advancements in materials, recycling, and processing is crucial for a net-zero future.

filippa k
Sustainable Swedish label Filippa K is first to use a revolutionary textile | Courtesy

But according to Fashion for Good, the road from research and development to market viability is riddled with financial obstacles. Innovators often find themselves cash-strapped when they reach the stage where a concept transforms into its first commercial incarnation, thereby creating a funding vacuum that hinders industry-wide technological adoption.

“Innovation is key for industry transformation and project finance is a critical enabler to bridge the commercialisation funding gap,” Katrin Ley, Managing Director of Fashion for Good, said in a statement. “With this report, we’re excited to share relevant learnings and a call to action: to innovators, brands, financiers, and supply chain partners who all have a role to play to unlock this type of funding.”

To fill this void, project finance has emerged as an indispensable tool. Characterized by risk mitigation and risk allocation, project finance primarily relies on the project’s assets and cash flows as collateral. This structure enables greater borrowing potential, making it a vital resource, especially for those who may not have the required credibility in traditional financing routes.

The report stresses the complexities of scaling innovative technologies and the significant investments required in terms of capital, time, and expertise. Debt financing, constituting half or $200 billion of the required funding, is essential and can be effectively leveraged through project finance. Strong contractual agreements in off-take, feedstock, and Engineering, Procurement, and Construction (EPC) are pivotal for project success.

“Sustainability imperatives have already disrupted the energy and mobility sectors, while at the same time creating enormous opportunity,” said Christian Zabbal, Managing Partner at Spring Lane Capital. “It’s clear to us that the fashion industry is at a similar inflection point. Spring Lane looks forward to providing capital and expertise to help accelerate the ongoing transition in the fashion sector.”

Slow Factory's Open Edu
Photo courtesy Tima Miroshnichenko

This financial mechanism is particularly compelling for new technologies as it facilitates quicker and more effective scaling, allows access to a wider range of debt capital markets, and provides longer repayment periods than conventional corporate finance options.

The key to unlocking these finances, says Fashion for Good and Spring Lane, lies in the hands of various stakeholders including innovators, brands, financiers, and supply chain partners. These parties can contribute by crafting robust capital strategies, signaling demand, allocating capital through joint ventures, and collaborating on investment opportunities that align with risk and return profiles.

“There is a lot of investor interest in new technologies, and scope for project finance as a funding mechanism — especially for proven solutions like ours where market demand is high and the positive environmental impact so clear,” said Petri Alava, CEO, Infinited Fiber Company. “In the last few years, we have signed major offtake agreements with leading brands. Based on those experiences, we see this report as a valuable toolkit to help especially the new innovators prepare for the funding journey that lies ahead.”

Fashion for Good and Spring Lane Capital are already mobilizing these stakeholders with upcoming events. Fashion for Good’s Annual Summit is scheduled for October 19 and 20 in Amsterdam, followed by Spring Lane Capital’s Developer U event on October 24 and 25 in New York.

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