Private equity firms are increasingly offering sweeteners such as fee discounts to secure backing from deep-pocketed investors, in a sign that the industry is facing its toughest-ever fundraising environment.

Blue-chip firms including CVC Capital Partners, Ardian, TPG and Cinven have all in recent months offered investors either a discount on management fees or other incentives such as larger amounts of so-called co-investment, which enables investors to get a bigger slice of individual deals without paying a fee, according to people familiar with the matter and fund marketing documents. 

Some firms are even offering big backers such as pension plans and sovereign wealth funds a slice of the management fee that usually goes to the fund manager. 

“Almost every firm in our suite of clients is contemplating or has employed some form of incentive for investors to put capital in as quickly as possible and in as large a size as possible,” said Sunaina Sinha, head of private capital at Raymond James. 

The favourable terms being offered to potential backers are a function of an increasingly competitive fundraising market. After years of dashing headlong into private equity, many big investors have been unwilling — or unable — to allocate fresh funds to the asset class because a drought in dealmaking and public market listings makes it tricky to exit existing investments.

In the first half of 2023, firms globally raised $517bn, a 35 per cent fall against the same period a year ago, according to a Bain & Co report released in July. The report found that for every $3 of capital firms are trying to raise, investors only have $1 available to allocate to private equity, the worst imbalance since the global financial crisis. 

The tough fundraising market has seen the pendulum “undoubtedly swinging” towards investors, said Karl Adam, a partner at advisory firm Monument Group. That has enabled them to push for better terms than they would typically secure.

The efforts are largely focused on private equity’s biggest backers like pension plans and sovereign wealth funds who are being offered the chance to cut the overall fees they have to pay to get access to some of the industry’s top-performing funds. 

“You don’t normally get much by way of special deals,” said the head of investor relations at one European private equity firm. “But they typically get linked to size.” 

Ardian, which this year has raised more than $20bn for its flagship secondaries fund, received a $6bn cheque from the Abu Dhabi Investment Authority; this included $4bn to go into the fund and $2bn for co-investment, according to a person familiar with the matter.

Cinven recently hit its €12bn target, boosted by offering new, large investors co-investment, according to people familiar with the matter. The firm is also continuing to raise more money, the people said. 

Ardian and Cinven both declined to comment.

Other tactics firms are using include giving a discount to their largest investors and offering so-called management fee holidays.

For example, CVC offered large investors a management fee discount on its recently closed record-breaking €26bn flagship fund, according to a fund marketing document.

Some investors were able to pay a management fee of 1.375 per cent, less than the 1.5 per cent charged to other investors. To be sure, CVC has previously offered larger investors in previous funds a fee discount although industry insiders say this practice is becoming more common, particularly at funds that are less in demand than CVC.

For investors in the asset class, securing co-investment or fee discounts can help boost overall returns, net of fees, at a time of concern over the impact of rising interest rates on private equity’s ability to outperform cheaper options such as investing in stocks or bonds. Private equity fees are among the highest in the financial services industry. 

Typically, firms charge a 2 per cent management fee and 20 per cent of profits above a performance hurdle.

“It’s going to be harder [for private equity] to produce those returns because you don’t have cheap leverage,” Jon Little, the incoming chair of Local Pensions Partnership Investments, which manages £24bn of local authority pension cash, said. He added the industry’s fee model was “hard to justify”.

The California State Teachers’ Retirement System and California Public Employees’ Retirement System — two of the largest US public sector pension funds — said last month their private equity portfolios delivered negative returns in the most recent financial year, even as public markets surged.

Calpers said its primary initiative to reduce costs was increasing co-investment, without management fees and carry, “alongside our partners in high-conviction opportunities”. The fund added that it expected private equity to outperform public equity markets over a five-year period, and that it remained “committed” to the asset class.

Some private equity firms are having to get even more creative.

To boost the size of a secondaries fund launched last year, US private equity giant TPG struck an unusual deal that gave Canadian pension fund Alberta Investment Management Corporation a share in the fund’s management fee stream in return for a commitment to invest.

Despite the concessions from the private equity industry, investors hoping for an end to the two-and-twenty model are likely to be left disappointed. The current rash of inducements is a way of protecting a fee system that has changed little over the past few decades, according to Gabrielle Joseph, a partner at advisory firm Rede Partners.

“There isn’t so much overt discounting but there is secret discounting” such as fee-free co-investment, Joseph said. “What we haven’t seen is a lot of change in the overall headline fees.”

Many rivals of Apollo Global Management were convinced that its merger with Athene Holding, its retirement annuities affiliate, would prove a strategic blunder.

The risk was that the private equity firm would spoil its high-margin, capital-light business of collecting hefty asset management fees by taking on a heavily regulated, lumbering balance sheet of a life insurance company. 

Yet two years on, Apollo’s stock price is trading at an all-time high as its assets under management have soared to $600bn, an apparent vindication of the single, integrated company.

As it turns out, the Apollo/Athene combination has proved much more deft than it may appear. Using financial engineering, Apollo created an off-balance sheet gizmo based in the welcoming climes of Bermuda. The result is cheaper equity capital that has turbocharged Athene’s asset growth and, in turn, juiced Apollo shareholder returns. 

Competitors in private equity as well as traditional insurers have noticed, replicating their own versions. And, increasingly, regulators and rating agencies are paying attention too. Moody’s wrote in a recent report that “the rising tide of offshore life reinsurance raises [a] yellow caution flag”. 



For its part, Apollo notes that fresh investment in annuities and life insurance had been moribund for years — until it got involved. After creating Athene initially in a one-off 2009 reinsurance trade, Apollo went on to build enough of an annuities machine to take Athene public in 2016. Athene itself was conservatively capitalised with an A credit rating and billions in capital that exceeded regulatory requirements.

Apollo managed its investments well enough that Athene’s book value per share grew annually by an average of 17 per cent. Public shareholders, however, never fully embraced Athene, worried about its complexity and its tricky relationship with Apollo. As a result, its stock price never traded at a high premium to book value. The weak currency then left Athene hamstrung when it came to raising equity capital needed to buy or write more annuities.

As it turned out, Apollo’s longtime backers among sovereign wealth funds in the Middle East and other institutions liked Athene as a concept. But rather than buy Athene stock, Apollo invented in 2019 a so-called “sidecar” vehicle that functioned like a traditional private equity fund, calling capital only as needed, usually when Athene sought a big acquisition. The off-balance sheet fund pledged returns to its backers in the low teens, a cost of capital that was cheaper than what Athene’s then price/earnings ratio on its public stock implied. 

The rub was the sidecar, known as ADIP, was domiciled in Bermuda. That home allowed ADIP’s fund investors to avoid corporate income tax, moderating their return requirements. Bermuda itself is central to Athene’s strategy and its original home before merging with US-based Apollo. Of its $24bn in total equity capital, $18bn is stationed in Bermuda entities.

Most of Athene’s annuity liabilities have migrated to Bermuda itself through reinsurance agreements. Apollo and Athene insist that the Bermuda activities have nothing to do with regulatory arbitrage. Rather, its capital ratios in the island nation are roughly the same as onshore in the US and that, ultimately, Apollo and Athene remain on the hook for customer obligations.

Apollo is also equally clear on the firepower that the billions in ADIP equity capital brings. A $1bn of Athene’s own equity stands up the acquisition and writing of $12bn of annuities. Adding in the sidecar equity as a supplement takes that figure up to $21bn, enough to be worth, all else equal, an incremental 25 per cent boost in fee income and investment earnings. More concretely, Athene forecasts the ADIP sidecar will help take its gross invested portfolio to $385bn by 2026, up from just $67bn a decade before, making it a “game changer” in the words of management.

Athene has just announced a second vintage ADIP vehicle with a $2bn fundraising, an apparent validation of its approach. It is notable that in insurance markets, illiquid and esoteric private capital somehow endures as a more efficient option than public capital.

Athene and Apollo had themselves merged, in large part, to eliminate the inherent principal/agent inefficiencies between an insurer and an affiliated asset manager. The sidecar structure has cleverly solved a cost of capital challenge. But it has also reintroduced this similar tension. With big gains for all sides, everyone is a winner for now. But the relationship is worth monitoring.

sujeet.indap@ft.com

Exchange traded fund industry participants are bracing themselves to take on a costly transfer of risk from US retail brokers, such as Robinhood, when the US unilaterally implements T+1 settlement in May next year.

The move, which will reduce the standard US trade settlement cycle of two business days to just one for all securities (US Treasuries already settle on T+1), would reduce “credit, market and liquidity risks” for market participants, according to the US Securities and Exchange Commission.

But critics said the additional costs this will create for many ETFs, including US ETFs with exposure to overseas markets, will disproportionately be borne by non-US investors because most of the rest of the world will continue to operate on a T+2 basis.

Among those critics is the European Fund and Asset Management Association.

Susan Yavari, senior regulatory policy adviser at Efama, said ETFs were particularly exposed to the coming mismatch because of the way they work and referred to the heavy burden being borne by investors outside the US. Efama’s data suggests 42 per cent of the assets of Ucits equity funds are invested in US equities.

In contrast, just a sixth of the holdings of US equity funds are estimated to be invested overseas.

ETFs rely on a primary market of so-called authorised participants who make their money by looking for arbitrage opportunities between the price of an ETF’s underlying securities and the price of the ETF itself.

Investors in ETFs participate in a secondary market trading of the shares of ETFs that the APs create. When T+1 is implemented, European-listed ETFs, for example, will settle in T+2, but any US-domiciled securities they hold will settle a day earlier.

As Yavari explained, on creation of ETF shares, faced with the coming timing mismatch, the authorised participant will step in and fund the position for a day, passing on the cost to the end investor through wider spreads, or the ETF issuer will rely on an overdraft with a broker to still settle on T+1.

“Either way, the shortage of funding will incur a cost, ultimately borne by the investor,” Yavari said.

The change to shorter settlement has been mooted since the meme stock frenzy in January 2021. Retail brokers scrambled to meet sharply elevated collateral obligations sparking regulatory concerns.

“I understand the rationale for risk reduction and improving margin efficiencies. In the specific case of ETFs, however, I personally don’t believe this will make much difference to overall ETF adoption or liquidity, and the pains may outweigh the benefits for some time,” said Joachim Tigler, who until recently was head of ETF trading at ADG Securities, a specialist ETF market maker.

The pains would also stretch to foreign exchange markets, explained Adam Conn, head of trading at Baillie Gifford.

At present, many managers based outside the US complete trade matching processes and then generate and execute settlement of FX orders on T+1. This process ensures payment can be actually completed by T+2.

To do this, managers tend to use CLS Bank, the primary operator of payment-to-payment platforms.

“The need to execute settlement FX between the close of the North American equity markets [4pm EST] and custodian cut-off times, which can be as early as 4.30pm, dramatically reduces the ability to settle through CLS,” said Conn, adding that this situation was likely to lead to an increase in bilaterally settled trades .

“Trading outside of a payment-versus-payment netting platform carries a greater operating and settlement risk,” Conn added.

On top of the increased trading costs, come operational headaches, the cost of which will also eventually be passed to end investors.

As Yavari explained: “It goes without saying that EU firms will have to extend working hours either through night desks in Europe or expanded operations in US to cater to all the cut-off times happening on T+1.”

For managers based in Asia, trying to settle within US T+1 when they have started their day much earlier — Australia is 14 hours ahead of EST and Hong Kong 12 hours — the challenge might be insurmountable.

“It is likely there will be an increase in failed trades for APAC-based investors transacting in US ETFs following the move to T+1, which is purely a timezone issue,” said Jim Goldie, a regional head of capital markets for ETFs at Invesco.

Goldie played down some of the concerns expressed by his peers. While he agreed that brokers in the EU would have long exposure to an ETF for a day and have to fund that position, or hedge the position to align settlement between primary and secondary market trades, he thought costs would be a “fraction of a basis point per day”, which would be worn by the broker or “baked into the spreads they show investors”.

But he agreed the biggest burden would be felt outside the US. “There is a larger proportion of [European] Ucits AUM invested in US securities, relative to US ETFs tracking international securities,” he said.

For Yavari, the potential fall-out is hard to predict. “There will definitely be an increase in the overall cost of trading for EU funds,” she said. “There may also be an impact on the appeal of US securities, given all the associated issues, from an EU perspective.”

The Investment Association, which represents UK investment managers, said: “The shift to T+1 will see the timelines and ability to settle FX trades become more constrained, particularly for UK and Europe-based firms managing on behalf of investors in the Asia-Pacific region. We are working with our members to explore practical solutions to this challenge.”

A growing number of blue-chip US companies are using environmental and social factors to decide bonuses for top executives, but investors are worried the metrics are being gamed to increase payouts.

Three-quarters of S&P 500 companies have disclosed that environmental, social and governance metrics contributed to executives’ pay, up from two-thirds of companies in 2021, according to data from The Conference Board and Esgauge, an ESG data analytics firm.

Among them are American Express, Dow and Southwest Airlines.

More than half of all S&P 500 companies have diversity and inclusion components in executives’ pay, according to Semler Brossy, a consultancy. Almost half of these businesses included environmental metrics as part of bonuses, up from a quarter of companies in 2020.



Since 2015, pay factors tied to profitability and business matters have declined at more than 13,000 global companies, while environmental and social pay factors have surged, according to ISS ESG, a division of Institutional Shareholder Services.

Now some of these determinants of executive pay are coming under fire from asset managers.

“We are sceptical of ESG metrics being used in compensation,” said Ben Colton, head of stewardship at State Street Global Advisors, which manages $3.79tn. “Oftentimes they are very subjective, fluffy and easily gamed.”

At Southwest, chief executive Robert Jordan’s pay increased 76 per cent to $5.3mn last year even though the airline angered passengers by cancelling more than 16,700 flights during the holiday season.

Southwest, in a regulatory filing earlier this year, said the December cancellations negatively affected executives’ bonuses, but added: “With respect to ESG initiatives, including DEI and sustainability, the [board] determined that the company performed above target-level expectations.” DEI stands for diversity, equity and inclusion.

The pay plans at Southwest have drawn fire from Strive Asset Management, a conservative-leaning firm that has criticised ESG investing principles.

Strive was co-founded by Vivek Ramaswamy, now running as a Republican in the 2024 US presidential primary. In a letter this week to Southwest it said: “There is no easier way to cut the company’s carbon footprint than to ground thousands of flights.”

Southwest did not respond to requests for comment.



Other asset managers support companies including ESG metrics in remuneration. UK-based Legal & General Investment Management has said that beginning in 2025, it wants to see net zero carbon emissions targets linked to long-term executive pay.

“We have taken a stance that ‘employee engagement’ is a poor submetric inside of ESG that some people are using that we think is troubling,” said John Hoeppner, head of US stewardship at LGIM. “We have frankly never seen a company ever score under median for employee engagement. These things can be gamed.”

About 190 executives at S&P 500 companies have an employee engagement pay metric, the Esgauge data shows.

Unlike financial metrics tied to earnings or share price performance, it is almost impossible for outsiders to tell if ESG pay metrics are worthwhile “or merely line CEOs’ pockets with performance-insensitive pay”, two Harvard researchers said in a January 2023 paper.

ESG in pay “enables executives to obtain extra compensation when equity pay is not rewarding”, Lucian Bebchuk, the director of the corporate governance programme at Harvard Law School and co-author of the research, said in an interview. “But they are happy to get extra compensation also when equity pay is rewarding.”

Credit card company American Express paid 15 per cent of executives’ annual bonuses for diversity, talent and culture achievements. But it is unclear how those achievements are met, the Harvard professors said in their research. “It is unclear whether there was a quantitative target or whether any increase (even of only one woman) would suffice.”

Chief executive Stephen Squeri earned the maximum annual bonus allowed by the company for 2022: $10.3mn, which was up from $8mn in 2021. Squeri’s total 2022 pay nearly doubled to $48mn from what he was paid in 2021 even as the company’s total shareholder return declined last year.

American Express declined to comment.



At chemical company Dow, executive pay ESG metrics include a “customer experience index”, which measures prospective customer sentiment, as well as workforce diversity. The diversity factor “does not disclose the relevant starting points at the beginning of the year”, the Harvard professors said in their paper.

ESG metrics comprised 20 per cent of executives’ annual bonuses at Dow. CEO Jim Fitterling earned a $3.5mn annual bonus for 2022, down from $5mn in 2021.

In a statement, Dow said its executive pay programme “is in line with market practice” and that it added “quantifiable ESG metrics” in 2020. The company said its 2022 sustainability report “provides the most recent quantitative and qualitative information supporting performance against our targets”.

Real estate company CBRE disclosed that chief executive Robert Sulentic did not meet the targeted financial objective that accounted for half of his annual bonus last year.

But he overachieved on five strategic goals that included boosting “employee engagement” and improving diversity, CBRE said. Excluding a one-time equity award, Sulentic’s pay increased by one-third to $18.4mn. The company disclosed that its total shareholder return declined last year.

CBRE and did not respond to requests for comment.

When journalist Anne-Marie Schiro reviewed the arrival of Zara International on Manhattan’s Upper East Side in 1989 she used the phrase “fast fashion” to describe its approach. The new shop offered fresh styles that only 15 days earlier had been dreamt up at the company’s headquarters in Spain.

Zara, Schiro wrote, was speaking a language understood by young people on a budget “who nonetheless change their clothes as often as the colour of their lipstick”. Her words were a powerful prophecy of a new era in fashion. By 2012, Zara’s parent company Inditex was churning out 840mn garments a year.

Today, these first-generation fast fashion giants — a wholly European group that includes Sweden’s H&M and Dublin’s discount retailer Primark — have been joined by more affordable, more aggressive “ultra fast” social-media-savvy brands, such as British retailer Boohoo and Chinese behemoth Shein. Collectively, they have supercharged the speed at which clothes are made, consumed and discarded.

This surfeit of cheap, shortlived garments has come at an enormous environmental and social cost, however. The average European throws away 12kg of clothes every year, the European Commission estimates, and the consumption of textiles accounts for “the fourth-highest negative impact on the environment”.



Now, the birthplace of fast fashion is making moves to end it.

With pressure mounting on the EU to meet its climate target of net zero emissions by 2050, Brussels has set out a broad vision to reform the sector.

By 2030, it wants textile products imported into the EU market to be “long-lived and recyclable, to a great extent made of recycled fibres, free of hazardous substances and produced in respect of social rights and the environment”. It is part of what the EU describes as a “circular economy” in which the bloc consumes and discards less overall.

The EU hopes its legislation will encourage policymakers around the world to adopt similar measures and force brands to rethink their business practices with benefits for every market where they sell their clothes.

“Industry was never part of the story and I think that’s the game changer. That . . . will inevitably steer them to think in a more responsible way,” Virginijus Sinkevičius, the EU’s environment commissioner, told the FT last month.

Achieving this, however, involves changes to existing legislation, awareness campaigns and a new proposal to require producers — whether manufacturers, importers or distributors — to pay for the treatment of waste textiles.



But sustainability advocates say the proposals, while a step in the right direction, are too vague and not underpinned by concrete measures. “There are big pronouncements, but the intent of ‘we want to end fast fashion’ is not [yet] translating into law,” says Maxine Bédat, a former lawyer and author of Unraveled: The Life and Death of a Garment.

These intentions are also not yet matched by the required infrastructure. Under new waste and recycling targets for example, member states will be required to collect discarded textiles from 2025. But in many cases the necessary recycling facilities are not widely available to deal with fabrics made up of multiple fibres, such as cotton and polyester. Elastane, which is added to many garments to increase stretchiness, can act as a contaminant during the recycling process and must first be extracted, increasing the cost.

“There seems to be a lot of emphasis on disclosure of information in clothing, and circularity,” adds Bédat, who wants to see a greater focus on tackling emissions. “But we don’t have the technological solutions for this mythical circular world.”

Throwaway culture

The global fashion industry has long been a dirty business.

But it is the rise of ultrafast online retailers that has led to an unprecedented volume of cheap, poor-quality clothes made from virgin polyester and other synthetic fabrics derived from fossil fuels. These items have little to no resale value and end up being incinerated or languishing for hundreds of years in landfills, usually in developing countries.

Global textile production, of which 81 per cent is used by the clothing industry, nearly doubled between 2000 and 2015. Consumption of apparel and footwear is expected to grow another 63 per cent between 2022 and 2030 to 102mn tonnes, predicts the European Environment Agency.

The glut of low-priced clothes has contributed to a culture in which consumers increasingly think of them as disposable. More than half of all fast fashion is discarded in less than a year, according to the Ellen MacArthur Foundation, a non-profit that campaigns against waste and pollution. If the average price on an item sold by Shein is about $7.60, for example, it becomes more convenient for consumers to buy new than to repair existing clothing or buy second-hand.

The fast fashion model has also been accused of contributing to exploitative working conditions in order to maintain the low prices customers expect. The 2013 Rana Plaza tragedy, in which an eight-storey commercial building in Bangladesh collapsed and killed more than 1,100 people, mostly women and children, helped expose the dire circumstances many garment workers face.



Lawmakers pushing for change often cite the incident but the pace of those efforts since has been slow at best. Bédat, the author, says the EU should make it a legal requirement for brands to pay living wages across its supply chain to enable workers and their families to meet their basic needs.

Yet, so far, the fashion industry has been largely left to self-regulate, despite industry groups and designers, such as Stella McCartney and Orsola de Castro calling for greater government intervention. Out of all the EU’s member states only France, Sweden and most recently the Netherlands have implemented schemes to make producers financially responsible for the waste they create.

Another problem with relying on voluntary action, says Valérie Boiten, senior policy officer at the Ellen MacArthur Foundation, is that brands trying to do better are “put at a competitive disadvantage”. “At the end of day, there is a premium to pay for circular design [and other sustainability measures],” she adds.

This will change when EU-wide legislation comes into force in 2030 but Emily Macintosh, senior policy offer for textiles at the European Environment Bureau, argues that the proposed extended producer responsibility (EPR) scheme should not simply “allow producers to pay to pollute for a negligible fee”. She adds: “We can’t just raise money through an EPR system to fund collection, sorting, recycling, circularity . . . in Europe without recognising that a huge amount of our fashion and textile products are exported to the global south.”



On the industry’s side, progress has been slow. Brands including H&M, Zara and Primark have launched in-store clothing “take-back” schemes, inviting customers to drop off worn clothing from any brand in exchange for a discount on a future purchase, which have been widely condemned by sustainability advocates for encouraging further consumption. To date, 369 textile, apparel, footwear and luxury goods companies have voluntarily committed to science-based targets, in line with efforts to keep global warming to 1.5C above pre-industrial levels. Only 170, however, have been approved by the Science-Based Targets initiative, a partnership between the Carbon Disclosure Project, the UN Global Compact, World Resources Institute and the World Wide Fund for Nature.

Greenwashing, whereby brands market themselves as more climate-friendly and sustainable than they really are, is rife. How best to measure how companies’ claims of sustainability is something the EU has tried to tackle in its Green Claims Directive, which was published in March. The aim of the new law is to regulate how businesses verify their environmental claims. Statements that do not meet the minimum criteria set will be banned. The European Commission estimates that substantiating a single claim about materials used could cost around €500, a cost that could rise to €54,000 if businesses wanted to prove statements about their overall environmental footprint depending on the method used.



Separately, the World Resources Institute sets out guidance for companies to measure emissions both from their own production and that of their suppliers but with less focus on waste or consumption. Given the industry involves complex, multinational supply chains, the WRI admits that it is difficult for companies to access the necessary primary data, particularly on the production of upstream materials such as cotton.

Efforts have been made to address the lack of information. The Sustainable Apparel Coalition launched the Higg Index in 2012, a set of standards designed to help companies around the world trace the environmental and social impact of their products. It covers issues from waste and chemical use to human rights and labour practices.

But the index, since rebranded as Worldly, has been criticised by NGOs for being too heavily skewed by industry interests and not robust enough, which it has since pledged to address. Other measures including Life Cycle Assessment and Product Environmental Footprint, both designed to calculate the effects a product has on the environment from creation to disposal, have also been accused of falling short.

“The reason [such methodologies] are falling down is because we are taking materials from nature, from a farm, and putting them in a mix with materials of a very different origin” such as oil-based polyesters, says Dalena White, secretary-general of the International Wool Textile Organisation. “We are making natural fibres much higher in terms of [environmental] footprint because we never measure where the oil comes from.”

Burden of change

In an atmosphere of high inflation and tensions around global trade, many companies fear that the EU’s push for sustainability comes at too high a price.

Part of the issue is the sheer amount of legislation the commission has introduced. Euratex, the European textile industry body, estimates that there are 16 pieces of legislation relevant to textiles currently being worked on, covering everything from sustainable public procurement to chemical use and waste shipment rules.

And that is only in the EU. In the US, fashion trade groups recently endorsed a proposed bill in California, known as SB 253, that requires companies with revenues of more than $1bn to report greenhouse gas emissions across their value chain on an annual basis.

A separate proposal in New York known as The Fashion Act would require all apparel and footwear retailers with global revenue of at least $100mn to set and achieve science-based targets to reduce their climate impacts — or face fines of up to 2 per cent of annual sales.

Some in the industry argue that the EU’s demands are unrealistic. “For what is probably the oldest industry in the world, [the green transition] is a big challenge because we want to change everything in a short period of time and the value chain is not prepared for that,” says Mauro Scalia, Euratex’s director of sustainable businesses.

Scalia argues a better way to promote sustainability would be to mandate that governments have to ensure that they purchase sustainable fabrics for public workers and services, such as towels in hospitals or uniforms for firefighters: “If you start to ask that all of them have some sustainability criteria incorporated then you send a tremendous signal to the market.”

There are others who believe that changing consumer behaviour is the key to pushing the industry towards greater sustainability.

One of the ways this can be done is through so-called ecolabels. Germany’s “Grüner Knopf”, or Green Button, for example, launched in the wake of the Rana Plaza disaster, gives a seal of approval to products that can prove they have robust environmental and social credentials. Yet just over two-fifths of German consumers are familiar with it. Similarly, the Nordic Swan, a voluntary initiative, has been around since 1989.



The EU, which has a similar system for white goods, is working on a revised version for textiles. Brussels also plans to establish a “digital product passport” that will provide consumers with information about how an item can be recycled or repaired. But officials warn that the commission must carefully balance the need to prevent erroneous green claims without confusing consumers with a plethora of labels.

“The problem is we have too many labels,” says one EU official working on consumer legislation, who also complained that half of an online sample of green claims made by businesses did not meet the criteria.

The rise of online shopping also means that measures like these have less impact. Instead, young consumers in particular are bombarded with advertisements and aspirational sponsored content on social media sites such as Instagram and TikTok. Shein, which has 30.1mn followers on Instagram, and Boohoo, which has 12.6mn, both make effective use of so-called influencers to market their clothes.

Shein says its “on-demand, lean production model” is well-aligned with EU efforts to cut waste, adding that it had established a road map that “outlines our commitment to addressing social and environmental challenges by embracing sustainable practices”. Boohoo did not respond to requests for comment.

But those who represent consumers say that the responsibility of building a cleaner industry cannot hinge solely on people changing their lifestyles. Monique Goyens, director-general of BEUC, the European consumer association, believes that addressing the huge damage that the textile industry causes to the planet means moving away entirely from a growth economy that requires people “to go on buying things with money they don’t have for things they don’t necessarily need”.

“Circularity doesn’t mean it is not capitalistic. You can create new companies and new wealth [without exhausting] the raw material,” she says, adding that there is a business “opportunity for people who are creative and innovative”.

But until the industry is forced to change, a majority of the world’s clothing will continue to simply be thrown away. Campaigners are resolute that if Europe is serious about wanting to clean up fast fashion it must legally require companies to set and meet science-based targets. “The methodology for [making the fashion industry sustainable] is already there,” Bédat says. “If that’s what the EU wants to achieve, that’s what the law should be.”