Rethinking business models for a thriving fashion industry
Circular business models for fashion, which are designed to make revenue without making new...
“With our size comes responsibility. The way fashion is consumed and produced today is not sustainable. We have to transform the industry we are in. Our ambition is to transform from a linear model to become circular."
- Pascal Brun, Head of Sustainability at H&M
H&M Group was founded in Sweden in 1947 and is now the world’s second largest fashion company. As well as H&M, the group’s brands also include COS, Monki, Weekday, & Other Stories, H&M Home, ARKET, and Afound.
As of 2020, H&M Group has more than 4,800 physical stores in 75 markets, with online shopping available in 54 countries. The group directly employs over 153,000 people, with over 1.6 million people working within its overall value chain.
H&M Group has recognised that the traditional fashion model of the last few decades is a major component of a wasteful and polluting linear economic system that needs to change. As a major player in the fashion industry, H&M Group can be a leader of this transformation.
In 2016, H&M Group publicly shared its ambition to transform into a circular business and become climate positive by 2040.
H&M Group joined the Ellen MacArthur Foundation as a strategic partner in 2015.
At this time, H&M Group had already established a clothing and textiles collection service in many of its stores. The ongoing collection program accepts products from any brand and in any condition. Currently, around 50-60% of the textiles deposited are reused – either sold via resale partners or given to charity. The majority of items that remain are recycled into lower value material such as insulation or cleaning cloths.
Following H&M Group’s announcement of its and climate positive ambition – with the aim of implementing a circular economy across its entire business – the organisation sought to build on this work by developing a roadmap for a ‘circular ecosystem’. This roadmap contributes to its climate and biodiversity ambitions. H&M Group’s strategy to develop a ‘circular ecosystem’ rests on the following three pillars:
Circular products: Creating products that are made to last, from safe, recycled and more sustainably sourced materials (i.e. either naturally grown, cultivated or created using renewable processes) that can recirculate multiple times.
Circular supply chains: Fuelling systems that recirculate products and support circular production processes and material flows.
Circular customer journeys: Providing accessible ways to experience and engage in circular fashion where products are used more, repaired, reused, and recycled.
For H&M Group to fulfil its circular ambitions, every stage of the life cycle of a garment across all its brands, as well as the operations that support how people access these garments, need to be redesigned.
The list below sets out the different areas and operations that H&M Group is considering, including some circular economy initiatives that are being piloted and rolled out:
Further to these, all of H&M Group’s stores have a circular built environment strategy with an embedded target to reduce CO2 emissions by 56% by 2030, source better materials, and design shop furnishings to be reusable, repairable, or recyclable.
To achieve their circular ambitions, H&M Group needs its vast supply chain, as well as the industry as a whole, to collaborate and innovate towards a circular economy.
A key mechanism for H&M Group to promote and catalyse innovation is the Global Change Award, initiated by the H&M Foundation, which launched in 2015 and has provided significant financial and technical support to over 30 ‘circular fashion’ start-ups. Innovators supported by the award have produced solutions including rental vending machines, dissolvable thread, and new materials from food by-products.
One supply-chain initiative that H&M Group has recently launched goes beyond its own operations. The B2B supply chain service Treadler allows others to access parts of H&M Group’s circular supply-chain, enabling other non-H&M Group brands to overcome initial barriers and accelerate their own circular transformation. In this way, H&M Group is not only aiming to transform its own supply chain, but also to support the positive transformation of the fashion industry as a whole. Such an initiative points to the potential enabling role of large linear incumbents in a future circular fashion industry.
For large well-established companies there can be a significant cost to transforming operations and supply chains from linear to circular.
One mechanism that H&M Group is employing to finance its own transition is raising money through a sustainable-linked bond (SLB). The bond is linked to achieving emissions and material use targets rather than specific use of proceeds.
H&M Group has joined small but fast growing group of corporates such as Burberry, Tesco Plc, Chanel, and PepsiCo who are recognising the key role of innovative financing in scaling up the circular economy.
The most significant benefits of H&M Group working to create a circular economy for fashion will be for the environment. Particularly, mitigating global challenges such as climate change, biodiversity loss, and water insecurity.
The fashion industry as a whole is responsible for 4% of greenhouse gas emissions, which is more than France, Germany, and the UK combined. Cotton, one of fashion’s main materials, uses about 2.5% of all agricultural land and accounts for 16% of all insecticide use, more than any other crop.
There is a similar story with water. The fashion industry consumes 93 billion litres of water each year, which is equivalent to 120,000 litres for every person on the planet. This is in the context of growing water scarcity, where 2 billion people already live in water-stressed areas, a number that is set to rise as droughts and other extreme weather events become more common as a result of climate change.
H&M Group’s market share of the fashion industry is huge. In this context, H&M Group’s work to develop a circular economy and become climate positive could have a significant impact on climate emissions and environmental performance of the industry as a whole. There are already early indications of the group meeting their circular economy ambitions. According to H&M Head of Sustainability Pascal Brun, by March 2021, 65% of materials used for the Group’s assortment was either recycled or sustainably sourced.
For H&M Group’s customers, circular design and repair services will allow clothes to be used more. Business models such as rental or resale, can allow customers choice and variety, at an affordable price. If products, business performance indicators, customer incentives, and supply chains are designed for circular business models that increase clothing use then they can ensure products are kept in use, at their highest value and never become waste.
Through its ambitions to design products for circularity, H&M Group is exploring different models to meet shifting customer behaviours (e.g. environmentally conscious shopping) while delivering on climate, water, waste reduction and social targets. Alongside this, H&M Group is taking part in wider conversations to ensure a just and fair transition towards a circular economy. An example of this is taking part in the Keeping Workers in the Loop project by BSR.
A key step in achieving H&M Group’s circular vision relates to the target of 100% recycled or more sustainably sourced materials by 2030. Furthermore, as the group works towards this, by 2025 it aims to use 30% recycled materials. But what does this look like in reality?
Below are several examples of work that has been carried out in partnership with H&M Group's Circular Innovation Lab.