Fashion Industry Faces 67 Percent Profit Cuts by 2040 Without Climate Action

The global fashion industry faces operating margin losses of 3 per cent by 2030 and profit cuts of up to 67 per cent by 2040 if it fails to accelerate climate response, according to a report by the Apparel Impact Institute. Carbon pricing, raw material volatility, and energy costs are identified as the three primary financial risks, with carbon prices projected to rise from an average of $10 to $350 per tonne by 2040.

The report, titled The Cost of Inaction, estimates that carbon costs alone could increase the cost of goods sold in apparel manufacturing by 13 per cent by 2040. Cotton, which accounts for roughly 19 per cent of global fibre production, presents a major vulnerability: by 2040, approximately 50 per cent of cotton-growing regions are expected to face higher temperatures and water scarcity, while 40 per cent may experience shorter growing seasons. In 2022, extreme weather events including heavy rains in India, heatwaves in China, and droughts in the United States caused cotton prices to rise by 30 per cent in a single year.

The fashion industry contributes 2 per cent or more of global carbon emissions, with 99 per cent of brands' emissions classified as Scope 3, primarily from manufacturing, sourcing and garment assembly concentrated in Asia. Much of the industry's carbon footprint stems from Tier 2 production processes such as dyeing and finishing, which often rely on coal-powered energy grids in major sourcing countries. Without investment in renewable energy and efficiency improvements, suppliers may face escalating fuel costs and regulatory penalties that brands will ultimately absorb through their supply chains.

The Apparel Impact Institute report urges business leaders to recognise that early investment in supplier-level decarbonisation — including electrification and renewable energy adoption — can mitigate long-term financial risk more effectively than delayed action. The India connection is direct: India is a major cotton producer and garment manufacturing hub, exposed to both the raw material volatility from climate-stressed cotton yields and the potential cost escalation from future carbon pricing regimes. The report calls on fashion brands to treat climate response as a financial risk management imperative rather than a voluntary sustainability commitment.

Key figure — Carbon price projected to rise from $10 to $350 per tonne by 2040