ESG in Fashion: Financial Upside, Slowing Momentum, and Rising Climate Risk

ESG strategies can reduce costs and increase revenues in the fashion industry, but companies are paying less attention as they grapple with AI, weak growth, and geopolitical tensions.

Around 70% of the fashion industry’s greenhouse gas emissions could be reduced at low cost, if not with significant financial savings. At the same time, several brands that have invested in circular business models are experiencing double-digit revenue growth. The benefits of sustainability are not only financial but also include labor efficiency, supply chain transparency, and brand strengthening.

Yet, despite these advantages, managers’ attention to these topics continues to decline. Analyses of investor conference calls indicate that references to sustainability have decreased by approximately a third since 2022, as companies focus on more immediate pressures: slowing growth, the adoption of artificial intelligence, and geopolitical volatility. This creates a fundamental disconnect within the boardroom: while sustainability may seem less urgent, its financial importance is growing. This places it at the center of the CFO’s agenda.

This is what emerges from the report Fashion CFO Agenda 2026: Building Financial Resilience Through Sustainability, produced by Boston Consulting Group (BCG) in collaboration with Global Fashion Agenda (GFA) and based on interviews with over 30 CFOs and senior executives and the analysis of more than 150 global fashion brands.

Climate costs on the fashion sector

The study highlights that the effects of climate change are already altering the cost structures of the fashion industry. Extreme weather events and tensions over raw materials have contributed to the increase, in some cases doubling, of the prices of strategic fibers like cotton and wool.

At the same time, the introduction of new environmental regulations risks having a direct impact on companies’ profitability . According to the report, the costs associated with extended producer responsibility in the textile sector could lead to a 1.1% increase in the cost of goods sold (COGS) and a 4% decrease in net profit for a large mass-market fashion manufacturer by 2030.

The importance of the role of the CFO

Given the growing impact that sustainability has on corporate finances, CFOs are set to play an increasingly central role in the ESG transformation of fashion companies.

Interviews reveal, however, that sustainability is not yet fully integrated into business processes and financial KPIs in most fashion companies. Many CFOs consider it “very important” or even “fundamental” to corporate strategy, but few say they have actually incorporated it into decision-making processes . CFOs must therefore begin collaborating closely with corporate sustainability officers (CSOs) to ensure that ESG issues are integrated into corporate financial decisions.

For CFOs, this means including ESG parameters in day-to-day financial control (including reporting, internal KPIs, and performance monitoring), financial planning (such as budgets, forecasts, and procurement spending), and strategic capital allocation (including mergers and acquisitions, innovation funds, and external financing).

Overall, the study identifies four different financial approaches to sustainability , influenced by fashion companies’ level of ESG maturity, strategic ambitions, and the market context. The first model is the “risk mitigator,” which focuses primarily on risk mitigation and regulatory compliance, with a focus on current and future regulations.

The second approach is the “cost optimizer,” which focuses on sustainable investments capable of improving operational efficiency and reducing costs. The third model, called the “commercial driver,” views sustainability as a lever for growth and competitive differentiation. Finally, the fourth approach, the “transformation enabler,” fully integrates sustainability and corporate strategy, viewing ESG as a key element for the organization’s future resilience.

According to the report, the shift from one model to the other involves a progressive broadening of ESG priorities, from interventions focused primarily on internal operations to initiatives with a more external and strategic impact throughout the supply chain. BCG also emphasizes that there is no one-size-fits-all approach: priorities must be defined based on the specific context, from supply chain structure to geographic presence to business model.

Budgets under pressure and more selective investments

The main barrier to sustainable investments, however, remains the pressure on short-term budgets.

In an environment characterized by weak growth, consumer volatility, and geopolitical tensions, many companies are struggling to simultaneously finance all their ESG initiatives. According to the report, this makes a more selective and focused approach inevitable.

“Fashion industry leaders are facing competing pressures, but sustainability is already reshaping the industry’s economics,” said Catharina Martinez-Pardo , managing director and partner at BCG, and co-author of the report. “When budgets are tight, CFOs play a key role in prioritizing investments, championing initiatives that generate financial returns and a positive impact on sustainability.”

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(Featured image by Vitaly Gariev via Unsplash)

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