Portfolio transformation, green business building, green premiums and green operations focused on circularity can help European consumer goods firms shift to circular value pools of over €500 billion of annual revenues by 2030, estimates McKinsey. In the fashion industry, about 63 per cent of emissions reduction potential lies in more efficient, cleaner energy, it says.

Another 37 per cent of reductions in the fashion sector require alternative approaches.

Extended product life cycles, changes in consumer behavior, circular business models, reduced overproduction, increased use of recycled materials, and other measures in line with circular-economy principles could contribute up to 654 million metric tonnes of fashion industry emissions abatement by 2030, which would close the emissions reduction gap, McKinsey says in one of its insight reports.

In addition to the shift in consumer demand, factors such as regulation, technological progress, infrastructure, supply-side activity, and the macroeconomic environment will drive growth in demand for circular consumer goods, it says.

Governments in Europe are pushing hard by adopting initiatives like the European Green Deal and Circular Economy Action Plan (CEAP), pledging billions of euros to net-zero enablers over the next ten years.

One of CEAP’s key components is a proposal for eco-design focusing on product durability, reusability, upgradability and a ‘right to repair’, as well as recycled content, remanufacturing, and high-quality recycling.

The EU Commission’s recently published proposal for sustainable and circular textiles aims to put an end to misleading green claims. Meanwhile, several European nations have started implementing extended producer responsibility.

These kinds of initiatives present significant financial carrots to companies seeking to transition to circular business models, says McKinsey.

Companies that relax their defensive postures and aim to create strategies that promote sustainability could experience a rise in innovation activity, it notes. This could drive adoption and, in turn, motivate investment.

There could also be a greater demand for solutions to support product resale, refurbishment, and recycling, with a particular focus on scalable material collection and take-back programmes, reverse logistics and automated material sorting and processing for recycling, says McKinsey.

In general, the proportion of circular consumer goods could rise from today’s 10 per cent to about 25 to 35 per cent by 2030, McKinsey analysis shows. This could result in a €400 billion to €650 billion annual opportunity for European companies.

The resale and rental-product segment is expected to see growth in the more modest 5 to 10 per cent range, reflecting the segment’s maturity. However, it will still represent 7 to 10 per cent of the total consumer goods market by the end of the decade, McKinsey says.

In the fast moving consumer goods sector, recycled and sustainably produced products are expected to see 15 to 25 per cent annual growth (CAGR) until 2030, leading to an €85 billion to €140 billion opportunity. Recycling in fashion, meanwhile, is likely to see 15 to 30 per cent annual growth, generating €45 billion to €110 billion of annual value, the McKinsey report says.

McKinsey analysis indicates that the main driver of the €115-200 billion fashion and luxury market for circular fashion and luxury in 2030 will be an up to ten-fold increase in recycled, sustainably produced products, which will contain a high share of recycled synthetic fibres or alternatives such as recycled natural or man-made cellulose fibres.

Leading players will leverage technological advancements such as chemical recycling to boost the availability and quality of recycled fibres. Used products will likely expand two- to threefold, driven by online platforms, with the majority coming from resale models.

Digital attackers, incumbent fashion retailers and leading brands will all have opportunities. McKinsey expects growth in the refurbished segment to mainly come from premium and luxury products, where product quality and originality are particularly important to consumers.

The €35-45 billion market for circular home and living in 2030 will be driven primarily by sustainably produced furniture using wood certified by the Forest Stewardship Council (FSC) and homeware containing a high share of recycled synthetic fibres or alternatives.

The €30-50 billion market for circular sports in 2030 will be driven by recycled, sustainably produced apparel and footwear products. The refurbished, resale and rental segments will see strong growth from sports equipment and accessories.

In addition to circular products, circular services will be a significant growth area. Maintenance and repair services, such as fashion mending, will see significant jumps in demand.

The insight report was authored by Sebastian Gatzer, a partner in McKinsey’s Cologne office; Daniel Roos, an associate partner in the same office; and Stefan Helmcke, a senior partner in the Vienna office.

By Fibre2Fashion 
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