What is in store for 2024
Between predictions and resolutions, using my crystal ball with a twist.
Looking at the year ahead does not have to only be trying to predicts the trends and events that will impact us. It can also be an exercise in focus and prioritisation. By evaluating what should be our priorities for the upcoming year, we can approach it in a more deliberate way. And by understanding the potential impacts of the geopolitical and economic environment, we can be more prepared and more realistic about our expectations.
With that in mind, I reached out to Pascal Brun, VP of Sustainability and DE&I at Zalando; a policy expert; Ursula Finsterwald, Head Group Sustainability Management at LGT Private Banking; Edwin Keh, CEO of HKRITA; Isabelle Lefort, co-founder of Paris Good Fashion; and Pierre-François Le Louët, President of NellyRodi, to ask them the following questions:
If something were to happen in 2024 that would change everything, what would it be?
What do we need to work on over the coming year? What changes do we need to focus on?
What are the challenges of sustainable transformation that you foresee for the coming year and that we will have to manage?
Their clairvoyant answers helped identified three priority agendas for 2024: the balancing act of policymakers, the complexity of internal engagement, and crossing the innovation chasm.
Please note that the below is informed by the responses of the consulted expert but does not represent their opinion.
The balancing act of policymakers
Trend
Regulators are shifting their focus away from policy formulation towards pragmatic steps that can support the green transition. As this happens, they are increasingly relying on sticks to level the playing field and correct for market dysfunctions.
For example, to tackle the negative environmental and social impacts of ultra-fast fashion, the EU announced that it is moving towards ‘ending fast fashion’ and, in the US, the states of New York and Washington are developing bills to regulate it.
Concerns around the impact of imports from deregulated countries on the competitiveness of local companies, that have to comply with more stringent regulations and are also taking proactive steps to minimise their negative environmental and social impacts, could accelerate this regulatory trend. The development of the EU’s Carbon Border Adjustment Mechanism (CBAM) is an example of policies that aim at levelling the global playing field.
Risk
The rise of populists across the globe, and the potential for them to hold a majority in both Washington and Brussels is threatening progress on the green policy agenda. This is partly fuelled by a proportion of the population feeling disconnected and disengaged from the climate conversations, viewing sustainability as restrictive and potentially a threat to their livelihood or lifestyles.
Opportunities
Developing policies that demonstrate how the green transition can contribute to local economic development and job creation can help weather a populist wave. For example, one of the biggest protection against the dismantling of the IRA (Inflation Reduction Act) is the jobs and funding it contributed to red states in the US. Similarly, we might see the development of a European IRA that will aim to reaffirm the economic rational of the circular economy, by boosting competitiveness and economic resilience while lowering resource consumption.
Border adjusting measures like the EU’s CBAM are not enough to level the global playing field. Alignment on key issues like CO2 pricing and Extended Producer Responsibility between the largest markets, including the EU, the US and China, would create a shared sense of direction that would accelerate global decarbonisation.
Navigating the complexity of internal engagement
Trend
To deliver against their ambitions, companies are working to engage their entire workforce. This starts at board level, who are increasingly pressured to develop visions and strategies that combine positive environmental and social impact with business performance. This informs how they can better allocate resource to support competitive decarbonisation.
The increasingly practical understanding of the implication of the green transition and the growing maturity of ClimateTechs are positive contributors in the development of those strategies and help better understand the scale of investments that will be required.
Boards’ willingness to explore alternative business models to navigate turbulent times will grow, as the increasing number of companies venturing into circular business models or decarbonisation projects is derisking what remains a fairly uncharted path.
Risks
The current economic environment is shifting the focus of boards on short-term issues, and favouring more conservative decisions. Despite the growing number of companies paving the sustainable path, it remains less traveled than the traditional one. In addition, the anti-ESG backlash from US conservatives could contaminate European politics, forcing companies to tread more carefully on the topic.
Consumer disengagement and distrust of sustainability claims makes it harder for companies to bring them onboard their transition and secure their support and interest.
Opportunities
Investor stewardship combined with policy pressure can stimulate boards to redefine what constitute business success while increasing their confidence to invest more quickly in the transformation of their businesses.
To guide teams in delivering those visions, companies will develop clear action plans with operational details and associated KPIs or OKRs. Incentives will be shifted to align with those targets. Linking executive compensation to ESG performance is normalising and the practice could be generalised to employees from across the organisation in the most progressive companies.
The complexities of implementation will drive the need for actual collective action to derisk investments and deployment of solutions. I call it collective derisking. The Fashion Climate Fund led by the Apparel Impact Institute is a good example of it. Companies will move beyond the appeal of announcement effects to realise that being first or being alone comes with significant competitive disadvantages and favour collective action to drive meaningful progress.
The combination of the above will reinforce the confidence from customers that companies can be forces for good. In addition, broadly engaging across companies will unlock new approaches and solutions that will show customers that being more virtuous can be joyful.
Crossing the innovation chasm
Trend
The acceleration in the development of climate technologies over the past 6 to 8 years is accelerating the decarbonisation of industries or at least fostering hopes and opening new decarbonisation pathways. However there is a significant gap between the multiplicity of competing early stage solutions where financing is relatively available, and the limited number of solutions that available at scale. This is partly due to a combination of long development timelines, a reluctance in picking winners at least in the fashion industry, and the limited availability of growth capital.
It is also increasingly clear that cleaning supply chains is not enough. Decoupling economic development from production and material extraction is gaining traction across industry and policy, as we are moving from the decade of decarbonisation to the decade of dematerialisation.
Risk
Two major factors seem at play. First, the economic tightening and cost of capital in western economies is reducing the appeal of long term, capital intensive, high risk bets. In addition, the variability of the performance of renewables projects is creating risk aversion around climate techs in parts of the finance industry.
Opportunities
As mentioned above, collective derisking can support the scaling of climate technologies, by combining the buying power of industry leaders. Companies will increasingly realise that they have to move from placing small bets on a wide range of technologies to picking winners that will scale. Some will fail but it is a necessary learning step in the scaling journey.
With overproduction and overconsumption under increasing scrutiny, more exploration will happen around business models that allow to decouple economic development from production. We will see more innovative models moving from extraction and consumption to circulation and dematerialisation.
Finally, additional IRA type packages could embolden and reassure investors to support the scaling of companies that build the low carbon economy.
For the returning readers: how did we do in 2023?
Circular business models will mature towards reaching profitability. The market continued to grow and normalise, with second hand luxury sales reaching $49bn according to Bain & Company. The focus on profitability grew and ThredUp announced in Q3 2023 that they had reached quarterly adjusted EBITDA breakeven in the US for first time in their history. RealReal also posted their best quarter on Q3 2023 including significant improvement in EBITDA, and Rent the Runway is planning to break even in 2024.
We will wear next-gen materials. I am still not wearing a circulose t-shirt or carrying a Reishi bag, however Renewcell and MycoWorks opened industrial facilities paving the way for this to happen. In addition, some of the turmoil in the market helped strengthen the commitment of leading brands to use innovative materials.
Policy kept on moving forwards with sticks, especially in Europe with moves towards tackling clothing consumption, and, in the US, California prepared an EPR legislation for textiles while the states of New York and Washington are working on legislations to regulate the industry.
Internal competencies and engagement grew as a topic over the year. So much so that it became one of our three priority agendas.