Climate Inaction Could Cut Global Fashion Profits 67% by 2040, Says Report

The failure to act on emissions reductions could lead to a 3% loss in operating margins by 2030, with 34% profit cuts. The outlook turns more severe by 2040, when projected losses could reach as high as 67%, according to the report released by Apparel Impact Institute.

The estimates show the growing financial threats brands and manufacturers face amid intensifying climate-related pressures.

Three main factors were found to be responsible for these risks by the analysis: energy, raw materials, and carbon pricing. By 2040, carbon prices are predicted to increase significantly, from an average of $10 to $350 per tonne. The cost of producing clothing will therefore probably increase significantly. According to the report, the cost of goods sold could rise by 13% by 2040 due to carbon costs alone.

Another significant vulnerability is the sourcing of raw materials, especially cotton. Cotton is extremely sensitive to the climate and makes up about 19% of the world's fibre production. Agricultural resilience is being weakened by increased water stress brought on by heat waves, droughts, and changing rainfall patterns. Deforestation, changes in land use, and biodiversity loss associated with the production of raw materials exacerbate these issues.

These climate pressures threaten cotton yield, quality, and growing seasons, increasing production volatility and supply risks for apparel brands. In 2022, extreme weather events including heavy rains in India, heat waves in China, and droughts in the United States caused cotton prices to rise by 30 per cent in a single year. By 2040, approximately 50% of cotton-growing regions are expected to face higher temperatures and water scarcity, while 40% may experience shorter growing seasons. Such instability threatens both supply reliability and cost predictability for apparel brands.

Why Fashion Industry Must Accelerate Climate Action

According to the United Nations Environment Programme, the fashion industry accounts for up to 10% of global carbon emissions due to its long supply chains and energy-intensive production. The industry consumes more energy than the aviation and shipping industries combined.

The Intergovernmental Panel on Climate Change warns delayed mitigation will sharply increase adaptation costs. Reflecting these accelerating risks, the 2026 Apparel Impact Institute report estimated that Inaction could reduce the value of the $1.77trn fashion industry by 70% by 2040 for a conventional operator under a net-zero scenario.

Accelerating decarbonisation, renewable adoption and supply-chain traceability is critical to safeguard long-term profitability and climate resilience.