Inditex and World Bank launch 400 million dollar fund to reduce environmental impact of textile industry

Madrid – The World Bank, through the International Finance Corporation (IFC), has partnered with US investment fund manager Social Investment Managers & Advisors (SIMA) to launch the first blended finance fund to finance the transformation of the fashion industry's supply chain. They plan to endow this investment vehicle with capital of up to 400 million dollars. It launches with the IFC as the main public investor and Spanish fashion multinational Inditex group as the main private investor.

Launched under the name Decarbonization of Textile, Apparel, and Footwear Suppliers Fund (D-TAFS), the new fund aims to pool commercial and development capital. It will offer debt financing on preferential terms tailored to the needs of fashion industry suppliers. Through these mechanisms, this blended finance instrument will primarily seek to provide financial support to small and medium-sized enterprises mainly in Asia, the Middle East, North Africa and Latin America. This will enable them to finance projects and initiatives that help reduce their greenhouse gas emissions and environmental impact.

To this end, several entities have already committed their support to this first blended finance fund for the transformation of the fashion industry's value chain. These include FMO from the Netherlands, Proparco from France, British International Investment (BII) from the UK, and the Global Environment Facility and the Apparel Impact Institute (AII) from the US. These institutions will contribute varying amounts to reach the 225 million dollars expected to close the fund's first financing round. This round is currently led by the World Bank's IFC and Spanish fashion multinational Inditex, which have committed to investing up to 60 million dollars and 50 million dollars, respectively. These amounts and leading positions among the fund's contributors could vary as future financing rounds are agreed. Future rounds are expected to accommodate new investors and reach the estimated 400 million dollars to finance the transformation of the textile and fashion industry's supply chain.

“Small and medium-sized suppliers are the backbone of global brands' supply chains and need access to affordable, appropriately structured financing to remain competitive,” said Sarvesh Suri, IFC regional vice president for Asia and the Pacific. Driven by this conviction, “this new fund brings together leading brands, investors and suppliers around a common solution: mobilising capital to improve productivity, energy efficiency and operational resilience, and contributing to the maintenance of quality jobs.”

“Transforming the textile supply chain requires the industry to work together and for manufacturers to have access to both the technical knowledge and the necessary financing to make investments,” added García Maceiras, chief executive officer of Inditex. “At Inditex, we are already collaborating with our suppliers to understand the needs of their factories and develop specific transformation plans,” he noted. Going a step further, this “D-TAFS can help take the next step” and “turn identified improvements into investments and measurable results, facilitating the transformation of the industry.”

With two financing mechanisms

Delving into the financing dynamics to be executed under this new investment fund, it will be structured into two sub-funds. The first will be dedicated to facilitating investment and granting loans directly to textile and apparel manufacturers. Conversely, the second will be aimed at financing energy service companies, as well as energy developers and distributors working with those same suppliers, to reduce their environmental impact and promote the use of more sustainable, less polluting energy sources.

Through these two financing mechanisms, the fund will help finance projects aimed at reducing greenhouse gas emissions, improving the energy and water efficiency of companies and their processes, and ultimately decreasing the overall environmental impact of the textile industry. To achieve this objective, financial support will be provided to companies driving projects such as the installation of renewable energy systems; the modernisation and replacement of machinery; the upgrading of boilers and other industrial equipment; process optimisation; improved water reuse and wastewater treatment; or the management of chemicals used in textile production. To access the fund's financing for these initiatives, companies must submit a structured plan identifying their factories' needs, planned investments and environmental targets. Based on this study, the viability of each project will be assessed, establishing indicators to measure the progress and results of the investments. Furthermore, an accountability process will be carried out to monitor this progress. A report will be produced every four months, including the relevant analyses to measure the environmental progress achieved thanks to the granted investments.

“Suppliers are fundamental to the decarbonisation of the textile industry, yet many solutions require significant upfront investment and access to financing remains a major barrier,” said Lewis Perkins, president of the AII. Perkins also highlighted how “D-TAFS helps turn proven climate solutions into viable investment projects and offers suppliers a pathway to implement and scale decarbonisation.”

Addressing this exact issue, it must be understood that the task of “decarbonising fashion begins long before garments reach the shops,” as “it starts in the factories and supply chains where they are produced,” stated Leslie Maasdorp, chief executive officer of BII. Consequently, “by helping textile manufacturers in emerging markets invest in renewable energy, efficient machinery and cleaner production, our investment through D-TAFS” will help “unlock the long-term financing they need to make those investments.” “This reduces emissions at the source and supports a more sustainable and resilient textile industry, which ultimately benefits consumers in the UK and around the world.”

“At SIMA, we have learned that the mere availability of capital is not enough to drive projects,” noted Asad Mahmood, CEO of US asset manager SIMA. Mahmood added that “factory owners may know they need to replace a boiler or invest in renewable energy, yet without a customised loan structure, appropriate terms and implementation support, those projects can be relegated to mere theoretical studies.” “We are finally offering a financially attractive and scalable solution, thanks to our extensive experience supporting sustainable solutions in this important value chain for many years.” However, this solution is not “just about financing, it is about demonstrating that it is possible to achieve climate impact, meet market demands and strengthen competitiveness and resilience at the same time,” he maintained. Indeed, “when the World Bank Group, Inditex—as a leading global group—and SIMA join global investors such as FMO, Proparco, BII and AII, we transform a supply chain problem into a viable investment solution.”