Consumer Materials

Industry Outlook and Investment Opportunities

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Introduction The textile and fashion industries have caused a multitude of negative societal and environmental impacts. The system itself is complex: non-renewable resources are extracted to manufacture clothes which are sometimes only worn once before being discarded in landfills or incinerated. This translates to more than $500 billion in value lost annually.

Highlights The fashion industry is the second largest polluter in the world, behind aviation. • Fashion is responsible for 10% of the world’s carbon emissions, and nearly 20% of its water waste. Textile production and consumption constitute a substantial proportion of the global environmental burden due to high water and energy use: • 25% of chemicals produced worldwide are used for textiles. • 20% of global industrial water pollution is caused by textile dyeing. • 85% of the world’s textiles end up in landfills or are incinerated. The global textile industry has continued to grow worldwide and across all regions: • In 2018 the global textile industry was valued at $920 billion, and has a compounded annual growth rate (CAGR) of 4.4% to reach $1.23 trillion by 2024. In terms of geographic regional trends: • China is the world’s leading producer and exporter of both raw textiles and garments. The United States is the top importer of raw textiles and garments. • India is the third largest textile manufacturing industry, responsible for more than 6% of total textile production globally. • The textile industry is fragmented with more than 100 manufacturers worldwide. • The United States is the leading producer and exporter of raw cotton. • China is the leading producer and exporter of hemp fiber, primarily in textiles. • Europe is also an important production area of hemp fiber, with most of its use in pulp, paper and composite materials. While demand for cheap synthetic fibers remains strong, the sustainable textiles market has continued to grow in popularity, driven primarily by the fashion industry: • By 2025, the global eco fibers market is expected to reach $69 billion, expanding at a CAGR of 9.2%. • The worldwide annual production of organic cotton was 26 million tons between 2014 and 2015, and grown in 35 countries. Global sales of organic cotton apparel and home textile products was $5.16 billion, an increase of 20% compared with 2009. • By 2025, it is projected the global hemp fiber market will increase to $280 million at a CAGR of 5.1%, from $190 million in 2018. • By 2025, the textile recycling market is expected to grow at a CAGR of 4.97%.

2 Natural Textile Fibers (Plant-Based) Natural fibers include cotton, silk, linen, wool, hemp, bamboo, and cashmere, and are widely used to manufacture clothes, construction materials, and interiors of automobiles. However, despite all of these fibers being natural, not all are created sustainably. In fact, the most commonly used materials — cotton and polyester — impose significant burdens on society and the environment. The following list includes natural fibers that are sustainable, due to factors such as low use of water, energy and toxic chemicals.

Organic Cotton Although grown on only 2.4% of the world’s arable land, conventional cotton cultivation globally consumes about 16.5% of all pesticides. It depletes soil and is one of the most chemically intensive crops to grow, impacting biodiversity and pollution of waterways. It also presents socio-economic challenges due to uneven distribution of wealth and poor labor conditions.

Organic cotton addresses most of these challenges because it is grown without harmful pesticides or synthetic fertilizers. However, it still takes a toll on the environment. Industry groups such as TextileExchange indicate the organic cotton industry is also helping the fashion industry achieve Sustainable Development Goals through providing a market-driven solution to poverty, reducing inequality by raising farm incomes, and promoting inclusive societies through reliance on cooperative working.

• Key Properties: soft, absorbent, good color retention, strong. • Key Industry Developments: there has been a huge surge in efforts to support the organic cotton sector, driven by a growing number of brands and retailers including: Skunkfunk, Stella McCartney and Eileen Fisher, who have all committed to sourcing 100% organic cotton by 2020; Mantis World commits to sourcing 100% organic cotton by 2021; and Nudie Jeans Co committed to sourcing 100% organic cotton by 2017, a target they achieved.

Organic Hemp (low-impact) Hemp is one of the most sustainable, low-impact plant-based materials. It is also one of the fastest growing plants, enriches soil (returning up to 70% of nutrients to the soil via phytoremediation), and naturally resists insects, therefore requiring no pesticides or herbicides. The hemp plant can be grown for many years in the same place with little water and energy. • Key Properties: Very similar texture to linen. It’s durable, breathable, soft, flame retardant, and provides protection from UV rays. • Key Industry Developments: Established brands including Stella McCartney and Eileen Fisher are exploring hemp fabrication. Patagonia now offers an extensive collection of hemp clothing for men, women and children. Levi’s has also introduced cottonized hemp (70% cotton and 30% hemp) denim jeans in collaboration with Outerknown.

Linen (low-impact) Linen stems from the flax plant. It uses considerably fewer resources and water than cotton and is naturally moth resistant.

Linen is considered to be a sustainable material, even when it is not organically grown. This is because flax can grow in poor soil that is not used for food production. In some cases, it can even rehabilitate polluted soil and also have a high rate of carbon absorption.

• Key Properties: Strong, absorbent, breathability.

3 Organic Bamboo The sustainability of bamboo fiber can be complex to determine. It is a very sustainable plant: it grows quickly, easily, and does not require fertilizer, pesticides or replanting. Bamboo improves the soil quality, helps to rebuild eroded soil and prevents soil erosion. Bamboo plantations also reduce greenhouse gases. Clothes made with bamboo are 100% biodegradable, such as bamboo linen, which is made without chemicals.

The sustainability of bamboo generally ends at the manufacturing stage, which normally involves toxic chemicals that are harmful to the health of manufacturing workers, consumers wearing the garment, and the environment when chemicals are released into wastewater. Bamboo fiber can be produced sustainably though.

• Key Properties: Highly breathable, stretchier than cotton, biodegradable (dependent on the fiber).

Innovative & Sustainable Textiles With the world population at 8 billion people and growing, the need for sustainable fashion has become intense. Fortunately, new sustainable materials are emerging globally.

Lyocell (Tencel) Lyocell is a manufacturing process of rayon. It makes use of cellulose fibers created from dissolving pulp, such as from wood (Tencel®) or bamboo (Monocel®).

Tencel™ lyocell is created from responsibly sourced wood pulp. This pulp comes from responsibly sourced forestation, and it is dissolved in a closed-loop process with an organic solvent to minimize harmful waste. It also requires less energy and water than cotton and is biodegradable. • Key Properties: Light, versatile, 50% more absorbent than cotton, anti-bacterial properties. • Material Applications: Activewear • Major players: Lenzing AG (Tencel), Birla (Excel)

Orange Fiber Orange Fiber is an innovative and patented fabric made from citrus juice by-products that would otherwise be thrown away. The fibre is made with pastazzo (citrus juice by-product), which is processed to extract the citrus cellulose and then spun into yarn. The process has the potential to transform 700,000 tons of pastazzo produced by the Italian citrus processing industry into high quality fabrics every year. Utilising the citrus by-products diverts it from being disposed of as waste, limiting negative environmental impacts, with the added advantage that no virgin materials are required in order to produce citrus fibre.

It also brings societal benefits. Not only is disposal extremely expensive for producers, it can provide additional income to farmers.

• Key Properties: Biodegradable, soft, silky and lightweight. As it is a cellulose fiber, it can also be dyed, colored and printed. • Material Applications: Bags, clothing. • Major player (Founder): Orange Fiber • Key Industry Developments: Orange Fiber has received a stamp of approval from Ferragamo. H&M have used the citrus fiber silk in their collections.

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Piñatex - Pineapple Fiber Piñatex is a non-woven textile that is made from pineapple leaf fiber. It is an innovative and sustainable textile, developed as an alternative to leather. It uses the waste by-products of pineapple harvests so there is no need for extra resources to produce it (land, water, pesticides, or fertilizers). Globally, the pineapple industry produces 40,000 tons of waste pineapple leaves each year, which are usually left to rot or are burned. Approximately 480 leaves (the waste from 16 pineapple plants) are needed to create 1 square meter of piñatex material.

The pineapple fiber also has far-reaching societal benefits as it brings new income streams to farmers, allowing them to fully utilize their crops. The material uses the long leaf fibers, which are separated by the pineapple farmers for additional income; the leftover biomass from the process can be used as a fertiliser. However, it is currently not entirely biodegradable; in addition to the pineapple leaves, it is comprised of 20% PLA (polylactic acid). • Key Properties: Breathable and flexible. • Material applications: In addition to clothes, it has been used in the manufacture of bags, shoes, wallets, watchbands and seat covers. • Major player (Founder): Ananas Anam

Spider Silk By engineering yeast to produce silk proteins, two companies have developed a technology that is animal-free to sustainably replicate spider silk, which has remarkable properties. Microsilk, produced by Bolt Threads, is produced with less environmental impact than traditional textile manufacturing, and with the potential to biodegrade at the end of its life.

• Key Properties: Lightweight, stretchable, soft, durable, biodegradable and vegan. Microsilk holds dyes six times better than conventional silk. • Material Applications: Fibre textiles, footwear, automotive interior, furniture, medical technology, cosmetics.

5 • Key Industry Developments: In October 2017, Bolt Threads collaborated with Stella McCartney and created a dress from its Microsilk fabric. In July 2019, Stella McCartney and Adidas unveiled the Biofabric Tennis Dress, also created with Microsilk, designed to be fully biodegradable. In addition, Bolt Threads has partnered with Patagonia Adidas to unveil a biodegradable shoe made from AMSilk’s lab-grown spider silk, Biosteel. • Major players: Bolt Threads and AMSilk.

Mylo TM - ‘Mushroom leather’ Another innovation from Bolt Threads is Mylo, a leather-like material made from mycelium, the network of thread-like cells that make up mushrooms. It has the potential to biodegrade, can replace real and synthetic leather and is petroleum-free and animal free.

Unlike making leather, the process of making Mylo doesn’t involve raising livestock or any of the associated greenhouse gasses or material wastes. By comparison, the mycelia grown by Bolt Threats are produced in days, without resource intensity. The company’s website also indicates that a large scale LCA will be rolled out prior to commercialization of the material. • Key Properties: It is a soft, supple and durable material that can replace real and synthetic leather. • Material Applications: Bags. • Key Industry Developments: In April 2018, Bolt Threads collaborated with Stella McCartney to create a prototype of her iconic Falabella bag, made with Mylo. • Major players: Bolt Threads

Nanollose Australian technology company, Nanollose, has developed a proprietary technology relating to production, processing and applications of microbial nanocellulose to offer an environmentally sustainable alternative to plant-based cellulose materials. The technology is developed around Microbial Cellulose (MC), a new source of cellulose. It is made from converting biomass waste products (coconuts, beer, sugar and liquid food streams) into plant-free cellulose, which is then converted into material fibres and yarn.

Impact Measurement In a report by the Boston Consulting Group, The Pulse of the Fashion Industry, it was estimated that by 2030, the world economy would gain $175 billion annuall if the fashion industry successfully addresses major environmental and social issues. The report also says if the industry maintains its current approaches, by 2030 fashion brands could see a decline in earnings before interest and tax (EBIT) margins of more than 3%. This would translate into a profit reduction of approximately €45 billion ($52 billion) for the industry. • Projections suggest that by 2030 the global apparel and footwear industry will have grown by 81% to 102 million tons, exerting an unprecedented strain on planetary resources. • Patagonia estimates that recycling saves 75% of the energy needed and 40% of the CO2 compared to using virgin polyester.

The report from the Ellen MacArthur Foundation, A New Textiles Economy: Redesigning Fashion’s Future, says a new textiles economy could bring a number of sustainable benefits including:

• Material cost savings to businesses that use virgin materials and reduced exposure to resource price volatility, thereby increasing their resilience.

6 • Additional profit opportunities for businesses through new services such as rental and subscription models. • Greater opportunity to manage reputational risks of negative environmental and societal impacts, which have the potential to jeopardise the profits of businesses that are lagging in addressing the shortcomings. • A new source of innovation. • Additional economic growth by increasing revenue from new circular activities.

Investment Outlook To continue its growth trajectory the fashion industry needs to address its environmental and social footprint. The earth’s natural resources are under pressure, and the fashion industry is a considerable contributor. Industry experts suggest that based on conservative projections, the fashion industry’s profitability levels are at risk if they don’t act determinedly, and soon. In order for real transformation, the system must shift to one that is sustainable along its entire supply chain.

Emerging Technologies in Sustainable Textiles (Hemp) • Dunagro Dunagro is a Netherlands-based hemp producer that grows and sells hemp for both commercial and personal use. In addition to hemp fiber, which can be used in non-woven applications such as car interiors, their hempcrete can be used as a sustainable building material that requires only a fraction of the energy used when compared to more traditional building supplies. • American Hemp American Hemp is a United States hemp supplier based in Winston Salem, North Carolina. In addition to fiber for paper, textiles and hempcrete, they also produce bedding for animals such as horses as well as smaller animals. • Planet Hemp Planet Hemp is a New York-based company that makes hemp clothing. It primarily specializes in hemp athleisure that is marketed towards younger people. • The Hemp Line The Hemp Line is a German hemp manufacturer specializing in hemp-based clothing and cosmetics. Hemp oil cosmetics are particularly effective as they contain two essential fatty acids that exist in both a 3:1 ratio in human skin and hemp oil. • Hemp Inc Hemp Inc is a publicly traded American company that as of 2019 has shifted its focus to creating hemp cigarettes. As of June 2020, they have announced that their sales have reached $2 million by the close of the second quarter 2020.

Emerging Technologies in Sustainable Textiles (Organic Cotton) • Tchibo (tchibo.de) Tchibo is a German coffee shop chain that has expanded its business to include clothing furniture, and even electronics. In 2018 Tchibo was ranked as the third largest purchaser of organic cotton in the world. Tchibo is focused on sustainability of their products and uses organic cotton in their catalogue that changes weekly. • Inditex (Inditex.com) Inditex is a publicly traded Spain-based clothing company that owns eight brands of cloths, including Zara. As part a goal of becoming more sustainable, Inditex has committed to using sustainable forms of cotton in their products by 2025.

7 • Boll & Branch (bollandbranch.com) Boll & Branch is a New Jersey-based company that sells bedding made from completely organic cotton. In August 2019 they raised $100 million dollars in private equity funding from LCatterton. • Organic Basics (organicbasics.com) Organic Basics is a Danish clothing company that focuses on providing sustainable clothing through existing materials and their own trademarked fabric, TENECEL. TENECEL is made using 80% less water than cotton plants and sourced from central European forests. • NATURAPURA, S.A. (naturapura.com) NATURAPURA is a Portuguese company that makes baby products made from 100% organic cotton. Compared to traditional cotton production, their manufacturing process saves 60% more water and 30% more energy, on average.

Emerging Technologies in Sustainable Textiles (Linen) • Kingdom (kingdom-china.com) Kingdom is one of the largest linen yarn producers in China. They account for 50% of linen yarn exports to high-end markets (Japan, South Korea and Italy), are publicly traded, and as of June 2020 are valued at around $850 million. • NZ Group (nz-bd.com) NZ Group serves as one of the largest fabric manufacturers in Bangledesh, where it was founded in 1987. In addition, they make ready-made clothing that they sell directly to consumers. • Siulas (siulas.com) Siulas is a Lithuanian company that makes linen for use in bedding, kitchens and clothes. They sell their linen products in more than 65 countries including the United States, Japan and much of the European Union. • Huzhou Goldrich Linen Textile (goldrichtex.com) Huzhou is a Chinese linen manufacturer. It has been identified as one of the largest manufacturers of linen in the world by revenue.

Emerging Technologies in the New Sustainable Materials • Ananas Anam Ananas Anam is the manufacturer of Piñatex, a leather alternative made from waste pineapple leaf fibers. No additional resources are needed to make the raw material that are used as the inputs in Piñatex. • Orange Fiber Orange Fiber is an Italian company that manufactures the first sustainable fabric from citrus juice by-products. The raw materials used in their production process (citrus waste) are usually thrown out in excess of 700,000 tons a year. • Bolt Threads Bolt Threads is a California-based company that has developed Mylo, a durable, biodegradable fabric made from mycelium cells found in mushrooms. It is able to replace real and synthetic leather. In Series D funding from September 2017, Bolt Threads raised $123 million. • AMSilk AMSilk is a German company that has developed a renewable silk-based polymer. Their patented technology has the capability to make silk polymers that can be used in a variety of industries from clothing to aerospace. In 2011 Series B funding they raised €5 million from MIG.

8 Venture Capital Funds • Baillie Gifford o Baille Gifford is a Scotland-based asset management firm with a reputation for investing in pre-IPO technology companies. Their portfolio includes some of the largest names in tech — Amazon, Google, Airbnb, and SpaceX. o Baille Gifford has conducted thorough market analysis and thought leadership on the issue of fashion waste, including their Fast Fashion white paper. o Baille Gifford has invested in the biodegradable fabric company Bolt Threads. • Founders Fund o Founders Fund is a San Francisco-based venture capital firm founded in 2005 by a team led by Peter Theil, the first investor in Facebook. The group has more than $3 billion in aggregated asset under management. o Founders Fund is also an investor in Bolt Threads. • Bumble Ventures o Bumble Ventures is a Swedish venture capital firm that provides pre-seed and seed- stage capital for Nordic startups. o Bumble invested in Organic Basics, an innovative, sustainably-produced underwear line in 2017.

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