How can fashion sector contribute to Europe’s climate goals with the support of digitalisation?

The textiles and clothing industries employ over 90 million people worldwide, making the sector a significant global employer with highly complex value chains spanning from raw material production to retail and recycling.
At the same time, the sector has well documented environmental impacts and accounts for an estimated 2–10% of global greenhouse gas (GHG) emissions. Despite sector wide initiatives, sustainability targets such as climate are not on track, and there is increasing recognition that today’s dominant business models are part of the problem.

Incremental efficiency improvements alone are unlikely to deliver needed emission reductions. This points to a clear need for alternative business models that fundamentally reshape how value is created, delivered and consumed not only the fashion system but also in other sectors where business strategies are built upon the production and sales of short-lived, low-quality products.

This challenge is central to the EU funded CRAFT IT4SD project, where new circular business models for the fashion and clothing sector are developed and assessed. VTT’s work is carried out with 11 project partners and companies from textile ecosystems in Finland, Denmark, Spain, and Romania, with a strong focus on micro, small, and medium sized enterprises. This reflects the structure of the European sector, where around 99% of the approximately 197,000 companies are SMEs, employing about 1.3 million people.

In EU policy, the green transition is widely recognised as also being a digital transition. Digital tools can improve transparency, traceability, data availability and decision making across textile value chains, and their potential is highlighted in initiatives such as the EU Strategy for Sustainable and Circular Textiles.

However, the same tools that improve efficiency can also be used to accelerate consumption and reinforce overproduction - key drivers of environmental impacts in fashion.

CRAFT IT4SD therefore adopts a triple transition approach, recognising that the climate transition is not only environmental and digital, but also cultural. Business models are shaped by skills, traditions, values, norms and practices related to quality, durability and what is considered “enough”. Ignoring this cultural dimension risks overlooking powerful levers for change and competitive advantage.

Against this background, CRAFT IT4SD WP5 focuses on sufficiency oriented business models – a subset of circular business models that aim to reduce environmental impacts by addressing overproduction and overconsumption directly.

Instead of maximising volumes and speed, these models emphasise longer product lifetimes, higher quality and durability, repair and reuse, rental and resale, and new service based approaches. They correspond to the highest levels of the EU Waste Hierarchy and complement production side mitigation efforts.

Digitalisation can enable these models – for example through product tracking, take back systems, resale platforms or data driven impact reporting – but technology alone is not sufficient without cultural and organisational change. The findings of the work indicate that these models also have the potential to offer customers renewed value grounded in craft heritage.

Circular business models do not automatically lead to positive outcomes; in some cases, environmental impacts can even increase in specific impact categories.

To address this, the project has assessed the climate impacts of selected circular and sufficiency oriented business models, comparing them at product-level with conventional alternatives using life cycle assessment (LCA) approaches. The results show that these models can reduce climate impacts by ca 20–70%. 

Beyond climate impacts, the work also explores broader environmental, economic, social, digital and cultural dimensions and impacts of new business models, supporting more informed strategic and operational decision making in companies.

Developing new business models is challenging, particularly in a sector dominated by small and medium sized enterprises and characterised by complex, global value chains. Uncertainty about future markets, limited data on sufficiency, and the lack of established metrics often reinforce the perception that “there is no business case for sufficiency”, despite emerging examples pointing to its potential to offer new forms of value to customers.

Without new approaches, the fashion sector risks remaining locked into pathways incompatible with climate targets, increasing regulatory pressure, and rising sustainability expectations. The same applies beyond fashion, as several other sectors face similar challenges.

The benefits of this work therefore extend beyond individual companies and the sector:

• Fashion and textile companies gain concrete pathways towards future proof and resilient business strategies, supported by insights from applied impact assessment case studies.
• Policymakers and regulators gain evidence on how sufficiency oriented approaches might be supported through policy and metrics.
• Innovation actors within companies and research gain transferable insights from the application of impact assessment approaches, including life cycle–based methods such as LCA and business model LCA (BM-LCA), with applicability beyond the fashion sector.
• Society is presented with examples of business models that combine climate mitigation with cultural sustainability, fair work, and long‑term value creation, illustrating the potential of sustainable products and services to be desirable and relevant.

VTT contact:
Hanna Pihkola

Project: CRAFT IT4SD – Craft Revitalization Action for Future-proofing the Transition to Innovative Technologies for Sustainable Development
Project duration: 2024-2026
Funding: EU Horizon Europe
Website: CRAFT IT 4 SD CCSI Green Transition