Green is the new black. Can fashion and luxury really be sustainable, globally?  

• Is the global fashion and luxury industry becoming more sustainable?
• Has sustainability reached the Asian markets?
• Is sustainability out of fashion in the US?
• Is Europe the pioneer?
• Do sustainable brands command higher valuations from investors and in M&A?

The fashion and luxury industry, valued at trillions of dollars globally, stands at a crossroads in 2026. Once synonymous with excess and rapid consumption, the sector is increasingly pivoting toward sustainability amid mounting environmental pressures, regulatory demands, and shifting consumer expectations.

This transformation is not merely cosmetic; it involves rethinking supply chains, materials, and business models to align with circular economy principles. As climate impacts intensify, sustainability has evolved from a niche concern to a strategic imperative, influencing everything from design to investor decisions.

Recent data shows that, while progress is uneven, sustainability is reshaping the industry’s future.

While the sustainable fashion segment is expanding significantly faster than the traditional market—growing at rates up to 10 times higher than the broader industry’s 2%-3%—there is a recent, visible de-prioritization of sustainability in corporate boardrooms due to economic volatility and inflation-squeezed consumers.

In 2025, only 18% of fashion executives ranked sustainability as a top-three risk for growth, a sharp decline from 29% in 2024.

And yet, for the next generation of industry executives, and consumers, sustainability is paramount.

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I. Global Market Dynamics: Progress vs. Pressure

The fashion and luxury industry remains one of the world’s most resource-intensive sectors, contributing ~9% of global carbon emissions. Despite this, a fundamental shift is occurring.

The global sustainable fashion market reached US$12.5bn in 2025, with projections suggesting a compound annual growth rate (CAGR) of 9.9% through 2032.

This growth is driven by:

• Generational Demand: 65% of Gen Z consumers prefer purchasing from sustainable brands, and are often willing to pay premiums for values-aligned products.
• Technological Integration: Emerging technologies such as AI-driven virtual sampling, 3D design tools, and blockchain traceability play an increasing role in reducing waste and improving supply-chain transparency
• Circular Business Models: Resale and rental now account for roughly 10% of global apparel sales.

However, a “Sustainability Paradox” exists. While 70% of executives view sustainability as a key growth driver by 2030, two-thirds of brands currently lag behind their 2030 net-zero goals.

II. Regional Leadership: Europe as the Regulatory Pioneer

Europe remains the global regulatory leader in sustainable fashion and luxury, setting the pace not through voluntary pledges but through binding policy frameworks that are reshaping how apparel and luxury goods are designed, produced, sold, and recycled.

At the core of this shift is the European Union Strategy for Sustainable and Circular Textiles, which aims to transform the sector by 2030. The strategy prioritizes durability, repairability, recyclability, and reduced environmental impact across the full product lifecycle, signaling a structural move away from fast-turnover consumption models.

Major brands operating in Europe—including Adidas and H&M—have aligned with these objectives through commitments around preferred fibers, traceability, and circular product design. While approaches vary by brand, Europe has emerged as the testing ground where sustainability moves from aspiration to operational reality.

Crucially, Europe’s leadership lies not only in ambition, but in enforcement. The region is transitioning sustainability from a reputational issue into a compliance requirement, with direct implications for cost structures, supply-chain transparency, and product economics. This regulatory certainty is already influencing global sourcing decisions and accelerating investment in recycling, resale infrastructure, and material innovation.

Regulation	Implementation / Impact
Waste Framework Directive	Requires mandatory separate collection of textiles by January 1, 2025; introduces Extended Producer Responsibility (EPR) schemes.
Ecodesign (ESPR)	Sets minimum standards for product durability and reparability; bans the destruction of unsold goods for large brands starting in 2026.
Digital Product Passport (DPP)	Mandatory by 2027–2028; requires detailed information on material composition and recyclability for all products sold in the EU.
Green Claims Directive	A proposal aimed at preventing unsubstantiated environmental claims.

III. The Asian Market: From Production to Conscious Consumption

Sustainability is gaining traction across Asian markets, particularly in China and India, driven by younger, urban, and increasingly affluent consumers. While rarely the primary purchase driver, it is becoming a meaningful secondary consideration in fashion and luxury—especially among Gen Z and Millennials.

Asia-Pacific is widely forecast to be the fastest-growing region for sustainable fashion, supported by high-single-digit growth projections through 2032. This momentum reflects both rising consumer awareness and Asia’s central role in global apparel supply chains, where decarbonization and traceability efforts increasingly originate.

Consulting research, including McKinsey analysis, frames sustainability in Asia as a long-term strategic priority rather than a short-term sales lever. Progress is most visible on the supply side, with collaborative decarbonization initiatives in manufacturing hubs such as Bangladesh, Vietnam, and India becoming essential to meeting global brand requirements.

Adoption remains uneven, however. Recycled polyester continues to dominate sustainable materials due to cost constraints and limited access to next-generation fibers, highlighting ongoing challenges related to price sensitivity, infrastructure, and regulatory diversity across the region.

Key trends in Asia include:

• Rise of the Second-hand Market: China’s secondhand luxury market grew by 18% in 2025, supported by livestreaming and a growing acceptance of circularity.
• Sustainable Retail Design: Landlords in SE Asian malls are increasingly requiring “green” interior design, focusing on modular fixtures and low-carbon materials to reduce construction waste.
• Cultural Connection: The guochao (national tide) movement in China blends heritage and local identity with sustainable craftsmanship.

IV. The US Market: A Resilience Test

Sustainability is not “out of fashion” in the US, but it is under pressure. Younger consumers continue to express strong concern about environmental and social issues, even as inflation, price sensitivity, and the appeal of fast fashion constrain purchasing behavior. The result is a persistent gap between values and action.

Recent analysis from McKinsey & Company highlights that US consumers are prioritizing wellness, experiences, and value over discretionary apparel spending. In this environment, sustainability is increasingly viewed as a long-term brand and loyalty lever, rather than a short-term growth driver.

At the executive level, The Business of Fashion reports that priorities have shifted toward AI, cost control, and operational resilience. However, sustainability has not disappeared from the agenda; instead, it is being reframed around risk management, supply-chain transparency, and regulatory compliance rather than marketing-led initiatives.

Regulation is becoming the primary force sustaining momentum. In California, new disclosure and accountability rules around emissions and supply chains are coming online, increasingly echoing European-style standards. While many US executives remain focused on near-term profitability amid weak demand, the regulatory trajectory suggests sustainability will remain a structural requirement—if no longer a headline ambition.

V. Investment and Valuations: Sustainability as a Core Metric

Sustainability and ESG factors have become “hardwired” into the investment process for mergers and acquisitions (M&A).

• Due Diligence: Approximately 22% of corporate and 24% of private equity acquirers now place an emphasis on sustainability during due diligence.
• Valuation Impact: Modern AI-powered tools allow investors to surface risks like child labor or human rights violations deep within supply chains, which can significantly damage company valuations.
• Sector Growth: Venture capital is heavily flowing into innovative materials companies and resale platforms, as sustainable fashion’s growth trajectory outpaces traditional retail.

VI. Circular Economy Leaders: Six Brand Profiles

Several global brands are shifting from pilot programs to large-scale circular initiatives.

1. Gucci (Kering Group): A high performer in circularity, Gucci has embedded circular design into its core and offers lifetime repair for many items to extend product longevity.
2. Stella McCartney: Long a pioneer in material innovation, the brand focuses on bio-based materials and low-impact designs, partnering with venture firms to scale sustainable textiles.
3. Patagonia: Regarded as a gold standard, Patagonia integrates circularity through its Worn Wear resale program and a senior-level focus on social impact and transparency.
4. Coach: The brand has embraced circularity at scale through its Coachtopia sub-brand, which utilizes bulk buys of “rescued” leather scraps to create new luxury goods.
5. Arc’teryx: A recent leader in circularity, this outdoor brand joined the Ellen MacArthur Foundation to focus on mono-materials and garments designed specifically for easy disassembly and recycling.
6. Lululemon: Beyond its “Like New” resale program, Lululemon is investing in enzymatic recycling technology to turn textile waste back into high-performance recycled nylon.

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Conclusion

The global fashion industry is no longer treating sustainability as a marketing trend but as a structural necessity for long-term viability.

While economic headwinds in 2025 caused some tactical retreats, the combination of aggressive EU regulation, high consumer demand in Asia, and the increasing role of ESG in M&A valuations suggests that circularity is becoming the new industry blueprint.

If you want to win in fashion and luxury – you must look forward, and you must act responsibly.