Seizing the opportunities of a circular economy in textiles

28 June 2021

By Henrique Pacini, Economist, UNCTAD

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© UN Cluster on Productive Capacity in Lao PDR/Henrique Pacini

The global textiles market is estimated at around $1.4 trillion, and employs over 300 million people, especially in developing countries like Bangladesh, Brazil, China, India, Pakistan and Turkey.

While socially important, the textile industry is a major source of pollution and waste. It’s characterized by overproduction and overconsumption of low-cost clothes, often produced under poor working conditions and ending up in landfills.

Today, consumers, businesses and regulators are realizing the wasteful pattern in which this industry operates. This problem not only concerns the environment but also represents missed economic opportunities. 

In the quest to make the textiles sector more efficient and less polluting, one answer lies in circular economy approaches connecting downstream and upstream segments of this global industry. 

This means using more renewable and safe inputs, increasing clothing durability, reuse, or turning used garments into new ones.

The circularity promise

Making textiles circular can have an immense impact.

The development of textile production linked to reverse logistics capacities could improve the resilience of supply chains by connecting production and disposal ends of the value chain.

The resulting expansion in circularity, through reuse, repurposing or recycling could reduce 33% of the carbon dioxide emissions embedded in textile products. It could also help reduce air, land and soil pollution linked to their production, as evidenced by a recent UNCTAD study as part of the SMEP programme

But more than environmental gains, greater circularity could bring back recovery and upcycling activities from the shadows of garment-making towards the mainstream, improving governance where informality so far prevails. 

Circular, but social?

Discussions about circularity often focus more on the environmental gains and less on the social consequences of transition.

The tragedy of the Rana Plaza factory collapse in Bangladesh stands as a symbol of the hardship faced by workers at the bottom of the textiles supply chain. It also became a symbol of the many problems associated with a fast-fashion, linear textiles industry based on the “make-use-dispose” model, widely seen as unsustainable.

The quest for more social equity in the industry is not new. Existing collection systems for used clothes are as old as fast fashion itself and create an illusion of solidarity and circularity.

The reality is more complex. A very small percentage of clothes collected is donated to people in need, with most being sold to developing countries, downcycled into filling material, or ending up in landfills.

A key concern for many developing countries is that trade in second-hand clothing impedes local textile industries from prospering. Several countries in East Africa have denounced this trade as being detrimental to their national development efforts.

Jobs are critical

Another important social dimension for a circular textiles industry is jobs. Can we expect net job creation in a circular textiles industry? This question has no easy or clear answer.

Textiles are primarily made from petrochemical and agricultural sources. Employment levels at the upstream are affected differently from jobs at the downstream, as in a circular model more work is needed to bring end-of-life garments back into the economy. 

Some sectors might experience significant job losses, as the main components of textiles and apparel - cotton and polyester - come primarily from agriculture and petrochemical sources.  These will likely face long-term decreases in employment levels as agriculture meets automation and climate change curbs investments in petrochemicals.  

Recent research from the ILO says the overall effect of a sustainability transition will be positive, with 18 million additional jobs by 2030. A 2020 review study by the OECD backs those cautious estimates, estimating net employment gains in the range of 0-2%.

Another important social aspect of end-of-life garment sorting and recovery involves unhealthy work. Textiles need to flow back to reprocessing sites in smarter ways, involving extended producer responsibility systems that avoid driving people into low-value-added occupations of manual material separation.

Policy as the transformation enabler

Textiles and apparel operate today at scales only possible because of international trade. Textiles worth about $7.7 billion were traded in 2019, amounting to 8.6 million tonnes.

This creates enough material scale to justify industry and regulatory attention, but it also creates challenges due to the different jurisdictions and national rules involved. UNCTAD’s Policy Brief 61 outlines the complexities of achieving circular supply chains at the international level.

Reworking textiles abroad can be a pricey endeavour. The average import tariff for used clothes was 19.2% in 2018, making it expensive for companies to repair garments in foreign workshops. Import rates applied on used textiles are higher than the equivalent for other secondary materials such as scrap plastics, which faced 6% entry duties on average.  

Domestically, many countries have small or no disposal fees and low coordination among stakeholders in the materials value chain, making it attractive to simply dispose of leftover deadstock or used clothes. 

Taxation is often not differentiated between production methods of products, although a recent EU push aims to change VAT rules in this direction. For the industry to mainstream cross-border, circular textile trade, a level of policy alignment across countries is needed.

Connecting business talk with production realities

Today, many companies declare a focus on sustainability. At the same time, most textile and garment sourcing, retail and disposal remains linear. Changing that pattern is difficult, as illustrated by UNCTAD research showing the logistical challenges brought upon textile value chains by COVID-19.

For businesses, making textiles circular involves three aspects:  technology, business models and understanding how to get buy-in from customers.

Perhaps unsurprisingly, the tech already exists. We have known for a long time how to repair and extend the life of garments. Mature technologies already exist to recover and upcycle various natural and synthetic materials used in textiles, such as cotton, rayon, wool, polyester, and even leather. 

Companies like Renewcell and TreetoTextile are working on new generations of semi-synthetic fibers, reducing the environmental impacts of conventional rayon. Others are working on the rental and lease approach. Multinationals like H&M or Levis largely operate on a linear model but are trialing upcycling and second-hand businesses.

There is still the problem of unequal economies of scale - linear production takes place at very large scales, achieving economics hard to match by smaller-scale circular operations.

The demand side needs to be well understood as well. Understanding what consumers want and delivering a suitable circular solution that is profitable. Buyers need to develop the perception that responsibly produced textiles are worth buying. The growing share of ecolabels, with textile standards ranking fourth in the world in 2020, show progress in this direction.  


This article is partially based on the Textiles and Circular webinar organized as part of the World Bank learning series on the circular economy and private sector development. The author thanks Richard Gowler, Claudia Roethlisberger, Luisa Rodriguez and Tze Ni Yeoh for their valuable contributions.