Environmentally conscious brands shouldn't pay premiums to source "sustainable" materials
Instead they should invest in landscapes and nature uplift. Decoupling landscape investment from product sourcing. Here's why and what an alternative looks like.
The problem of premiums for 'sustainability'
Premiums are often used as a simple solution for brands seeking to strut their sustainability stuff. We must be good folks because we pay a premium. But where does the premium go and how does it help to create sustainable landscapes?
"the decision to pay a premium reflects our commitment to ethical and sustainable practices at every stage of the supply chain"
As consumers we've all got used to the idea that there is a premium to be paid for fairtrade or for organic coffee/cotton etc. In a supply chain paying a sourcing premium seems like a really easy answer to a complex question around ensuring sustainability. But it's the wrong answer when it comes to landscape regeneration.
Here's a quick skip through the issues around sourcing premiums in a regenerative context, and then a peek at a better way to financing landscape regeneration at scale.
Premiums are not the answer to "too cheap"
"What's the regeneration premium per KG of fibre?" is a question we get asked increasingly often. Meaning "how much does your cashmere cost vs market norm?"
It's not such a great question because a) cashmere is just one material of many in the Mongolian rangelands b) the prevailing market price for cashmere is much, much too low.
So when we say "don't pay premiums" we're saying two things:
1 - Premium is not the opposite of "way too cheap". Responsible brands don't start sourcing at "too cheap" and then work up. Paying the right price for fibre is the right thing to do.
2 - But landscape investment (regeneration cost) shouldn't be included. It should be a separate investment.
(I'm talking about businesses paying sourcing premiums here. For consumers there is a much bigger discussion about redefining luxury, and rethinking value. Let's hope that "good for the planet" is never seen as a 'premium' buy - just the bare minimum.)
Premiums don't get to the people who need them - the herders
Fashion chains are fragmented. Most selling brands have no connection to the originating landscapes. To compensate for this fashion brands lean heavily on 3rd party certification. These are increasingly oligarchic organisations that act as gatekeepers to what is deemed "sustainable". (They don't intend to be oligarchic - it's just a function of their business models which depend on volume and share). The premium covers the cost of their audit processes and tends to get subsumed into middle bits of the supply chain.
So it doesn't wind up with the herder. The people looking after the land.
This was our motivation for setting up Good Growth. We'd worked on a big value chain program funded by a development bank, supposedly to get herders further up the value chain, but not a single cent ended up with herders. It was all swallowed by the middle men.
For brands, paying a third party to say "all is OK" isn't viable long term. There's a big push for brands to take responsibility for their impact on nature (check out TNFD or SBTN to see where this headed).
Wrong signals
For Mongolia (and most rangelands across the world) a precondition for regenerating the landscape is reducing overgrazing. Animal numbers are too high - up to 7x the carrying capacity of the landscape. In Mongolia there are 60-70million livestock where there should be more like 20 million. Grasslands are disappearing at pace.
Paying a "premium" for cashmere creates a perverse incentive to increase goat numbers. The opposite of what's needed.
Brands don't want to pay premiums anyway
Price sensitivity means brands really don't want to pay premiums.
And even if they did any premium would be paid a very long time (2 years or so) after the period when the herder is making stocking decisions.
(Fashion may be fast from factory to shop but you can't speed-grow a goat).
Premiums divert funding from the places that need it most
The most degraded landscapes need the most investment to regenerate. In some of the forest areas we are now entering in Mongolia the animal numbers are far in excess of what can be supported. To regenerate those landscapes requires both livestock numbers to come down and a completely different balance of income. So a lot of work and a lot of cost.
And a lot less material. Maybe 80% less.
So the places that need the most money generate the least material. High cost low revenue.
Which is why most 'sustainable' material programs source fibre from areas that are already healthy. (In Mongolia this means recovery class one). This concentrates volume and income in the areas that are OK, raising the risk of overgrazing, whilst simultaneously ignoring the areas that actually need the investment.
This is a systemic failure.
Have a look at this simple measure of rangeland health. As the rangeland becomes less healthy it can support fewer animals (19 sheep per HA vs 44 sheep per HA)
You can't have sustainable production without sustainable landscapes
Premiums don't work for landscape regeneration and brands don't want to pay them.
Paying for regeneration by incentivising product doesn't work. More product = more extraction = less nature. It's all the wrong way round. We need to decouple landscape investment from product. (Which is why lifecycle analysis of single materials is so misleading in a landscape context. But hey ho.)
How about we value nature uplift instead?
Premiums are fundamentally transactional. And that's the problem. They are a function of transactional relationships. Landscape regeneration needs long term commitment not transactional mindsets.
Premiums treat sustainability as a badge to be bought not an operating system to adopt.
A simple nature uplift model
So let's take landscape investment out of trading. Forget about premiums for products - instead let's decouple landscape investment from product volume.
Make it a balance sheet item - wealth building - not a P&L item - trading.
This is what we are working on:
landscape investment is made by businesses or people who have an interest in that landscape (i.e. there is a shared interest from the outset)
that investment gives those businesses attribution rights to the nature uplift, the origin story of the landscape and exclusive access to "regenerative" fibre
if they want fibre they pay "right price" for it - but the landscape investment is decoupled from fibre sales
the nature uplift is funded by the investment (regeneration costs) and triggers impact payouts when key uplift targets are met (paying land stewards for nature)
the investing businesses get to count the nature uplift as nature equity for the landscapes they have invested in (nature as a balance sheet asset)
to bring in significant investment we create a diverse portfolio of landscapes in different geographies and across different ecological types of rangeland and where there are different 'key' materials (say cashmere + wool + leather) that can work for multiple brands
It's a grassland fund that fashion brands and their partners can participate in. It funds nature restoration, delivers a "wealth" return to the brands (nature on the balance sheet) and enables land stewards to earn from regeneration.
And into the mix, with no premiums, those brands get access to impeccably credentialed "regenerative fibre".
Best of all it makes investing in the degraded places worthwhile. The nature uplift is that much bigger, the story is that much more powerful (resurrection), and as the landscape improves it can support more product. So as the investment matures the landscape becomes more and more valuable to the investors.
I like that.
WDYT? Could it work?
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