A strange paradox has taken hold of the global fashion industry.
COPENHAGEN, Denmark — As the retail world navigates the first half of 2026, a strange paradox has taken hold of the global fashion industry.
On the one hand, the runways of Paris and the digital storefronts of fashion giants are flooded with "green" messaging. Danish jeweler Pandora is focusing on lab-grown diamonds, Kering's Gucci is touting "circular" polyester, and major retail apps are rolling out resale platforms.
But despite the marketing blitz, fashion executives admit that most consumers, battered by a persistent cost-of-living crisis, aren't willing to pay more for an ethically produced product, or "sustainability premium." Instead, shoppers have become increasingly selective and price-sensitive, looking for value above all else.
The fashion industry remains an outsized contributor to climate change, accounting for roughly 10% of global carbon emissions.
But if the consumer isn't buying the pitch, why is the industry doubling down on a sales pitch that isn't selling? The answer is cold, hard risk management.
For much of the last decade, retail's financial playbook was simple: scale up, lower sourcing costs, and use tactical promotions to clear the racks.
In 2026, brands can no longer rely on those levers to grow profits, according to the latest State of Fashion report by McKinsey and the Business of Fashion.
Instead, brand strength and flexible sourcing are becoming important levers for protecting margins. Executives said that changes to margin and cost strategies will be the second-most important theme shaping the industry in 2026 — second only to trade disruptions like tariffs, the report found.
Adding to the sector's challenges of wavering consumer demand and aggressive new e-commerce competition are macroeconomic shocks hitting production lines. The blockade of the Strait of Hormuz has sent energy prices soaring, driving up the cost of petroleum-tied synthetic fibers like polyester.
For discount retailers operating on thin margins, rising costs make sustainability efforts a tougher sell. However, some argue that neglecting the issue creates an even larger vulnerability.
The Middle East conflict and subsequent energy shock have led some companies to worry about transport, supply chains, and raw material prices, deprioritizing environmental and social issues, former H&M CEO Helena Helmersson told CNBC in an interview.
"That's when you haven't realized that sustainability is business," she said. "Those who have a long-term view now get an extra push because when oil prices go up, polyester prices go up. Transportation costs go up and down, and it's way too volatile to be able to build a sustainable business." Helmersson, who now sits on the boards of various retail outlets, emphasized that sustainability – which spans everything from resource management to continuous profitability – has officially become a top priority for CFOs.
"How do I make sure I'm less dependent on raw materials than others, so I better know my prices and can build a robust business?" "It's a risk-mitigation issue... It's even a competitive edge," she said.
The financial stakes are just as high at the top end of the market, where even luxury houses are feeling the crunch of environmental volatility.
Marie-Claire Daveu, chief sustainability and institutional affairs officer at Kering, pointed out that the very materials that define luxury, such as cashmere or high-grade leather, are vulnerable to climate shifts.
Extreme weather patterns threaten cashmere production in East Asia, wildfires risk destroying physical boutique inventory, and water scarcity threatens the operation of tanneries, she told CNBC.
"It's not philanthropy, it's really business," she said, noting that climate mitigation can show up directly on a company's balance sheet. "I can demonstrate very quickly that in your P&L [profit and loss], it's something very interesting." In luxury, she added, it's also a way to stimulate creativity.
Institutional investors now scrutinize environmental, social, and governance metrics during financial roadshows just as they do traditional metrics, according to Daveu.
In a social-media era, poor labor conditions in the supply chain or animal welfare scandals can erase billions in brand equity overnight.
"You can destroy the brand equity quite quickly if something goes wrong." While many brands talk about "elevating" and "going premium," the reality for many shoppers is a stark split.
In a so-called K-shaped economy, the wealthy continue to spend on high-end goods, where sustainability is an assumed part of the price tag. But even this demographic is showing signs of luxury fatigue, with a trend towards spending on value and new luxury categories like health and wellness, Senior Partner at McKinsey, Gemma D'Auria, told CNBC.
Meanwhile, lower-income shoppers are migrating toward fast-fashion giants who offer the lowest prices, regardless of the environmental footprint.
"I wish consumers were leading, putting dollars [behind their choices]," said Global Fashion Agenda CEO Federica Marchionni. But consumers aren't paying the premium for more costly sustainable products, she added.
Pandora has doubled down on offering lab-grown diamonds and recently announced it would disclose their carbon footprint to allow customers to compare the climate impact of their diamonds.
The decision to disclose the carbon footprint wasn't made to drive sales, Chief Marketing Officer Jennie Farmer told CNBC.
With lab-grown diamonds significantly cheaper than natural diamonds, Pandora is "making [it] very clear that we have accessible jewelry, that we have opening price points," Farmer said.
"It really allows people to buy something really special when they're a little bit squeezed," she added. "But we do also believe that that's the way the consumer is going to go, so it will make us more resilient as a business as well." But shifting to sustainable materials and decarbonizing supply chains requires upfront capital expenditure, and achieving financial returns requires a long-term view.
Several executives told CNBC at the Global Fashion Summit in Copenhagen that financial incentives are still lacking for companies to make the switch to recycled materials.
"There are no short-term incentives to use circular materials, on the contrary, you have to pay more," said Helmersson. "We're acting in a market where there's no price on nature," she said, adding that the industry needs increased taxation on nature – such as taxing the resource footprint of products and services – and decreased taxation on labor.
The goal with a circular model is to move away from the linear "take-make-waste" model and toward a system where products are designed to be resold, repaired, or recycled back into new fabric.
But the infrastructure required is significant, and technology for "textile-to-textile" recycling is only just beginning to scale.
Textile waste reached 120 million metric tons in 2024, according to Boston Consulting Group. About 80% of discarded clothing ended up in landfills or incinerators, 12% was reused, and less than 1% was recycled into new fibers, the report found.
And where consumer demand today fails to drive companies to tackle the underlying issue of overproduction, impending regulations might.
The European Union is preparing a wave of compliance laws aimed at ending corporate greenwashing and inventory waste under the bloc's "Ecodesign for Sustainable Product Regulation" (ESPR).
Brands that fail to comply could come to face not just reputational damage, but also financial penalties.
The sustainable choice is no longer being pitched just to the consumer, but directly to shareholders.
Ultimately, a brand that isn't "green" might be an environmental laggard as well as an unstable long-term investment.
Companies that aren't taking sustainability to heart won't be able to stay profitable in the long run, said Helmersson. "If you don't work with these questions in the boardroom, in my world, you're not doing what you should for your shareholders." Some, like Pandora and high-end "King of Cashmere" Brunello Cucinelli, expect younger generations will eventually lead the way with their wallets. Gen Z is increasingly vocal about environmental ethics, they say, even if their current purchasing power doesn't always reflect it.
But for now, the industry is in a "marathon," said Marchionni. "You don't always see the finish line... and what is happening today with all the disruption is that the finish line is moving even further away." Got a confidential news tip? We want to hear from you.
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