Over the last year, two seemingly contradictory trends have come into focus.

On the one hand, consumer survey after consumer survey indicates that shoppers’ concern about the climate is increasing. On the other, a flurry of sustainability-focused brands have closed down, unable to compete in the high-pressured fashion market.

What’s going on?

Consumer behaviour is complicated. Lots of people who intend to shop more consciously, actually care more about things like style and price when it comes to making a purchasing decision. And there’s no getting round the fact that producing clothes in a way that prioritises protecting the planet and respecting labour rights is more expensive. As a result, consumers shopping sustainable fashion are slapped with a “green premium.”

At the same time, brands that choose not to make such efforts benefit from lower operating costs — a “brown discount” — that allows them to underprice and undercut competitors.

Let me explain.

‘Green Premiums’ and ‘Brown Discounts’

Ten years ago, philanthropist and tech titan Bill Gates joined a group of investors to form investment firm Breakthrough Energy Ventures, aiming to fund and accelerate adoption of climate solutions. Gates soon realised that scaling decarbonisation in almost every sector of the economy (including agriculture, jet fuel, heavy industry and indeed fashion) was constrained by what he dubbed the “green premium.” Gates defined this as “the difference in cost between a product that involves emitting carbon and an alternative that doesn’t.” For example, if traditional jet fuel cost $2.20 per gallon and advanced low-carbon biofuels cost $5.50 per gallon, the green premium equates to 150 percent. Lower-impact textiles, from recycled to organic to bio-based materials, come with similar elevated prices when compared to conventional alternatives — just one example of how the green premium shows up in fashion.

But the fashion sector also suffers from an additional burden: a “brown discount.” In Gates’ analogy, this would be the equivalent of a chunk of the airline industry choosing to purchase a third, more polluting form of jet fuel, that sold at a lower price than even the traditional product. In fashion, there’s no need to look further than the dominance of plastic polyester (one of the cheapest fibres available) or the rise of ultra-low-cost instant-fashion companies like Shein to understand its impact — it’s at least part of the reason why the average cost of a Shein top is $10.07 versus an average of $22.55 for H&M.

What to Do?

There is no magical way to reduce fashion’s environmental footprint and improve its working conditions for free. While a select few investments (like switching to energy-efficient LED lighting and improving factory efficiency) do lower costs and lessen environmental impacts, these remain the exception.

Factories that pay a fair wage, limit excessive overtime, adhere to minimum safety standards and invest in technology to decarbonise are more expensive than sweatshops that ignore social and environmental costs. Likewise, adoption of lower-impact materials and manufacturing processes require investment to scale. The end result: brands that operate more responsibly are burdened with higher costs and greater operating complexity, while those that don’t continue to fuel a race to the bottom in an effort to get products to market as quickly and cheaply as possible.

For the industry to achieve its sustainability targets, the green premium and the brown discount need to be extinguished. This can be done in one of two ways: either win-win technologies emerge that are both lower priced and better for the planet (like solar energy is in many countries today), or rules need to change to mandate sustainable outcomes.

Given that it took nearly 70 years and hefty subsidies for solar power to achieve price parity with fossil energy, rule change is the only practical option.

At a recent gathering of the financial community, Canadian Senator Rosa Galvez made this very point. Galvez is behind one of the most interesting pieces of climate legislation currently in the works anywhere. Her proposed Climate-Aligned Finance Act would require Canadian financial institutions to align with national climate commitments “as a superseding duty” under national law.

Galvez argued that voluntary action (the current status quo) would continue to be inadequate because good actors are operating on an uneven playing field. “There is some leadership coming from the private sector,” she said, but “the elephant in the room is that you are all in competition. So, we need somebody to come and give the rules.”

New rules that make green practice mandatory are also needed in the fashion industry.

Kenneth P. Pucker is a professor of practice at the Tufts Fletcher School. He worked at Timberland for 15 years and served as chief operating officer from 2000 to 2007.