This article focuses on agricultural commodities, tracing the transmissions between the Pacific El Niño signal, crop outcomes and market prices. It does not examine broader asset-level, natural-catastrophe or cross-asset impacts. Sources and technical disclosures are provided in the appendix.

Executive summary

El Niño is strengthening rapidly, with NOAA now putting the probability of the strongest event since 1950 at close to seven in ten. But a strong Pacific signal is not automatically a crop signal, and a bad harvest does not automatically influence global markets.

This analysis separates two transmissions conditioning how El Niño can reach markets:

1. From the ocean, to the local weather, to the harvest, examining whether and where the El Niño signal survives to the crop.

2. From the harvest through accessible supply to the price buyers pay, examining whether a production loss can be replaced before it reaches the market.

Across both transmissions sit mechanisms that can absorb or redirect a shock before it reaches the next stage, which we call buffers. For example, water and irrigation can buffer poor rainfall before it reaches the crop. Stocks, alternative origins and product substitution can buffer a harvest loss before it reaches the buyer, while logistics and policy determine how much of that replacement supply is actually accessible.

El Niño carries very different predictive information across crops and regions.

In our US maize model, covering 2,453 counties over 36 years, ENSO (El Niño-Southern Oscillation) variables were offered to the model, which retained none, rather selecting local heat, rainfall and atmospheric moisture demand. Central Indian cotton provides a counter-case: ENSO-related information survives, but conditionally through precipitation. Across Southern African grains, El Niño identifies exposure, but the realised season remains decisive.

A harvest loss only reaches global prices when replacement supply is constrained.

Headline stocks can materially overstate the available buffer. On August USDA balances, world stocks-to-use ratio stood at around 33% for wheat, 21% for corn. Excluding, illustratively, stocks concentrated in China for wheat and corn, which holds a large share of both inventories but exports little of either, reduces those cushions to roughly 23% and 11% respectively. Geography, grade, logistics and policy determine how much of the apparent buffer is actually accessible.

Some of the buffers sit outside commodity inventories.

Irrigation can interrupt the transmission from poor rainfall to harvest. Fiscal support can absorb farm losses. Alternative exporters can replace regional shortfalls. But declining water reserves, repeated poor harvests, and the concentration of trade through routes exposed to geopolitical and climate disruptions show that these buffers do not have unlimited potential.

The practical implication is that the economic relevance of El Niño depends first on whether its weather signal is stable enough to reliably be a harvest predictor, and then whether the resulting harvest shock is large enough, relative to available buffers, to materially affect the price paid by the buyer.

This article sets out that analytical framework and uses selected findings from Swanstant’s live crop-climate models, operating at crop- and geography-specific resolution.

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In May, we mapped three independent shocks entering the same economic system at the same time. El Niño was developing in the Pacific. Drought had settled across the American Plains. The disruptions around the Strait of Hormuz were putting pressure on the cost of energy, fertiliser and freight.

Since then, El Niño has been confirmed and strengthened rapidly. Extreme heat and drought extended across Western and Central Europe during their growing season, with some countries experiencing five separate heatwaves since May. Finally, energy and input markets remain exposed to geopolitical pressures.

Markets are already starting to anticipate the effects of this potentially record-strength El Niño, while banks, investors and insurers are increasingly positioning around the event. We explore the transmission between El Niño and the harvest, and between the harvest and global prices, to add a mechanistic perspective to the question increasingly facing markets: what will this event do to food prices?

In this piece, the transmissions are examined through grains and cotton. Perennial crops, like coffee, cocoa and palm oil will be analysed separately because their biological clocks and inventory dynamics are materially different.

From the ocean to the harvest

El Niño provides an unusually early signal

Every few years, warming in the tropical Pacific alters atmospheric circulation across large parts of the world. The resulting effect is not one common weather outcome. Probabilities shift differently by geography and by season.

Australia and parts of Southern Africa, for example, often face higher drought risk, while parts of South America can receive more favourable rainfall. The relationships elsewhere are weaker or less consistent.

What makes El Niño unusual is the lead time: it can be observed developing months before some of the relevant growing seasons begin. That is useful for planning, but does not make it a reliable long-range yield forecast.

Pacific conditions change the distribution of possible local weather, but crop performance still depends on the local heat, rainfall and moisture conditions that materialise at sensitive development stages.

The useful question is not whether El Niño matters in aggregate, it does, but where the signal has enough predictive value to forecast crop performance.

What we test in our models

We have developed climate-econometric models to identify which climate features out of a wide set of candidates carry predictive value for yield.

Those conditions can include local temperature, rainfall and atmospheric moisture demand alongside representations of larger-scale climate variability. This allows El Niño-related variables to be retained where they add information, or rejected where the local weather experienced by the crop explains more.

The result is not a common El Niño-to-yield relationship. In some crops and geographies, ENSO-related conditions remain useful as part of the vulnerability picture. In others, the models prefer local weather variables and do not retain El Niño. The three sections below illustrate those dynamics through three different crops.

Importantly, if an El Niño variable is not retained, this does not mean El Niño has no influence on local weather. It means that influence is not sufficiently reliable to improve crop-level prediction once local conditions are available.

US maize: local weather carries the useful information

Our US corn engine uses 36 years of yield history across 2,453 counties. El Niño-related variables were available to the model in several forms, including alongside local rainfall.

None were retained in the final regional specifications. Instead, the model selected more local conditions: heat during sensitive periods, precipitation and atmospheric moisture demand.

Across this historical sample, the relationship between El Niño and local weather conditions was not reliable enough to add predictive information once local heat, rainfall and atmospheric moisture demand were available.

Central Indian cotton: where the El Niño signal survives

Central Indian cotton provides the clearest counter-case to US maize in our current modelling. Here, El Niño-related information survives the model-selection process.

Importantly, it does not appear as a simple standalone relationship in which a stronger El Niño automatically implies a lower yield. The relevant signal enters with precipitation, linking the state of the Pacific to the local moisture conditions experienced by the crop.

In this case, the relationship between the large-scale climate signal and precipitation is sufficiently consistent to retain predictive value for the crop, which makes Indian cotton one of the origins where El Niño deserves particular attention.

Southern Africa: exposure is not the same thing as direction

Southern African grains offer a more nuanced case. Across the wider regional maize belt, our modelling identifies an ENSO-related exposure. That means El Niño changes the set of conditions worth monitoring and the regions where risk may become more material.

Local moisture and atmospheric demand have a much clearer relationship with realised maize yield than the ENSO index itself. El Niño shifts the probability of some of those local conditions, but the strength and spatial distribution of the local season remain decisive.

Zambia has produced above-trend maize harvests during several recent El Niño seasons, including 2015/16, which was associated with a very strong event. But national rainfall was not uniformly affected: Eastern Province experienced a clear rainfall deficit and weaker maize outcome, while the central and northern regions were largely spared.

We also see significant differences in responses between maize, sorghum and millet. Our modelling finds broader ENSO exposure in maize than across the main sorghum and millet belts. For the latter two crops, local thermal and moisture variables dominate more consistently. This pattern is consistent with the greater adaptation of sorghum and millet to dry and variable environments.

El Niño is only one source of production pressure. Heat and water stress have already affected European crops independently of ENSO, while the World Bank expects fertiliser prices to rise around 31 percent on average across its basket in 2026. These shocks remain physically separate, but they converge economically: lower yields reduce saleable volume while elevated inputs, energy and freight increase the cost of production and shipping that supply.

From the harvest to the buyer

Just as an El Niño signal is not automatically a crop signal, a failed harvest does not automatically produce a global price shock. The market response depends on whether the missing production can be replaced. For example, another exporter may have had a strong season, existing stocks may be released, or buyers may substitute another origin or, within limits, another grade.

The relevant market question is: what is the size of the loss relative to the supply a buyer can access elsewhere.

Headline inventory and accessible supply are not the same thing

World crop balance sheets typically report total ending stocks. Those numbers are important, but not equivalent to immediately available commercial supply.

Some inventories sit in strategic reserves and are rarely exported. Some are required to meet domestic consumption. Some do not match the specification required by the buyer. Some are available from the wrong origin or at the wrong point in the harvest calendar. Government policy can also restrict exports even when physical stocks remain high.

By comparison, accessible supply is the inventory or production that can realistically be released, traded, shipped, and substituted at the required specification and within the buyer’s delivery window.

The difference between headline and accessible supply can be material. For example, on the August global balance sheets, wheat carried a stocks-to-use ratio of roughly one third. China held more than 40 percent of those inventories while exporting very little wheat. Excluding China reduces the apparent cushion materially. The effect is even larger in corn, where China holds around 60 percent of reported global stocks.

These adjustments show why the second transmission depends not only on aggregate volume, but on geography, product specification and policy.

Wheat: a large part of the buffer sits in the Black Sea

Russia represents a large share of internationally traded wheat and remains an important source of competitively priced supply.

However, the availability of this export supply is conditioned by logistics and politics. Russian and Ukrainian grain has to reach export terminals, secure transport and insurance, and move through Black Sea routes. Disruptions to those channels can alter the volume accessible to buyers. For example, attacks on grain infrastructure at Novorossiysk in August, which halted operations at two major terminals, were followed by some of the sharpest single-session moves in Chicago wheat this year.

This concentrates an important part of the global wheat buffer in a relatively small number of exporting origins and the routes connecting them to buyers are exposed to geopolitical disruption.

Product quality narrows the substitute set further. Feed wheat does not fully replace higher-protein milling wheat. A comfortable aggregate wheat balance can therefore coexist with tighter availability in a particular specification.

Corn: the buffer is broader geographically

Corn has a different structure. European production can deteriorate without meaningfully moving the global benchmark because Europe sits inside a much larger market supplied by the United States, Brazil and Argentina.

A regional European shortfall could increase import requirements and create a local price premium while leaving the wider market relatively well supplied.

However, here again, headline inventory is only part of the picture. Export supply is concentrated, the United States, Brazil and Argentina together account for around 78 percent of world corn trade, but their different growing seasons provide some diversification across the year.

El Niño can improve the buffer elsewhere. While it raises drought risks in parts of Southern Africa or South Asia, it can improve rainfall prospects in parts of the South American grain belt. For global prices, what matters is combined supply available from all exporting origins, and whether that additional production is actually available to trade. Argentina, for example, has historically adjusted export taxes with market conditions.

Rice: policy can dominate the harvest

India’s rice market provides perhaps the clearest illustration of policy changing accessible supply independently of production. In 2023, India restricted exports of non-basmati white rice even as national production remained at record levels, sharply reducing supply available to international buyers.

China and India hold around 82 percent of reported world rice stocks. While Chinese inventories are generally not traded, Indian exports remain policy-dependent. Product specification narrows the substitute set further: basmati, ordinary white and parboiled rice serve different markets and are not necessarily substitutes tonne for tonne.

Accessible supply therefore sits at the intersection of volume, specification and market access.

The same distinction between physical availability and effective access applies on the production side where irrigation can buffer rainfall variability, but only to the extent that water is physically available and producers are allowed to use it.

Water is a slower production buffer

Irrigation can reduce a crop’s dependence on seasonal rainfall by allowing producers to compensate for some of the shortfall. Our current model patterns are consistent with such a buffering effect, although we have not systematically established irrigation’s buffering role across the full sample. Water access is correlated with infrastructure, crop varieties, farm investment and other characteristics that also affect yield resilience.

Water availability matters on two time-horizons. In the short term, the binding constraint can be allocation: who is permitted to withdraw water during a dry season. Over longer periods, the issue is whether the underlying resource itself is being depleted.

Allocation, the short-term constraint

Reservoirs do not need be empty or rivers to be dry for governments or water authorities to reduce withdrawals. During acute shortages, the binding constraint can shift from irrigation infrastructure to allocation.

For example, France is currently under acute water stress: 93 of its 96 mainland departments are under binding water restrictions, 73 at crisis level. A useful comparison is Spain, usually one of the most water constrained countries in Western Europe, where heavy winter and spring rain replenished reservoirs enough for at least this season’s use.

As scarcity increases, restrictions tighten and the relevant question becomes which uses retain priority.

Over longer periods, the constraint is the resource itself

Aquifers allow agricultural regions to reduce their vulnerability to annual rainfall variability, but where withdrawals persistently exceed recharge, some of that near-term resilience is financed by the depletion of the underlying resource.

For example, the High Plains aquifer in the central United States and the groundwater systems beneath northern India support some of their countries’ major irrigated agricultural regions. But both have experienced substantial long-term depletion, although the rate varies considerably within each system. In parts of the High Plains, water levels have fallen markedly since large-scale irrigation expanded. Across Punjab, Haryana and Rajasthan, groundwater has similarly declined over time.

The Colorado River system provides the surface-water comparison. Lake Mead fell to a new record low in early August, below the prior one set in July 2022. Lake Mead and Lake Powell’s combined storage is now at its lowest level since 1957, at about a quarter of their combined capacity, after years in which inflows have struggled to match the demands placed on the system. Storage has fallen low enough to raise concerns not only over agricultural and urban allocations, but also over hydropower generation if reservoir levels decline further.

This makes water different from the stocks from the previous section. Grain inventories can be rebuilt following a strong harvest. Surface-water storage may recover over several wet seasons, while severely depleted groundwater can take far longer to replenish. A production region can therefore appear resilient to current rainfall shocks while gradually drawing down part of the resource that supports that resilience.

Where the pressure is showing up

In global prices, still relatively modestly

Wheat provides the clearest current market signal. Prices have reacted to deteriorating crop conditions and to disruption in the Black Sea. Recent attacks on grain infrastructure at Novorossiysk have provided a reminder of how quickly Black Sea disruption can tighten the market.

Yet the context remains very different from the major multi-exporter squeezes of the past when production losses occurred across several major exporters at the same time, inventories were tighter, or governments restricted exports in response. The 2007–08 food-price crisis, the Russian drought and export ban in 2010, and the disruption following Russia’s invasion of Ukraine in 2022 all combined physical supply pressure with some reduction in internationally accessible supply.

The present market has not yet reached that configuration, but the recent Black Sea disruption illustrates how quickly the second transmission can change.

In agricultural policy and farm balance sheets, more visibly

The pressure is more apparent when looking at the institutions absorbing part of the loss.

Numerous farming communities are facing a weaker harvest at the same time as elevated fertiliser, energy and financing costs, which will not necessarily be compensated by higher commodity prices.

This is prompting governmental responses, through different instruments.

In the United States, the response is predominantly financial. The $12 billion Farmer Bridge package includes $11 billion for row-crop producers and $1 billion for specialty crops. More broadly, USDA currently forecasts $44.3 billion in direct government farm payments in 2026, up from $30.5 billion in 2025.

France has taken a more regulatory route. Following another winter of agricultural protests, Parliament adopted an emergency law for agricultural protection and sovereignty in July. The text addresses, among other issues, agricultural water storage and access, environmental procedures, and the temporary reintroduction of two previously banned pesticides under derogation. On 14 August, the Constitutional Council validated almost the entire law, including both the pesticide derogations and the water-storage provisions.

The mechanisms to address the economic pressure are different. In one case, part of the loss is transferred to the public balance sheet. In the other, part of the response involves changing the regulatory constraints under which production operates.

This is where the distinction between a shock and a trend starts to matter economically. One poor harvest can be absorbed from retained earnings, credit or government support. Repeated losses erode the effectiveness of those mechanisms. In the UK, the ECIU expects 2026 to rank among the five worst, which would put four of the five worst harvests in the current decade. That concentration matters more than any single-year loss.

When poor harvests recur, redistributing economic impact is only part of the question. The other is whether the agricultural systems of specific countries remain financially and operationally resilient enough to withstand the next one.

And in places the world price may barely register

Southern Africa provides a clear example. In 2024, Zambia, Zimbabwe and Malawi suffered major maize losses and millions of people faced acute food insecurity. Local maize prices in Malawi rose sharply. Over broadly the same period, the world corn price fell.

There is no inconsistency between those outcomes. The three countries represent a small share of world maize production, and much of the affected crop was white maize produced for direct human consumption. International corn trade is dominated by a much larger yellow-maize market used for feed and industrial purposes. The local shortage occurred in a market that the global benchmark only weakly represented.

In June, FAO and the World Food Programme launched their first joint anticipatory-action appeal for El Niño, seeking $202 million to protect 8.8 million people across 22 high-risk countries before forecast hazards become harvest and food-security losses.

The appeal is small relative to the scale of agricultural support mobilised within richer economies, but its timing is important as it attempts to move resources before a probabilistic signal becomes an observed failure.

That is precisely the interval in which El Niño is most unusual: there is information before there is certainty.

El Niño loads the die, the season rolls it and the buffers determine how far the result travels. The longer-term question is whether those buffers and the food systems built around them can continue to absorb shocks as climate conditions shift.

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About the analysis

Swanstant develops live crop-climate forecasting for commercial and institutional users. The models underlying this analysis assess where climate signals carry predictive value for particular crops and geographies as seasons unfold. To discuss how these live crop-climate engines map to your specific exposure, contact our team.

Technical Appendix: Methodology and Sources

Evidence cut-off: 15 August 2026, unless otherwise stated.
Scope: crop-climate modelling, global agricultural balance sheets, trade and market-access data, water availability, farm economics, agricultural policy and food-security evidence used in the accompanying article.

The article combines two evidence layers:

1. Swanstant climate-econometric modelling, used to examine when large-scale climate information such as ENSO contains predictive information for crop yields; and

2. Public institutional and market evidence, used to examine the subsequent transmission from harvest outcomes to accessible supply, prices, farm economics and food security.

Public-data claims were separately audited against institutional sources on 15 August 2026.

A. Analytical framework

The article separates the transmission from El Niño to food prices into two distinct stages.

Transmission 1: climate signal → local weather → harvest

ENSO describes large-scale variability in the tropical Pacific and associated atmospheric circulation. It changes the probability of particular weather conditions in different parts of the world but does not mechanically determine the weather experienced by a particular crop.

The article therefore distinguishes between:

- ENSO as a physical influence: El Niño may affect the probability of local heat, rainfall or atmospheric-moisture conditions; and

- ENSO as a predictive variable: that influence must be sufficiently stable across historical seasons, locations and crop stages to add useful information about yield after local climate variables are considered.

The absence of an ENSO feature from a final model specification should therefore not be interpreted as evidence that El Niño has no physical influence on local weather. It means that the relationship was not sufficiently consistent in the relevant historical sample to improve the crop-yield signal once more proximate climate conditions were available.

Transmission 2: harvest → accessible supply → buyer / price

A production loss becomes a market event only to the extent that buyers cannot replace the missing supply.

The article therefore distinguishes headline inventory from accessible supply. Accessible supply is defined here as production or inventory that can realistically be:

• released into the market;

• traded across borders;

• transported to the buyer;

• supplied within the required delivery window; and

• substituted at the required product specification or grade.

This is an analytical construct used to show why identical tonnes of reported world inventory can have very different relevance to a commercial buyer. The principal filters considered are geography, export concentration, logistics, product specification and government policy.

B. Swanstant crop-model methodology

B1. Scope of the model evidence used in the article

The article relies on the relevant current-engine findings for its principal model conclusions on:

• US maize;

• central Indian cotton;

• Southern African maize;

• Southern African sorghum;

• Southern African millet.

Model performance benchmarks and end-to-end seasonal forecasts are kept separate.

B2. General modelling approach

The models are climate-econometric yield models designed to identify which climate conditions contain predictive information for yield after accounting for underlying yield trends.

Candidate variables can include local conditions such as temperature and extreme heat, precipitation, atmospheric moisture demand alongside representations of large-scale climate variability such as ENSO. Candidate ENSO variables compete with local climate variables and are retained where they improve the specification.

Validation is performed out of sample through walk-forward procedures. The models are evaluated against climatological baselines. Diagnostic skill based on observed climate should not be confused with fully end-to-end seasonal-forecast skill, which also incorporates uncertainty in forecast weather.

In addition, the number of observations is not the effective sample: districts within a season move together, so skill is scored on season-level predictions, and the effective sample is the season count.

Additional methodological documentation is available on request.

B3. US maize

The US maize model uses 2,453 counties over 36 years, 1990–2025, representing 63,558 county-years.

Seven distinct ENSO variables were made available to the model, including an interaction with local precipitation, so that the ocean signal had the opportunity to enter conditionally as well as directly. None was retained in the final regional specifications. The selected variables instead came from climate conditions closer to the plant, including heat during sensitive crop stages, precipitation and atmospheric moisture demand.

The conclusion reported in the article is deliberately narrow: ENSO may influence US weather, but its relationship with the local conditions relevant to maize was not sufficiently reliable in this historical sample to add predictive information once those local variables were available.

B4. Central Indian cotton

The current Indian cotton engine covers 114 districts, using yield and climate histories extending through the 2024/25 crop year.

Unlike US maize, ENSO-related information survives model selection in important central Indian cotton regions. The relevant relationship is conditional: in the principal central cluster, ENSO enters jointly with precipitation.

Importantly, the modelling does not establish a direct causal pathway from Pacific temperatures to cotton yield independent of monsoon rainfall. No formal net-of-monsoon causal test has been performed. The finding is more appropriately interpreted as monsoon-mediated or conditional. The result is best interpreted as an ENSO-conditioned, rainfall-mediated relationship rather than a direct ENSO-to-yield effect.

B5. Southern African maize, sorghum and millet

The current Southern African models cover a five-country belt comprising: Malawi, Mozambique, Tanzania, Zambia and Zimbabwe.

For maize, the modelling identifies broader ENSO-related exposure across the regional production belt. The realised Zambian historical record, however, does not support a simple rule in which El Niño consistently produces a below-trend national maize harvest. The strongest El Niño in the record, 2015/16, resulted in an above trend Zambian national maize harvest, while a weaker event in 2023/24 coincided with the worst maize outcome in the regional record in Malawi. A moderate event in 2009/10 preceded one of the largest bumper harvests in the Zambia.

The same event also resolves differently within a country. In 2015/16, Eastern Zambia recorded a clear rainfall deficit and a correspondingly weak maize outcome while central and northern regions were spared.

This distinction is central to the article. ENSO can identify an altered risk environment without providing a reliable directional forecast for every country or crop.

For sorghum and millet, local thermal and moisture conditions dominate more consistently across the principal production belt, with ENSO-related exposure appearing more selectively in marginal dryland areas.

The article’s suggestion that this pattern may be consistent with the greater drought adaptation of sorghum and millet is an agronomic interpretation, not a controlled causal result from the model.

B6. Irrigation

Irrigation is not presented as a causally estimated model feature in the article. The current pattern across crop regions is consistent with irrigation interrupting part of the transmission from rainfall variability to yield, but irrigation correlates with many other variables like infrastructure, varieties, investment, soil conditions and management that can also affect resilience.

This is why irrigation is treated as part of the physical and institutional context rather than as a standalone model result.

C. ENSO status and teleconnections

As of the NOAA Climate Prediction Center’s 13 August 2026 ENSO Diagnostic Discussion, an El Niño Advisory was in effect. NOAA placed the probability of a very strong El Niño during Northern Hemisphere autumn and winter 2026–27 above 90%, and the probability of the event exceeding 2.5 °C in October to December, which would make it the strongest in the instrumental record since 1950, at approximately 69%.

The physical basis for treating ENSO effects as geographically heterogeneous is supported by WMO, USGS and peer-reviewed work on ENSO teleconnections. The literature identifies, among other relationships, elevated dry-season risk in parts of Southern Africa and Australia during El Niño and wetter conditions in parts of South America. The strength, timing and spatial expression of these teleconnections vary by event.

Principal sources

NOAA Climate Prediction Center, ENSO Diagnostic Discussion, 17 August 2026
https://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/ensodisc.shtml

International Research Institute for Climate and Society, Columbia University, ENSO Quick Look, July 2026
https://iri.columbia.edu/our-expertise/climate/forecasts/enso/current/

World Meteorological Organization, Prepare for El Niño
https://wmo.int/news/media-centre/wmo-prepare-el-nino

Environmental Research Letters, The ENSO teleconnection to southern Africa in a changing climate
https://iopscience.iop.org/article/10.1088/1748-9326/ade60e

USGS Publications, ENSO diversity and Southern Africa teleconnections during Austral Summer
https://pubs.usgs.gov/publication/70155256

D. European crop stress and fertiliser costs

The European Commission’s July 2026 MARS crop-monitoring bulletin identified repeated heatwaves and limited rainfall across large areas of western and central Europe. Grain-maize and sunflower yield projections were reduced by approximately 6–7%, while total cereal yields were approximately 1% below the five-year average at that stage.

The World Bank’s 2026 Commodity Markets Outlook expects fertiliser prices to rise approximately 31% on average across its fertiliser basket in 2026. This is a basket average and does not imply uniform inflation across fertiliser products.

Sources

European Commission Joint Research Centre, MARS Bulletin — Crop monitoring in Europe, July 2026, Vol. 34 No. 6, 27 July 2026
https://publications.jrc.ec.europa.eu/repository/handle/JRC146186

JRC, Heatwaves impact summer and winter crops, 27 July 2026
https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/heatwaves-impact-summer-and-winter-crops-2026-07-27_en

JRC, Worsening drought and record heat grip Europe, 12 August 2026
https://joint-research-centre.ec.europa.eu/jrc-news-and-updates/worsening-drought-and-record-heat-grip-europe-fuelling-extraordinary-wildfires-and-extremely-low-2026-08-12_en

World Bank, Commodity Markets Outlook
https://www.worldbank.org/en/research/commodity-markets

World Bank, Fertilizer prices surge as Strait of Hormuz disruptions tighten supplies, June 2026
https://blogs.worldbank.org/en/opendata/fertilizer-prices-surge-as-strait-of-hormuz-disruptions-tighten-

E. Global stocks and accessible supply

All current grain balance-sheet figures used in the article come from USDA WASDE-674, published 12 August 2026. Stocks-to-use ratios below are derived as: ending stocks ÷ domestic total use, using the published USDA tables.

Wheat, 2026/27

World ending stocks: 273.25 million tonnes
World domestic use: 826.27 million tonnes
Headline world stocks-to-use: 33.07%

China ending stocks: 120.20 million tonnes, or 43.99% of reported world wheat stocks, with projected wheat exports of approximately 1.00 million tonnes, equivalent to 0.47% of world trade.

Removing Chinese stocks from both the stock and use calculation reduces the non-China stocks-to-use ratio to approximately 22.56%.

The adjustment is not intended to imply that all non-Chinese stocks are freely tradable. Rather, it aims at demonstrating that physical world inventory and the commercial buffer available to internationally active buyers are not equivalent.

Corn, 2026/27

World ending stocks: 274.66 million tonnes
World domestic use: 1,323.05 million tonnes
Headline world stocks-to-use: 20.76%

China ending stocks: 165.13 million tonnes, equivalent to 60.12% of reported world corn stocks. Excluding China reduces the stocks-to-use ratio to approximately 10.96%.

The United States, Brazil and Argentina together account for approximately 78.5% of projected world corn exports, although their different growing and shipping calendars provide some seasonal diversification.

Rice, 2026/27

World ending stocks: 192.63 million tonnes
Headline stocks-to-use: 35.49%

China ending stocks: 107.00 million tonnes
India ending stocks: 51.00 million tonnes

Together China and India hold approximately 82.02% of reported global rice inventories. Excluding both produces an illustrative stocks-to-use ratio of approximately 12.95%, versus the 35.49% headline ratio. India alone is projected to account for approximately 39.8% of world rice exports.

Again, the adjusted ratios are diagnostic rather than official balance-sheet measures. They illustrate concentration and accessibility and should not be interpreted as a complete model of commercially available inventories.

Primary source

US Department of Agriculture, World Agricultural Supply and Demand Estimates — WASDE-674, 12 August 2026
https://www.usda.gov/oce/commodity/wasde/wasde0826.pdf

F. Wheat, the Black Sea and accessible supply

USDA’s August 2026 balance sheet reduced projected Russian wheat exports by 1.5 million tonnes to 46.0 million tonnes and Ukrainian exports by 1.0 million tonnes to 13.5 million tonnes, citing logistical disruption associated with increased conflict in the Sea of Azov and Black Sea. Russia remains a major wheat exporter, accounting for approximately 21.6% of projected global wheat exports in 2026/27.

The article therefore treats part of the wheat buffer as conditional on ports, shipping routes, insurance and geopolitical access.

Feed wheat and higher-protein milling wheat are also not perfectly substitutable, so aggregate wheat availability may conceal tighter conditions within particular grades.

Historical comparisons to 2007/08, the 2010 Russian drought/export ban and 2022 are used only to illustrate circumstances in which physical supply pressure coincided with restrictions on accessible trade. In 2010, Russia announced a grain-export ban on 5 August, effective 15 August, following a major production decline. Across the 2007/08 and 2010/11 global food-price episodes, export restrictions were deployed by numerous governments, amplifying the loss of supply available to international markets.

Sources

USDA, WASDE-674, 12 August 2026
https://www.usda.gov/oce/commodity/wasde/wasde0826.pdf

Oxfam, The Impact of Russia’s 2010 Grain Export Ban
https://www-cdn.oxfam.org/s3fs-public/file_attachments/rr-impact-russias-grain-export-ban-280611-en_3.pdf

Reuters reporting via Ukrainska Pravda, Russian grain terminal in Novorossiysk suspends operations after drone strikes, 12 August 2026
https://www.pravda.com.ua/eng/news/2026/08/12/8048348/

Bloomberg, Key Russian Port Halts Grain Exports After Ukrainian Attack, 12 August 2026

The Moscow Times, 12 August 2026
https://www.themoscowtimes.com/2026/08/12/drones-kill-one-reportedly-halt-work-at-novorossiysk-grain-terminal-a93465

CNBC, 13 August 2026
https://www.cnbc.com/2026/08/13/ukraine-russia-novorossiysk-grain.html

SovEcon and Russian Grain Union monthly export estimates, July–August 2026 are used as industry estimates rather than official customs data.

G. Corn, product specification and Southern Africa

Southern African food systems rely heavily on white maize for direct human consumption, while internationally traded corn is dominated by yellow maize for animal feed and industrial use. The two markets are not perfectly substitutable, which is why a regional white-maize shortage can coexist with a well-supplied international corn market.

The 2024 Southern African drought illustrates the distinction. Zambia, Zimbabwe and Malawi experienced major maize losses. FEWS NET, WFP, OCHA and related assessments documented severe production shortfalls and widespread food insecurity; approximately 18 million people across nine Southern African countries were facing Crisis-level food insecurity during the broader regional event. Malawi maize prices rose sharply. Available evidence places prices approximately 80% above the previous year and around 250% above the five-year average during the crisis.

Over broadly the same period, CBOT front-month corn declined approximately 19.8%, from 471.25 cents/bushel at the end of December 2023 to 378 cents/bushel at the end of August 2024. The comparison illustrates different market objects rather than contradictory signals.

Sources

FEWS NET, Southern Africa Food Security Alert, 13 August 2024
https://fews.net/sites/default/files/2024-08/Alert-Southern-Africa-ElNino-202408.pdf

UN OCHA, The Humanitarian Impacts of El Niño in Southern Africa, September 2024
https://www.unocha.org/publications/report/mozambique/humanitarian-impacts-el-nino-southern-africa-september-2024

ACAPS, Southern Africa: Impact of El Niño in Malawi, Zambia and Zimbabwe, 6 May 2024
https://www.acaps.org/fileadmin/Data_Product/Main_media/20240506_ACAPS_SOUTHERN_AFRICA-Impact_of_El_Nino_in_Malawi__Zambia__and_Zimbabwe.pdf

IFPRI, Southern Africa drought: Impacts on maize production
https://www.ifpri.org/blog/southern-africa-drought-impacts-maize-production/

NASA Earth Observatory, Severe Drought in Southern Africa, 2024
https://earthobservatory.nasa.gov/images/152711/severe-drought-in-southern-africa

CBOT continuous front-month corn settlement series from Yahoo Finance.

H. Rice and policy

India’s July 2023 ban on exports of non-basmati white rice provides a historical example of policy changing internationally accessible supply without a corresponding collapse in domestic production. India was sufficiently important to traded rice supply that the restriction materially affected international prices. The policy was subsequently withdrawn in September 2024.

The article uses the 2023 episode as a historical illustration. Different rice categories, including basmati, ordinary white and parboiled rice, serve different markets and cannot always be substituted tonne for tonne.

Sources

USDA FAS GAIN, India Bans the Export of Non-Basmati White Rice, July 2023
https://www.fas.usda.gov/data/india-india-bans-export-non-basmati-white-rice

India Directorate General of Foreign Trade, Notification 20/2023, 20 July 2023
https://worldtradescanner.com/20-Ntfn-DGFT-20.07.2023.htm

IFPRI, After a year, India’s rice export restrictions continue to fuel high prices
https://www.ifpri.org/blog/after-a-year-indias-rice-export-restrictions-continue-to-fuel-high-prices/

USDA, WASDE-674, August 2026.

I. Water as a production buffer

I1. France: allocation

The article distinguishes physical water availability from the right to withdraw it.

The French government’s VigiEau system was queried on 15 August 2026. At that point:

• 93 of 96 metropolitan departments were at alerte level or above and therefore subject to binding restrictions;

• 73 were at crise level;

• all 96 metropolitan departments were at least at vigilance.

Source

VigiEau, Ministère de la Transition écologique
https://vigieau.gouv.fr

I2. Spain: contrasting short-term storage

Spain provides the short-term comparison.

MITECO reported national reservoir storage at 68.0% of capacity on 11 August 2026, following a comparatively wet winter and spring.

Source

Ministerio para la Transición Ecológica y el Reto Demográfico, La reserva hídrica española se encuentra al 68,0% de su capacidad, 11 August 2026
https://www.miteco.gob.es/es/prensa/ultimas-noticias/2026/agosto/la-reserva-hidrica-espanola-se-encuentra-al-68-0---de-su-capacid.html

I3. High Plains aquifer

The High Plains aquifer supports major irrigated agricultural regions of the central United States.

USGS estimates an area-weighted average water-level decline of approximately 16.5 feet from predevelopment conditions to 2019, with substantial spatial variation. Recoverable groundwater storage was estimated to have declined by approximately 286 million acre-feet over that period.

The variation is important: the article does not imply that all parts of the aquifer are depleting at the same rate.

Sources

USGS, High Plains Water-Level Monitoring Study
https://www.usgs.gov/centers/central-plains-water-science-center/science/high-plains-water-level-monitoring-study

USGS, Water-level and recoverable water in storage changes, High Plains aquifer, predevelopment to 2019
https://www.usgs.gov/publications/water-level-and-recoverable-water-storage-changes-high-plains-aquifer-predevelopment-1

I4. Northern India

India’s Central Ground Water Board classifies substantial areas of Punjab, Haryana and Rajasthan as over-exploited, meaning extraction exceeds the estimated annual extractable groundwater resource.

The article uses these regions as a second example of groundwater allowing agricultural production to reduce its immediate dependence on rainfall while creating a longer-term resource constraint.

Source

Central Ground Water Board, Government of India, Annual Report 2024–25 / Dynamic Groundwater Resources Assessment
https://cgwb.gov.in/GWRA/GWRA_2025.pdf

I5. Colorado River

The Colorado River provides a surface-water comparison with the groundwater examples above.

Lake Mead and Lake Powell remain at historically depressed storage levels. The US Bureau of Reclamation’s July 2026 24-Month Study reports Lake Mead at 1,040.80 feet and 7.033 million acre-feet, and Lake Powell at 3,522.28 feet and 5.389 million acre-feet, a combined 12.42 million acre-feet, or approximately a quarter of combined capacity. On the USBR’s own end-of-month elevation series for Lake Mead, which begins in 1935, the previous minimum was 1,040.92 feet in July 2022, making the July 2026 value sit marginally below it.

Sources

US Bureau of Reclamation — Lower Colorado River operations and reservoir reporting.

J. Farm economics and agricultural policy

J1. United States

USDA ERS’s February 2026 Farm Income Forecast projected $44.3 billion in direct government payments to US farm producers in 2026, compared with $30.5 billion in 2025, an increase of approximately 45%. ERS attributes the increase to supplemental and ad hoc disaster assistance. Separately, USDA announced a $12 billion Farmer Bridge package: up to $11 billion through the Farmer Bridge Assistance Program for row-crop producers and $1 billion reserved for specialty-crop producers.

The article treats these measures as examples of fiscal mechanisms that redistribute part of the immediate economic cost of difficult farm conditions.

Sources

USDA ERS, Direct Government payments to U.S. farm producers, 2022–26F, 5 February 2026
https://www.ers.usda.gov/data-products/chart-gallery/82238

USDA ERS, Highlights from the Farm Income Forecast, 5 February 2026
https://www.ers.usda.gov/topics/farm-economy/farm-sector-income-finances/highlights-from-the-farm-income-forecast

USDA FSA, $12 Billion Farmer Bridge Payments, December 2025
https://www.fsa.usda.gov/news-events/news/12-10-2025/trump-administration-announces-12-billion-farmer-bridge-payments

USDA, Commodity Payment Rates for Farmer Bridge Assistance Program, 31 December 2025
https://www.usda.gov/about-usda/news/press-releases/2025/12/31/usda-announces-commodity-payment-rates-farmer-bridge-assistance-program

J2. France

The 2026 loi d’urgence pour la protection et la souveraineté agricoles was adopted by Parliament on 21 July 2026. The Conseil constitutionnel issued decision n° 2026-914 DC on 14 August 2026.

The Council validated the principal provisions relating to agricultural water storage and water access, including the objective of doubling agricultural water-storage volumes by 2035.

Sources

Conseil constitutionnel, décision n° 2026-914 DC, 14 August 2026
https://www.conseil-constitutionnel.fr/decision/2026/2026914DC.htm

Sénat, Projet de loi d’urgence pour la protection et la souveraineté agricoles
https://www.senat.fr/travaux-parlementaires/textes-legislatifs/la-loi-en-clair/urgence-agricole.html

J3. United Kingdom

The Energy and Climate Intelligence Unit estimated in August 2026 that the UK’s cereals-and-oilseeds harvest could total approximately 19.5 million tonnes, which under its central estimate would make it the worst in the series since detailed records began in 1984.

ECIU also estimates a production shortfall of as much as 2.5 million tonnes against earlier expectations and approximately £293–390 million in lost farm revenue.

Even under a more favourable yield revision, ECIU expects 2026 to rank among the five worst harvests since 1984. That would mean four of the five worst harvests in the series occurred during the current decade.

The article uses this concentration of bad harvest years rather than any individual year’s result as evidence for the increasing importance of farm financial capacity as a resilience buffer.

Source

Energy and Climate Intelligence Unit, UK harvest on track for historic lows after drought and heatwaves desiccate crops, 5 August 2026
https://eciu.net/media/press-releases/uk-harvest-on-track-for-historic-lows-after-drought-and-heatwaves-desiccate-crops-new-analysis

USDA WASDE-674 independently reduced its 2026 UK wheat production estimate from 13.5 to 12.0 million tonnes, citing prolonged above-average temperatures during grain fill.

K. Anticipatory action and food-security response

On 18 June 2026, FAO and the World Food Programme launched their first joint El Niño Anticipatory Action Appeal. The appeal seeks $202 million to reach up to 8.8 million people across 22 high-risk countries, covering the period June 2026 to March 2027.

Sources

FAO/WFP, El Niño: FAO–WFP Joint Anticipatory Action Appeal, June 2026–March 2027
https://openknowledge.fao.org/items/e7477e51-6001-4144-bd18-7a002b54ef79

FAO, Bracing for El Niño
https://www.fao.org/newsroom/detail/bracing-for-el-niño--fao-and-wfp-launch-joint-appeal-to-protect-8.8-million-people-from-extreme-weather-events/en

WFP, Bracing for El Niño
https://www.wfp.org/news/bracing-el-nino-fao-and-wfp-launch-joint-appeal-protect-88-million-people-extreme-weather

L. How the growing-season animation was made

Source and baseline

The fields are NASA POWER, MERRA-2 derived, pulled at daily resolution for each region’s crop box and accumulated through the season. Anomalies for both variables are computed against a 1991–2020 baseline built from the same POWER series. Every cell is standardised by its own interannual standard deviation, which is why the colour scales are labelled in standard deviations rather than millimetres or degrees: a 40 mm shortfall means something different in Zambia than in the Pampas. This also means rows are not comparable with one another.

Growing-season windows

Each region runs on its own crop calendar, and the windows are taken from published sources. The US Corn Belt window comes from USDA NASS Agricultural Handbook 628, which puts planting between 3 and 22 April across the core states and the start of harvest between 14 and 27 September. The two southern African windows come from GEOGLAM Crop Monitor for Early Warning sub-national calendars v1.3, which place planting between 1 and 16 November. The Argentine Pampas window comes from INTA, for sowing and grain fill in the *región núcleo*, with MAGyP’s Estimaciones Agrícolas for sowing completion and the start of harvest. Central India is marked inferred on the figure because none of those authorities covers cotton: it is absent from GEOGLAM’s crop list and from the AMIS crop set, and the one source that does carry it was unreachable when the figure was built.

Cumulative rather than monthly

Each frame shows the season accumulated to that date. Single-month gridded rainfall anomalies are noisy enough that eleven or twelve frames of them read as static rather than as a signal. Accumulating smooths the field and shows the season building. It also means the final frame is the seasonal total.

Frozen scales

Rainfall and heat carry separate scales, and each is fixed across every panel of its block for every frame. Nothing rescales per panel or per frame. The two colour scales were selected to prevent confusion from the reader.

Heat detrending

Heat is additionally detrended: each cell has a linear trend fitted over 1982–2024 removed before the baseline and anomaly are computed. Against a fixed 1991–2020 baseline, a warming trend would otherwise make later events look warmer for reasons that have nothing to do with El Niño. On the Corn Belt the trend accounts for roughly a third of the most recent event’s warm anomaly. Detrending changes the composite results by less than 0.06 standard deviations.

Caveat on the precipitation field

POWER over-reports low-intensity wet days, a known characteristic of the MERRA-2 precipitation field: drizzle-range days are too frequent relative to gauge records. Standardising each cell against its own interannual standard deviation removes a constant bias, and the residual effect on a seasonal total is second-order because those days contribute little depth.

The Strait of Hormuz has been operating at a fraction of normal traffic since February. Brent crude is up roughly 65% from the early-February baseline, briefly testing four-year highs above $115 in early May1. Urea (a key input for fertilisers) is up approximately 54% since early February and the World Bank’s late-April 2026 Commodity Markets Outlook now projects fertiliser prices up 31% for the full year2.

The National Oceanic and Atmospheric Administration (NOAA) now puts the probability of El Niño emerging by mid-2026 at 61%3. The IRI/CCSR (part of Columbia Climate School) objective forecast stands at 70% with Pacific sea surface temperatures already at the El Niño threshold of +0.5°C4. Some regional agencies are now publicly discussing the risk of a tail “super” event comparable to 2015-165.

Finally, the US Plains winter wheat belt is in markedly worse shape than recent norms. National winter wheat conditions stand at 31% good-to-excellent as of May 3, the lowest reading since the 2023 drought episode and 17 percentage points below the 48% recorded at the same time in 20256.

These are usually three separate stories. In Q2 2026 they are one.

What follows is a diagnosis, not a forecast. Three independent shocks are landing inside the same calendar window, propagating through shared transmission channels, and meeting global systems already under pre-existing stress. Our argument is that the interesting object is not the shocks themselves, but the wiring diagram that turns them into earnings revisions, price moves, and policy reactions. The critical distinction is between the mechanisms through which stress propagates, and the economic outcomes that emerge when those mechanisms break. Once that distinction is made, the 2026 configuration looks less like three separate shocks than a single compounding transmission system.

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The three concurrent shocks

Hormuz is a cost shock, narrowly transmitted.

The disruption is concentrated in oil-derived inputs – crude, refined products, fertiliser, freight – rather than energy broadly. Natural gas markets are less affected; coal pricing has held near baseline. This makes the transmission sharper, not softer: industries dependent on oil-derived inputs face the full shock without offsetting cost relief from other energy sources. The 54% urea move ranks among the largest oil-linked fertiliser shocks since 1990; the closest historical comparator is 2011 Libya, when civil war removed export-oriented Libyan urea capacity and pushed a broader MENA oil-risk premium into commodity markets7. That ranking places the 2026 episode in the top tier of historical disruptions – consistent with the exceptional conditions currently affecting the Middle East.

El Niño is a non-linear supply shock, geographically specific.

The transition out of weak La Niña is occurring as ONI (the Oceanic Niño Index) moves toward neutral. NOAA forecasts now point to El Niño emerging by mid-2026, with a 61% probability for May–July and a 1-in-4 chance of a very strong event comparable to 2015–168. India’s Meteorological Department issued its first ‘below normal’ monsoon forecast in three years on April 13, projecting rainfall at just 92% of the long-period average, explicitly attributing the call to expected El Niño development during the June-September season9. The international agricultural belt – India, Southeast Asia, parts of East Africa – sits in the most ENSO10-exposed configuration. Yields respond non-linearly to ENSO stress: small temperature or rainfall shifts can produce disproportionate yield losses once thresholds are crossed. We outline this below.

The US Plains wheat stress is a concurrent production shock.

Winter wheat conditions represent the most depressed early-spring rating since the 2023 drought episode, in a region already entering the year with weakened soil moisture profiles11. Western US snowpack also ran below normal this winter, raising the prospect that 2026 is the front edge of a multi-year drought rather than a single-season anomaly. USDA reports wheat planted acreage at the lowest since 1919 – compounding the challenge of poor growing conditions with elevated input costs and lower planted area12. Wheat matters here as a global food-price transmission channel. Depressed US production tightens agricultural commodity markets just as fertiliser, freight and energy costs are rising – before accounting for the tariff and trade-policy overhang that can make substitution more expensive.

Three shocks, three independent forcings, one calendar window.

Why this compounding is different

Historical El Niño episodes show a characteristic lag between ENSO onset and price response that varies across crops and purchasing cycles. Across the six El Niño episodes since 1990, the IMF cotton index moved an average of +4% from ENSO onset to peak ONI – modest moves for exceptional conditions. The actual price response shows up later and is heterogeneous: three of six post-1990 El Niño episodes recorded post-peak rallies of +14% to +119% measured 12 months after peak ONI; the other three recorded negative readings as ENSO transmission was offset by demand cycles or concurrent supply elsewhere. The six-episode mean is +23%13. Rice prices respond faster – typically 3-6 months from onset to peak ENSO – because Asian harvest calendars come earlier and government procurement programmes intervene at scale14. Markets historically responded to ENSO with delays that varied by industry.

Cotton is already trading near its 52-week high as of publication. The cost-side pressure from Hormuz is acting concurrently with the supply-side concern from ENSO and US production, not following it. The oil-linked cost channel and the ENSO-linked quantity channel are now operating through the same agricultural and industrial value chains at the same time.

The bridge between a Q2 cost shock and a Q4 harvest shortfall is not physical, it is anticipatory. Forward curves price expected outcomes months ahead. Importer governments accelerate procurement when chokepoint stress and yield concerns coincide. India’s July 2023 rice export ban – which covered nearly 45% of its rice exports15 – went up at the start of the kharif growing season16, anticipating El Niño impacts on the upcoming harvest even as domestic prices were already responding to early monsoon damage. Processor inventories run down. The 2026 configuration sets up exactly these anticipatory dynamics: cost-side pressure today, supply-side concerns through Q3, and a market that has historically taken 6-12 months to absorb shocks now compressing all three responses into a single window.

This matters for one analytical reason: the compounding is no longer a hypothetical. With cotton holding within 3% of its 52-week high through the spring, the cushion previous stress years had – the gap between shock and price impact – has disappeared. For the physical and cost channels, the remaining question is increasingly magnitude, not direction. The caveat: April crop conditions readings exaggerate harvest risk because conditions can improve as farmers respond and weather changes by July. The 2026 reading creates real downside risk; it does not guarantee the worst-case outcome. But part of the agricultural risk has already moved into near-term pricing.

Prior episodes had time. This one does not.

Stage-by-stage transmission

The cost transmission is happening at scale, and corporate language is beginning to register it. Across 149 earnings calls covering 64 tickers in heat-exposed and Hormuz-exposed sectors between January and May 2026, the frequency at which companies mentioned the Strait of Hormuz, Iran, Middle East, and related chokepoint descriptors ran approximately 27 times the 2022-2024 baseline corpus (per 10,000 transcript words). The pattern is largely emergent: most companies in this universe had no prior available transcript record using these terms. Six sectors show this emergence in more than 75% of tracked companies: energy, logistics, insurance, beverages, textiles, and chemicals. Major fertiliser producers and freight forwarders show the highest density17. The disruption has entered the standard earnings-call vocabulary as a significant forward guidance topic. Whether companies are pricing it correctly is a different question. Talking about a risk is an early signal, not proof that companies have built it into their financial guidance.

Crop sensitivity.

A strong empirical anchor is Indian cotton. Drawing on our underlying models, built across 111 producing districts and 23 years of observations, we identify a clear and consistent non-linear relationship between ENSO phase and yields. El Niño has its strongest negative yield effect during the squaring and flowering phase. The direction of this effect is consistent across the majority of producing districts, and the relationship accelerates sharply once the ENSO measure (the Oceanic Niño Index, ONI) crosses a critical threshold.

The same framework applies across other crops, though ENSO operates through different local channels in each. Its most pervasive influence is as an amplifier of drought, heat extremes, and temperature variability – the variables that consistently emerge as the strongest predictors of yield. The visible signal differs by region while the upstream forcing does not.

Indian groundnut offers a good illustration. Across 156 districts and 38 years, the dominant national channel is drought stress during late pod-fill, itself amplified by weak monsoons in El Niño years. One of five regional production clusters shows direct ENSO coupling during the late pegging (pollination) phase. Indian rice, a globally significant staple, shows comparable climate sensitivity at national level. Ethiopia coffee adds a different geography and transmission profile: two of five regional production clusters show direct ENSO sensitivity, while the others respond through heat-hours, vapour pressure deficit volatility, or humidity stress18.

Industrial efficiency.

On the industrial side, our facility-level analysis identifies a clear pattern: once temperature thresholds are crossed, plant efficiency drops sharply and non-linearly. The pattern is empirically defined and validated across a panel of 29,245 industrial facilities in five sectors – steel, cement, textiles, food processing, and pulp & paper19. In efficiency terms, one extreme heat day costs more than two moderate ones combined. The same pattern shows up in textiles across China, Bangladesh, India, Vietnam, and Brazil. Looking at individual facilities lets us see threshold effects that national statistics smooth over.

Those efficiency losses are activating in real time. Delhi has accumulated 26 days with maximum WBGT20 at or above 32°C through April 2026 – already 76% of full-year 2015 El Niño exposure, in what is technically a transitional ENSO phase rather than an active El Niño21. The H2 2026 risk picture is what happens when El Niño actually arrives on top of this already-elevated baseline.

Even where companies have built cost increases into guidance, the harder analytical question is whether they can pass them through to customers. The 2026 demand backdrop differs from prior cycles in ways that compress that ability: developing-economy growth is modest, real-wage recovery has slowed across major consumer markets, and households are entering the shock with less tolerance for another food, fuel and freight-led price wave. The labour market is softer than 2022, weakening the wage-price loop that helped earlier cycles transmit costs through to consumer prices, increasing the risk that more of the shock is absorbed in margins. Sectors with strong moats and pricing power can still pass through. Commoditised consumer goods, basic textiles, price-competitive food processing, and freight forwarders facing rate-sensitive shippers are more likely to absorb the shock through margins, volumes, or delayed repricing. The question for 2026 earnings is not only whether costs are rising, but how those costs split between pass-through, margin compression and demand destruction. The demand-destruction channel feeds into the contagion mechanisms discussed below.

The systemic mechanisms at play

Stressors do not only impact raw material production or facility efficiencies. They cause specific systems to fail in mechanical ways. Each mechanism has documented historical precedent, and each shares the same shape: thresholds that trigger non-linear responses, with damages that worsen the longer stress persists.

Worker productivity.

The 2003 European heat wave caused approximately 70,000 excess deaths22 and an estimated €13.1bn in agricultural losses23. Two decades later, peer-reviewed analysis quantifies recurring heat-driven labour productivity losses across recent anomalously hot years (2003, 2010, 2015, 2018) at 0.3-0.5% of European GDP, with regional impacts above 1% in southern Europe24. The same WBGT thresholds being breached now in India have produced measurable economic consequences in modern industrial economies.

Water allocation under drought.

The 2022 European drought produced an estimated €13bn in losses for the six major crop types in the EU-27, with total cropland revenue losses potentially reaching €25-30bn25. The 2021 Taiwan drought saw irrigation suspended on 74,000 hectares of rice paddy specifically to protect TSMC fab water supply – the cleanest documented case of agricultural water reallocated to industrial use under acute scarcity26. Water allocation conflicts erupt abruptly when scarcity crosses critical thresholds, and resolve only through political intervention or seasonal recovery.

Energy infrastructure saturation.

The 2003 European heat wave produced French nuclear curtailment of 4-5 GW capacity from river-cooling limits27. The 2022 European drought repeated the pattern, with French nuclear and German coal both constrained while Rhine barges restricted coal transport. Heat drives up power demand at the same moment thermal power plants lose efficiency and cooling water becomes scarce – a self-compounding mechanism.

Logistics chokepoint disruption.

The 2023-24 El Niño drove the Panama Canal to historic low operating capacity, with the Canal Authority cutting daily transits and imposing draft restrictions on vessels that normally carry around 5% of global seaborne trade28. Major logistics firms redesigned flows publicly: DHL routed US East Coast cargo to the West Coast for transloading29; freight rates rose; multi-week delays accumulated. Aon and S&P analysts framed this as a “compressed climate event” simultaneously stressing inland waterways, agricultural output, and power systems. The cascading effect from a slow return-to-normal at the Strait of Hormuz, the inertia of oil and oil-derived markets, an ENSO-stressed Panama, and a heat-and-drought-stressed US inland logistics network could compound to significantly inflate logistics costs.

Standard mitigation through input substitution depends on alternatives having spare capacity. The 2026 configuration removes that lifeline: countries exposed to disruption around the Strait of Hormuz account for 49% of global urea exports and 30% of global ammonia exports, with phosphate fertilisers and sulphur (a critical input for processing phosphate rock) showing comparable concentration30. Alternative fertiliser supply chains face the same upstream constraint as the primary one. Inventory buffers absorb weeks; multi-quarter compounding exhausts them – Australian urea stocks were projected to deplete by mid-April 2026, and Brazil cannot meet 30% of its phosphate needs31.

Data centre infrastructure under compounding stress.

The same infrastructure-saturation logic now matters for one of the market’s most important capex stories: AI infrastructure. The AI infrastructure buildout is concentrating electricity and cooling-water demand in several geographies already facing power, water and heat constraints. Singapore imposed a moratorium on new data centres in 2019 driven by power and water demand, lifted in 2022 only with new sustainability requirements32. Dublin restricted new data centre grid connections in 202233. In parts of the Texas Gulf Coast, including Houston-Galveston and Corpus Christi, water availability is becoming a more explicit constraint in industrial and digital infrastructure siting. Hyperscaler capex is at historical highs while the underlying physical infrastructure that supports it is becoming climate-constrained.

These are the documented mechanisms through which climate stress becomes system failure.

Contagion channels

Once systems break, financial and political consequences follow through specific channels. The point of revisiting these episodes is to map the transmission channels that 2026’s compounded shocks are most likely to activate. The 2026 scenario is meeting these channels in their already-stressed state.

Insurance repricing.

Reinsurance market corrections lag: rates rise sharply after major losses (1992 Hurricane Andrew, 2017 HIM, 2018 California), then soften as capital reflows. The 2026 cycle shows rates falling 14-20% even as insured catastrophe losses have exceeded $100bn for six consecutive years34 – a divergence the historical record suggests resolves abruptly through a major loss event rather than gradually through repricing. The compounding scenario meets the insurance market in its softest configuration in a decade. The relevance to 2026 is accumulation: crop stress, logistics disruption, heat exposure and political instability can hit multiple insured and reinsured books in the same cycle.

Trade restrictions and price transmission.

Sovereign responses to supply stress are predictable patterns. The earlier 2007-08 rice crisis, driven by India and Vietnam export restrictions plus Philippines panic buying, sent international rice prices up 117-149% in Q1 2008 alone35. In 2010, the Russian wheat export ban drove international wheat prices up by over 50%36, adding 1.6% to Pakistani poverty per World Bank analysis. Even without explicit restrictions, supply transmission can be severe: cocoa nearly tripled in 2024 and reached record levels of approximately $12,500-12,900 per tonne in New York, after poor weather, disease, smuggling and illegal mining hit West African supply. Côte d’Ivoire’s 2023/24 production was roughly 24% below the previous season, while Ghana faced severe delivery delays and output stress after adverse weather, swollen shoot disease and structural farm damage. The result was not just a price spike, but contract rollover risk and a rapid repricing of the cocoa value chain37.

One counter-argument is that demand destruction caps price transmission at some threshold. The 2007-08 episode is informative on where that threshold sits: food demand is highly inelastic in low-income economies – substitution and reduced discretionary spending typically operate before absolute caloric reduction – and the political fragility channel often activates before the demand floor stabilises prices. The 2008 World Bank assessment estimates 130-155 million people pushed into poverty during the spike, with food riots in over 14 African countries plus major protests in Bangladesh, Egypt, Haiti, Indonesia, Mexico, and Yemen preceding price stabilisation38. Demand destruction operates, but well above the price level at which political and humanitarian costs have already crystallised.

Currency, fiscal stress, and political fragility amplification.

Pakistan 2022 is the most documented climate-fiscal compounding case: floods produced approximately $30bn in damages and economic losses combined39, accelerating an already-active fiscal crisis that included a balance-of-payments emergency, ~24-28% PKR depreciation, and a deepening of the existing IMF programme. The 2018 Argentina case shows how climate stress amplifies pre-existing fragility. A severe drought reduced soy production by roughly 31% and corn by 20%, generating approximately $3.4bn in direct economic losses and a 0.5% decline in Argentine GDP40 during a period of already-high fiscal vulnerability and emerging-market-wide capital outflows. The drought acted as an additional trigger of Argentina’s 2018 economic crisis. On political fragility, the academic literature is divided on direct causation but converges on a threat-multiplier dynamic: climate stress rarely causes unrest by itself, but sharply increases its probability in already-stressed contexts. Sharp domestic food price increases are the channel most consistently linked to instability41. The 2025-26 baseline shows multiple emerging economies – Bangladesh, Kenya, Pakistan, Sri Lanka – already reporting elevated youth-led unrest and sovereign fiscal stress42.

The compounding scenario identifies pre-existing fragility into which amplification could occur. For investors, the relevant question is not whether every shock fully materialises, but which sectors are priced for sequential stress when the observable transmission channels are already moving concurrently.

What this means for the rest of 2026

How fast and how durably does Hormuz reopen? Baker Hughes is now planning on Hormuz not fully reopening until the second half of 2026; a Dallas Fed survey of oil and gas executives finds nearly 80% expect the strait to remain disrupted until August or later43. The US has signaled mine-clearance alone will take 6 months from political resolution. Even under a full reopening scenario, recovery lags matter: Rystad estimates July for 90% volume recovery plus another two months before refined product flows normalise. The cost baseline does not snap back the moment a ceasefire holds.

How strong does El Niño become? NOAA’s 61% probability of El Niño emergence by mid-2026 includes a 1-in-4 chance of a very strong event. The yield impact functions are non-linear – strong versus moderate ENSO is materially different in agricultural and economic outcomes.

Does the US Plains conditions reading translate into yield loss? The historical record shows yield-versus-conditions divergence, but the snowpack situation suggests the underlying drought may persist beyond a single season, raising multi-year structural risk rather than single-season recovery.

The World Bank’s April 2026 Commodity Markets Outlook frames this same dynamic in macroeconomic terms: cumulative waves through energy prices, then food prices, then inflation – with developing-economy inflation projected at 5.1% for 2026 against 4.7% last year, and the prospect of 5.8% under the more severe scenario44. HSBC has identified the Hormuz-fertiliser-food transmission chain in its country-level inflation analysis45; UBS chief economist Paul Donovan has framed the same dual cost-and-supply transmission explicitly46; the Council on Strategic Risks, UN World Food Programme, and EU institutions have all moved in the same direction over the past four weeks. The analytical task is shifting from establishing that compounding exists to quantifying its magnitude and identifying the assets exposed.

What would change our view

• Hormuz traffic normalises faster than expected and refined product spreads compress.

• ONI stalls below strong-event thresholds through June/July.

• Indian monsoon distribution improves materially despite below-normal aggregate forecast.

• US winter wheat good-to-excellent ratings recover materially by July, supported by strong spring rains and lower abandonment risk.

• Fertiliser affordability improves through subsidies, supply rerouting, substitution, or a sustained compression in urea / ammonia spreads.

Closing

Three shocks that look unrelated at first glance are interacting through shared, measurable channels. Understanding how they can compound is not a forecast. It is the analytical structure required to interpret evidence already in the data.

We are developing this framework further into a Forward View: scenario-based ranges for 2026-27 under moderate and super El Niño regimes (with and without prolonged Hormuz disruption); selected sector and ticker exposure analysis; expected impact ranges for the Hormuz, Panama, and US river chokepoint corridors; and stress-testing inputs that translate physical mechanisms into portfolio and policy applications. It is positioned for decision contexts that need quantified, time-bounded scenarios.

We also publish Working Papers that document the methodology and validated outputs behind these findings: facility-level dose-response analysis, district-level crop sensitivity to ENSO, and the validation suite that grounds the framework. The first published example, on cotton (across the US and India), is available now; companion papers on industrial dose-response, groundnut, rice, and coffee to follow.

The Forward View and Working Papers are available under bilateral confidentiality. Contact us for access.

Climate on the Ledger, our weekly newsletter, tracks the diagnosis as it unfolds. Subscribe at climateontheledger.substack.com.

A growing body of research from the International Labour Organisation, the World Health Organisation, and academic institutions documents how rising heat and humidity degrade worker productivity. The relationship is now well established: beyond certain wet-bulb globe temperature (WBGT) thresholds – a measure combining heat, humidity, and solar radiation – labour capacity drops.

The intuitive conclusion is that this should directly reduce factory output in climate-stressed regions.

However, the results from training our Predictive Climate Intelligence (PCI) system on 29,245 industrial facilities and 1.77 million facility-months1 across 80+ countries suggest something different. In most industries, climate stress does not primarily reduce output. It degrades how efficiently that output is produced.

In short, factories do not stop; they compensate. And the cost of this compensation is invisible in production volumes.

This creates a vicious carbon cycle: climate stress makes factories less efficient, and that loss of efficiency increases the emissions intensity of production.

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What we found

We evaluated the impact of climate variability on manufacturing facilities across five sectors: steel (958 facilities), cement (2,160), food and beverage (15,047), textiles (10,736), and pulp and paper (344). These sectors span heavy industry to light manufacturing, capital-intensive to labour-intensive, and temperate to tropical geographies. For each facility, we constructed monthly climate exposure profiles and break down the impact into two channels: volume (did output change?) and intensity (did the energy and emissions cost per unit of output change?).

The results are consistent across all sectors, with one important exception: steel. In most sectors, when that stress hits, it shows up in the efficiency channel rather than the volume channel.

In four out of five sectors, approximately one in five facility-months shows measurable efficiency degradation with no corresponding drop in output:

• Cement: 20.7% of facility-months show efficiency hits, versus 10.4% showing volume hits.

• Food & beverage: 20.1% efficiency hits, versus just 0.5% volume hits.

• Textiles: 21.1% efficiency hits, versus 7.7% volume hits.

• Pulp & paper: 24.6% of facility-months show efficiency hits, versus just 1.4% showing volume hits.

Weighted across the full dataset, efficiency-only degradation occurs in 20.0% of facility-months, while volume-only degradation occurs in just 4.1%. In other words, climate stress is nearly five times more likely to make a factory dirtier than to make it produce less.

Steel tells a different but aligned story

Steel breaks the pattern: only 1.8% of observed -months show efficiency hits, while 8.3% show volume hits. This reflects the physics of the sector. Steel furnaces, particularly blast furnace / basic oxygen furnace operations, cannot easily modulate their operating intensity. The process does not allow much scope for “running dirty” in the same way as other industries.

This finding further emphasises that the efficiency channel is process-dependent. To understand how climate stress transmits through manufacturing, one needs to understand the industrial process at facility level.

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Why this remains invisible

Conventional climate risk assessment focuses mainly on two key aspects:

1. The catastrophe channel: shutdowns, supply-chain disruption, and asset damage.

2. Long-term asset-level climate risks.

That leaves a major blind spot.

One reason is that output often holds steady. Hotter days do not trigger business interruption. A cement plant operating under heat stress still ships clinker. The production dashboard shows green, but the kiln is running less efficiently, burning more fuel and emitting more CO₂ per tonne produced.

The second is methodological. Catastrophe models assess asset damage. IoT sensors track real-time operations. Neither is designed to detect a slow, process-level degradation of energy efficiency driven by ambient climate conditions over a one-to-six month horizon.

The vicious cycle

This is where the hidden vicious carbon cycle emerges.

Climate stress makes factories less efficient. Less efficient factories use more energy per unit of output. More energy consumption means more emissions. More emissions contribute to the climate stress that helped cause the problem in the first place.

That degradation is not limited to carbon. Under heat stress, pollutant intensities across the board – PM2.5, NOₓ, SO₂, CO – become more correlated, with co-movement amplified by up to 48% compared to normal conditions. When a factory runs dirty, it runs dirty across multiple dimensions at once.

This feedback loop operates at a scale that matters. Across the dataset, we identified over 150,000 heat stress events, nearly 73,000 drought events, and over 48,000 compound events. These are defined against process-specific safe operating-space thresholds that pass robustness tests: empirically identified points beyond which specific industrial processes, in specific climate zones, begin to degrade.

The cycle is particularly acute in tropical and subtropical regions where manufacturing capacity is highly concentrated: textile facilities in South and Southeast Asia, cement plants across Sub-Saharan Africa, food processing in Central America. These facilities are often among the most exposed to climate variability and the least likely to have the capital available for rapid efficiency upgrades. As a result, they may remain locked into more carbon-intensive ways of maintaining output.

Climate does not stop factories and that is precisely the problem.

What this means

Energy costs are already elevated. Goldman Sachs now sees Brent averaging $83 per barrel in 2026, up from a pre-conflict forecast of $77, while NOAA says El Niño is likely to emerge in May–July and persist through at least the end of the year. That combination matters because factories do not need to shut down to come under pressure. They only need to become incrementally less efficient as temperatures rise while fuel and power remain expensive.

In that context, efficiency loss is no longer a theoretical concern. It becomes a practical way to anticipate which facilities are more likely to absorb higher temperatures and higher energy costs while protecting margins and operations, and which are more likely to see both operating costs and carbon intensity deteriorate.

In the next piece, I will unpack how these efficiency losses transmit to corporate earnings, particularly margins.

Our Methodology

To produce defensible and useful results, we focused on three things.

Precise attribution. Before evaluating climate impacts, we strip out macroeconomic and secular trends. This reduces the risk of attributing to climate what is actually driven by commodity cycles, policy shifts, macroeconomic volatility, or technology adoption. We also require each sector model to pass strict statistical tests, including checks showing that randomised climate signals produce no effect.

Process-specific safe operating spaces. Rather than applying uniform thresholds, we define the climate envelope within which each industrial process operates normally, by technology type and climate zone. A wet-process textile facility in Bangladesh has a different safe operating space than one in Indonesia. Overall, we identified close to 180 climate thresholds across the five sectors, with quantified effect sizes.

Dual-channel impact split. We evaluate climate stress along both the volume and intensity channels simultaneously. This is what revealed the decoupling: stress events degraded efficiency without measurably reducing output.

We are currently piloting Predictive Climate Intelligence – from field to factory – with a small number of design partners. If this resonates, feel free to get in touch.

We often hear that a company has to be ‘rich’ to decarbonise. But what if we flipped this assertion on its head, asking instead “is a company decarbonising to the maximum of its financial capacity?”

Building the Competitive & Transition Benchmark revealed a relationship between capital efficiency and carbon efficiency. This raised a sharper question: can we estimate, for each company, the emission intensity its financial profile should support — and measure whether it's converging toward it?

That was the foundation for the “Carbon Frontier” model. It estimates two things: first, the emission intensity a company should be able to reach given its financial profile; second, the rate at which it is moving toward that frontier. Together, those outputs produce both a company classification and an estimated time-to-frontier, allowing comparisons across companies and industries.

The framework: a financial-capacity frontier

Rather than comparing companies against a generic sector average, the model derives a company-specific emission intensity frontier based on its financial profile, including revenue mix, margin structure, capital intensity and operational leverage. We run an ensemble of regression models, validated out-of-sample, to estimate what a company’s emission profile should look like given its balance sheet characteristics.

The frontier is the emission intensity that financially comparable companies within the same sector achieve. If you are producing more CO₂ per million euros of revenue than your financial profile predicts, that’s the gap – measurable, specific to your company, and grounded in what your financial peers actually deliver1.

But the frontier gap alone is static. It tells you where a company is, not where it’s going.

So we add a second layer: Carbon Speed — the rate of emission change per additional million euros of revenue, tracked over time. This enables us to measure not just distance from the frontier, but convergence velocity: is a company closing the gap? Is it accelerating or decelerating its decarbonisation?

Combining these dimensions – gap, speed, momentum, and trajectory reliability – produces an outlook classification for each company. From CONVERGING FAST (gap closing rapidly, speed accelerating) through STALLED (gap exists, momentum has flatlined) to DIVERGING (gap widening, moving further from frontier). Twelve classifications in total, each telling a different story about what intervention – or recognition – is warranted.

The framework currently covers 103 companies across 11 sectors. 36 companies – roughly a third – currently sit at or near their frontier, a proportion we expect to gain more granularity as coverage expands.

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What we did not find

Across all 103 companies in our dataset, zero are financially constrained from further decarbonisation.

What this means is that all companies are either sitting at their frontier or have financial capacity to further decarbonise. Every gap between actual and frontier performance is a question of decision-making, rather than financial capacity.

This empirically challenges the “we cannot afford it” argument. The framework does not ask companies to match an arbitrary sector target or yearly abatement rate. It asks them to match what financially comparable companies already achieve. This makes it a harder claim to dismiss, at least from a practical capacity perspective.

Similar profiles, opposite trajectories

The most striking outputs are the within-sector contrasts: companies with nearly identical frontier gaps heading in opposite directions.

Automotive: Two major manufacturers both carry frontier gaps in the 65–75% range. One is classified CONVERGING FAST, accelerating its reduction, with an estimated convergence timeline under four years. The other is DIVERGING, it is still adding emissions and moving further from its financially-derived optimum, with no convergence timeline. Comparable gap, same sector, opposite directions.

Mass market fashion: Two global retailers with comparable scale and margin structures. One is converging fast, with accelerating momentum and an estimated convergence timeline below two years. The other is diverging, its decarbonisation trajectory has reversed relative to its financial capacity.

Consumer goods: Two major CPG companies with frontier gaps of ~77% and ~65% respectively. One is converging fast with improving momentum, estimated to close in under 6 years. The other has stalled. Its momentum has flatlined and the gap shows no sign of closing despite comparable financial capacity.

These are not arbitrary ranking disputes. They are fundamentally different trajectories from comparable starting positions. The distinction tells you whether you are looking at a company on track or one that warrants closer scrutiny.

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What the model can - and cannot yet - say

Every single quantified claim we make is accompanied by a confidence level (from Low to High) that tells the reader how much they can trust it. In some sectors, financial structure explains the vast majority of variance in emission intensity, while in others – particularly those with heavy agricultural or complex supply chain inputs – balance sheets capture less of the picture. This is what the confidence level captures.

We also provide a confidence band for each company’s frontier estimate. We expect those confidence intervals to tighten as we add more data - expansion of the database and more historical data points. Where bands are wide, we flag it explicitly. Our outlook classifications incorporate this: a company with a large gap but wide confidence intervals is classified differently from one with the same gap and tight intervals.

Finally, we gate on Carbon Speed data availability. Six companies in our universe have insufficient emissions history to compute a reliable speed metric. They receive a frontier gap estimate but no convergence timeline.

Where the headroom sits

Ten companies carry frontier gaps large enough to place them in what we call the HEADROOM band, where the statistical distance between actual and predicted emission intensity exceeds sector-specific confidence thresholds. These companies span Automotive, Beauty, CPG, Tech, and Watches.

At the other end, 36 companies are classified as FRONTIER HOLDING, operating at or beyond their financially-derived frontier. The beauty sector is notably concentrated here, with six of nine companies sitting at or near frontier. Luxury shows a similar pattern, with four companies clustered near or beyond their frontier position.

The middle ground is where the action is. 12 companies are STALLED – they have headroom but their momentum has flatlined. 8 are FRONTIER AT RISK – they are near their frontier but their carbon speed is inverting, creating a risk of moving away from their frontier. 6 are CLOSING BUT SLOWING – they are converging, but their carbon speed is decelerating. These are the early warning signals of companies that could tip in either direction.

What this means

The financial-capacity frontier creates a different conversation from conventional ESG benchmarking. Instead of “you are above or below sector average,” it says: given your specific financial capacity, (1) here is the emission intensity that your financial peers achieve and (2) here is whether you are converging toward it or moving away.

For asset managers, the outlook classifications identify where engagement is warranted and what kind: constructive dialogue for companies that are converging but could accelerate; escalation for those that are diverging. For sustainability teams, it provides a concrete benchmark calibrated to your own balance sheet. For anyone making capital allocation decisions, the convergence timelines offer a forward-looking signal that reported targets and historical emissions alone cannot provide.

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Company-level diagnostics from this model are integrated into the Tier 2 analysis of the 2026 Competitive & Transition Benchmark.

Eleven years. 2,997 transcripts. 43,528 investor questions. Here is what they were actually about.

Carbon and climate physical risk was the fastest-growing investor signal in fashion between 2020 and 2024. It grew by 700%.

This means that between 2020 and 2024, climate related questions went from 0.2% of questions asked to … 0.2% of questions asked.

Acceleration does not mean materiality. Over eleven years of investor questions, sustainability themes appear episodically. But the economic expressions of the same structural problems appear consistently, and with far greater intensity. The opportunity for sustainability leaders is not to introduce new issues, but to recognise where their issues already live in investor language. Premiumisation, inventory, margins, and pricing power.

Following the trail of questions asked by investors can help sustainability teams sharpen narratives for board relevance, and prioritise actions most likely to gather broad internal support.

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The ever present premiumisation

One signal ran above 118 per 1,000 investor questions in every single year of the dataset, including in 2020 when demand collapsed globally.

Premiumisation. Whether brands can hold, protect, and extend their pricing architecture. Whether they are building equity or borrowing it.

Premiumisation is not a marketing signal, but a structural test. It asks whether the operating model protects scarcity, discipline, and brand equity, or if it slowly erodes them through volume push and discount dependency.

In sustainability language, this is about value preservation and demand discipline.
In investor language, it is about pricing power durability.

In 2020, as COVID shut down retail, investor questions about premiumisation increased to 152 per 1,000, its second-highest reading in eleven years. In 2022, the inflation shock was so severe that macro questions temporarily overtook it. By 2024 premiumisation was back to 157. In 2025 it sits at its highest in our dataset – 165.

The question sounds operational, but it is always about something deeper. Oliver Chen of TD Cowen, questioning Tapestry management: "Where do you see the most opportunity for continued agility – as test, read and react and lead times are so important to manage dynamically?" Speed, responsiveness, inventory discipline are all in service of one thing: protecting the price.

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For the past six months, I have been exploring how to measure competitive and climate performance across fashion, beauty, and consumer goods, and how to benchmark companies objectively.

To do this, I created two scores ECON (economic competitive position, 0–100) and ENV (environmental transition readiness, 0–100), both validated against audited financial results from 179 companies across 15 sectors.

One of the issues with the PDF was its linear navigation and the fact that it is a static document, so rapidly outdated. So to both share more detailed and complex information, while keeping the data updated, I changed the format and methodology: this year, I created a live platform.

Today, it is live. You can explore it here: benchmark.swanstant.com.

To create it, I used a lot more data and increased the company coverage, so there is a lot to unpack. To keep this post’s length manageable, it is the first in a series that will unpack the key findings. Today,I will start with the headlines, then go deeper in the weeks ahead.

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What is new this year

It is a digital platform, not a report

This allows me to update the data regularly as earnings come in. This means the analysis evolves. It is no longer a snapshot but a living benchmark.

Two scores that make comparison possible

• ECON measures economic competitive strength through margins and revenue momentum.

• ENV measures environmental transition readiness through emission intensity, decarbonisation pace and trajectory, carbon profitability.

Both are scored 0–100, comparing companies with their peers - and where relevant across the whole universe of company available. This allows for cross-sector comparison not on absolute terms, but on relative positioning within their competitive context.

The financial and climate data are connected.

I increased the number of ways to connect environmental and financial performance, and this is where it gets interesting. We are looking at all levels of profitability per ton of carbon, but also the speed at which companies add (or remove) carbon per million euro of additional revenue.

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Five Takeaways

I’ll explore each of these in more depth in future posts. For now, the headlines:

The widening gap

57% more companies are now classified as economically “At Risk” compared to 2022, while the number of companies with “Leaders” score stayed stable. The middle is hollowing out.

The climate reckoning

58% of companies that were “Environmental Leaders” in 2022 have lost that status, mostly because the pace of improvement has slowed down, not because they have worsen their impact.

Relative vs absolute decoupling

51% of companies are achieving relative decoupling (revenue up, intensity down), while only 23% are achieving absolute decoupling (revenue up, emissions down). Understanding what drives that 28-point gap might be where the next level of net-zero work lies.

Sector divergence is accelerating

Luxury margins compressed 4.7 percentage points. Mass margins expanded 3.2pp. Watches & Jewellery improved on both ECON and ENV.

Capital efficiency predicts carbon efficiency

Carbon profitability rises sharply with ROCE (Return On Capital Employed), but the relationship is non-linear. The biggest step-change is moving out of the bottom ROCE quartile: median carbon profitability increases from €90/tCO₂ (Q1) to €252/tCO₂ (Q2), +181%. Gains are smaller after that (+48% Q2→Q3; +90% Q3→Q4). This pattern is partly mechanical because both metrics are profit-based (EBIT in the numerator), so it reflects business economics as much as emissions performance.

I'll be unpacking these findings over the coming weeks, and most likely share new patterns as the analysis evolves.

If you want to explore the data yourself, the platform is live now. As always, I am super interested in what you see in the data.

The platform you will see is v0, I would love to improve it as user feedback comes in. If something doesn't make sense or you spot a pattern I've missed, please let me know. Equally if you encounter bugs.

2025 may have felt like a challenging year for many sustainability teams: budgets questioned, regulatory momentum diluted (or politicised), and a broader fatigue settling in. However, it can also be read as a transition year where the definition of success shifted.

To make sense of 2025 and explore what we should expect and prioritise in 2026, I reached out to Dan Fishman from Regeneration Ventures, Isabelle Lefort from Paris Good Fashion, Lewis Perkins from the Apparel Impact Institute, Nic Gorini from Spin Ventures, Pascal Brun from Zalando, and Shailja Dubé from the British Fashion Council.

Their perspectives converged on three shifts: from narrative to numbers; from distant pledges to operational risk; and from siloed sustainability functions to integrated business strategy.

The synthesis below draws on these conversations, but does not represent the individual views of contributors.

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From Narrative to Numbers

Sustainability teams are being repositioned. Not from ambition to retreat, but from target-setting and compliance to problem-solving, delivery, and viability.

In practical terms, this means moving:

• From vision to viability: measurable reductions, unit economics, and risk management outrank lofty pledges.

• From breadth to depth: focusing on fewer priorities where the case is broader than “climate” - energy, materials, logistics, heat/water productivity - and that reduce costs, risk exposure and operational fragility.

• From narrative to numbers: scenario planning, decision-grade data, and ROI scrutiny become the new proof points.

• From reporting as output to reporting as infrastructure: regulation is forcing companies to build foundational data pipelines for traceability and governance. These can underpin the infrastructure for resilience.

What we see getting phased out in 2026

• Commitments without credible delivery mechanisms.

• Pilot programmes without scaling pathways.

• Compliance-led “more-of-the-same” that absorbs budgets into reporting while leaving physical outcomes unchanged.

Practical takeaways

• Budget like an investor: select fewer, bigger interventions and set explicit “kill criteria.”

• Anchor business cases in finance language: integrate total cost of ownership, payback, downside avoided, risk-adjusted returns into project plans.

• Make the compliance build useful: show how emissions and traceability pipelines can support procurement and operations resilience.

• Ensure SMEs are not left out: without collective enablement, compliance and tooling costs will concentrate advantage among the biggest players.

Stress test for 2026: If reporting disappeared tomorrow, which parts of your sustainability work would still improve margin, continuity, or supply security?

From distant pledges to operational risk

Climate risk is moving from a sustainability and compliance topic to a business continuity one linked to cost of goods, lead times, capacity, quality, and insurability. The shift is subtle but significant, shortening the time horizon from long-term strategy decks to annual and quarterly planning cycles.

To succeed in this new paradigm, what most teams are missing is not better climate maps, but tools that can bridge climate signals to executive action by answering the following:

• Which suppliers and sites matter most?

• What is the associated financial exposure?

• Which interventions can pay off in 12–36 months?

A volatile macro context

Beyond climate hazards, leaders are navigating compounding volatility across trade policy uncertainty, geopolitical shocks, commodity swings, and China dynamics. For 2026, this creates an opportunity to connect climate resilience to the broader agenda, without forcing it.

Practical takeaways

• Translate hazards into operational language: help track what was previously invisible and build tangible cases like “flood risk at Plant X = +Y downtime days/year = -Z margin points.”

• Build decision frameworks, not just dashboards: climate should sit alongside FX, energy volatility and geopolitical risk in management routines.

• Treat insurers as intelligence partners: they often have advanced modelling and a direct incentive to push preparedness. Working closer with them can strengthen your risk profile while surfacing exposures that internal teams may miss.

• Name the supplier-capital problem: many of the levers sit where capital is scarce and scaling will require tailoring existing tools and collective derisking. It also requires answering the fundamental question of who ultimately pays.

Stress test for 2026: Can we point to a short list of sites/suppliers where climate risk is now a quantified input into decisions—not an appendix?

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From siloing to integration

The pragmatic sustainability framing will help engage more broadly, as it will sound less like ethics and costs, and more like continuity and competitiveness.

This helps bring (back) CFOs, procurement, operations and boards to the table. It also expands market-side conversations, where resilience, reliability, and innovation become part of the commercial USP, especially as consumers and trading partners continue to be sensitive to delivered value.

The AI tension we cannot ignore in 2026

AI can be both:

• A positive force supercharging process optimisation, forecasting, operational efficiencies, and speeding up problem-solving.

• A resource-intensive technology with the potential to significantly disrupt the workforce.

The winners will be those who can hold both truths at once to decide where AI genuinely improves resilience rather than adding hidden costs.

Practical takeaways

• Reframe the ask around risk, margin, business continuity, with targeted language for each audience.

• Show portfolio logic with precise interventions across high-priority regions or suppliers to reduce systemic exposure.

• Start small and scale deliberately, picking projects across materials, energy, heat/water productivity, logistics (or others) that can be executed and measured.

• Invest in capability building to train new skills both internally and with partners.

Stress test for 2026: If the sustainability function were to disappear, who else in the company would feel ownership of the topic and what would break?

Open questions for 2026

• Regulation and polarisation: China and India are accelerating on sustainability requirements while Western politics retreats. Brands that delay adaptation might find competing in key markets increasingly difficult.

• Capital mobilisation: as companies and investors have to navigate an increasingly complex and disconnected world, how much time, resourcing and capital will they be willing and able to allocate to sustainability?

• AI: will 2026 bring further clarity about where it can genuinely add value and improve risk management with measurable benefits?

How Did We Fare in 2025?

Policy Course Correction: Confirmed

We predicted that European leaders would reconsider their approach, moving toward a “less business-sceptic and more innovation-driven strategy.” This happened more forcefully than anticipated.

What happened:

• In February 2025, the European Commission adopted the first ‘Omnibus’ simplification package, presented as a simplification package aimed at boosting competitiveness and reducing administrative burden.

• The CSRD scope was set to be significantly reduced, with raised thresholds.

• Late 2025, negotiations moved toward limiting CSDDD to the largest companies.

• The “Stop-the-Clock” directive adopted in April 2025 postponed parts of the reporting requirements.

Assessment: The course correction was real.

Bridging the Funding and Innovation Gap: Partially confirmed

We anticipated increased focus on circular solutions, decoupling strategies, and “fewer, bigger priorities.” But progress was slower than expected.

What happened:

• Sustainability fell off executive agendas: only 18% of fashion executives cited it as a top-three risk in 2025, down from 29% in 2024.

• Investment shifted toward “quality growth and proven paths to profitability”.

• Circular economy initiatives grew in pockets, but remained fragmented.

• Decoupling rarely seemed to gain traction as a strategic priority at the executive level.

Assessment: The prediction overestimated the appeal and pace of adoption of these topics.

Rebuilding Trust and Alignment: Right direction, optimistic timeline

We predicted stronger focus on “projects that balance business impact with sustainability” and the need for “dual focus” between long-term vision and shorter-term delivery, which partially happened and creates continuity with this year’s predictions.

What happened:

• Climate disaster costs remained very high by historical standards.

• Summer 2025 weather extremes (heat, drought, floods) were estimated to have cost the EU ~43bn€.

• Numerous boards refocused their priorities on navigating the next 12-18 months.

Assessment: We anticipated some of the changes but were a little early in our prediction.

Note: we will publish the 2026 edition of our Market and Emissions Study in February - more soon.

Whatever your age or title, there comes a moment when something feels slightly off. You might not call it questioning. Maybe it is just a Sunday-night restlessness, or a flicker of doubt after a decision that used to feel automatic. It is easy to dismiss, yet it is worth paying attention to.

In recent weeks, I have spoken with a friend in his fifties – a General Manager leading hundreds of people. With Executive MBA participants in their thirties and forties, managing teams and budgets. And with students in their twenties, finishing university and staring into the unknown.

Despite all of them being at different stages of life, the same questions keep surfacing:

• “What should I do next?”

• “I’m stretched thin, doing more with less until there’s nothing left.”

• “Do I really want to do this for the rest of my life?”

• “Where’s the inspiring project that unites us?”

Different contexts, but the same feeling: uncertainty isn’t occasional anymore, it is the new normal.

Leaders who don’t periodically recalibrate end-up making decisions from drift, not direction. Small misalignments compound. In strategy, in team dynamics, in their own energy. The cost isn’t always dramatic, but the slow accumulation of suboptimal choices made on autopilot adds up.

Take ownership of your trajectory

We often spend more time planning our holidays than our careers. Yet it’s worth pausing regularly to ask: What do I really want from my work life? What resonates with me and what’s my compass? Which parts of my work life feel solid, and which feel unstable? If some are compromised, by how much and what is my plan to address it?

This reflection doesn’t require a big budget. Just the will to do it, the courage to be vulnerable, and the humility to look in the mirror.

The leaders I work with don’t do this because they are struggling. They do it because they know that awareness compounds just like its absence does. A small recalibration now prevents a larger correction later.

Think of it as scheduled maintenance. You don’t wait for the engine to fail before servicing a car. A leadership health check is the same principle, a routine that keeps you on trajectory before drifting away from your core drivers becomes a crisis.

How to start your own leadership check-in

So how do you turn reflection into action? Here’s a framework I use with the leaders I coach, blending honesty, structure, and support.

1. Understand what truly drives you

Before anything else, reconnect with what you genuinely value. Especially in today’s complex, unpredictable world, ask yourself: What am I really searching for? What feels meaningful – or missing – from my work/life right now?

This isn’t always easy, and you don’t have to do it alone. It is okay to seek support and be challenged during your leadership health check. I’ve been there both as an individual and as a team leader. That is exactly what I help leaders do today through Whysebird: bring clarity to their purpose and align their actions with it.

Think of it this way: even presidents have advisors. You’re still the one making the decisions, but trusted guidance helps you see the full map.

2. Audit your drivers

Once you’ve identified your key drivers – the values, needs, and motivators that matter most to you – map how each one feels today. A driver might be autonomy (the need to make decisions without constant oversight), growth (feeling like you’re learning and progressing), recognition (knowing your work is seen and valued), or security (financial and professional stability). We each have our own mix.

A simple approach is to map each driver on two axes: how important is it to you, and how fulfilled is it right now? Anything that scores high on importance but low on fulfilment is where your attention belongs. This is your internal audit, a way to separate temporary discomfort from deeper misalignment.

(See the Leadership Drivers Audit template below.)

Leadership Drivers Audit

54.2KB ∙ PDF file

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3. Build your strategy and focus your energy

Now that you see the picture, build your action map. A simple rule for spreading your energy that I find useful:

• 70% goes toward what’s already working well for you.

• 25% goes toward the critical areas you’ve identified and prioritised in your audit.

• 5% goes toward things that aren’t aligned with your priorities but that you can live with for now.

This ratio may feel counterintuitive: should you not focus primarily on fixing problems? No, neglecting your strengths while chasing fixes is how people burn out. Protect what is working. Give your problem areas focused attention, but not all your energy. And accept that some friction is tolerable. Leadership clarity starts with disciplined focus.

4. Plan one simple step

Choose one action you can take this week. A conversation. A moment of reflection. A boundary. A new idea. Progress is built in motion, not perfection.

5. Keep the routine

Do this check-in quarterly or bi-yearly. It’s leadership fitness: small, consistent reflections keep you strong, intentional, and balanced.

Making career conversations cultural

Career reflection isn’t just personal; it should be cultural. It belongs at every level: in your organisation, when defining direction and values; in your teams, when discussing growth and motivation; and for yourself, when checking if your compass still points to meaning.

People don’t need more meetings. They need career conversations, dedicated moments to talk honestly about direction, growth, and meaning. These are not performance reviews nor project updates. They are real conversations where someone asks: Where do you want to be in two years? What’s energising you right now? What’s draining you? These moments of genuine connection are where engagement truly begins.

Remember, even the strongest leaders need sparring partners to grow.

The courage to stay curious

Whether you’re a General Manager, a sustainability director, a finance executive, or an emerging leader, stay curious. Ask yourself and others the right questions instead of assuming.

I often return to Jim Collins’ Good to Great model. The sweet spot is where three things overlap: what you’re deeply passionate about, what you can be excellent at, and what drives your economic engine. When all three align, leadership feels right. When they don’t, that’s your signal to reflect.

Closing the year with clarity

As we close another year of conversations about sustainability, innovation, and transformation, let’s not forget the foundation of all progress: people. Their leadership. Their development. Their wellbeing.

2025 has been called the “Year of Mental Health”, and there is growing recognition that sustainable performance, for individuals and organisations, depends on more than strategy and execution. It depends on leaders who are clear-headed, aligned, and intentional. That starts with you.

So take that coffee. Reflect. Plan your success with kindness and clarity.

Because leadership is not a title. It’s a lifelong conversation with yourself and others.

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Further reading

• Jim Collins, Good to Great — on purpose and alignment

• Herminia Ibarra, Act Like a Leader, Think Like a Leader — on leadership identity in motion

• Whysebird.com — resources on authentic, sustainable leadership

About the author

Sébastien Barillot is a leadership, strategy, and transformation advisor. He is the Managing Director of Whysebird, the atelier of authentic leadership, crafted with purpose, rooted in sustainability, and driven by excellence.

As businesses navigate the most substantial reshaping of geopolitics and trade since the post-war order, and policymakers in the West reduce regulatory pressure, sustainability is retreating from boards’ priorities.

However, while boards are focusing on geopolitical and trade risks, heat, air pollution, and drought are already eroding their margins via lower labour output, raw-material volatility, and logistics delays.

This is why I created Climate on the Ledger: to identify where climate risks are showing up, quantify their impact, and identify resilience best practices.

Why climate risks and why now?

Climate-induced disruptions are already hitting supply chains, affecting efficiency and margins.

In 2023, the world lost 512 billion work hours due to heat alone according to the Lancet, a 49% increase since the 1990s.1 The Panama Canal drought cut daily transits well below normal through 2023–24, forcing restrictions and reroutes, only easing in late 2024/early 2025.2 A dzud (an extremely harsh winter) in early 2024 killed around 2.5 million goats in Inner Mongolia, reducing cashmere exports by 55% and pushing raw material prices by roughly 12%.3 In Grasse, extreme drought cut tuberose harvests by 40% in 2022 and reduced flower yields across the region by as much as 50%.4

There is growing consensus across asset owners and supervisory bodies that most companies are unprepared for the level of disruptions to come and that conventional asset-by-asset evaluation underestimates actual risks. Norges Bank Investment Management (Norway’s sovereign wealth fund manager) estimates risks could be understated by as much as a factor of nine.5

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Resilience as a profitability shield

Operations

From an operational standpoint, productivity drops with heat and air pollution. Meta-analyses indicate a 2-3% productivity loss for every 1 °C increase above 20 °C WBGT,6 which means losses can mount quickly in hot months. Weather and climate are now consistently a top-tier disruption driver in global risk reports, affecting over 60% of companies.7 Droughts are creating logistical chokepoints, adding shipping delays.

All this adds up. Garment hubs (Dhaka, Tamil Nadu) already report productivity losses of 12-35% during extreme heat, with workers requiring up to 50% more time to complete tasks and absenteeism reaching 20% during the hottest months.8 While the Eurozone reportedly may have lost about 0.5 percentage points (50 bps) of GDP growth due to this summer's heatwave.9

Liability & financial risk

Climate litigation is rising fast between greenwashing and attribution cases, and directors face heightened duty-of-care scrutiny. Force majeure provisions in contracts are narrower than some may assume and might not cover climate-linked delivery delays or fulfilment failures. Only around 43% of natural-catastrophe losses were insured in 2024.10 The rest hit balance sheets or taxpayers. Premiums and underwriting scrutiny are climbing.

Short-term adaptation and resilience are therefore fiduciary issues, with quantifiable performance benefits, not just a moral imperatives.

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Building climate resilience: A practical framework.

1. Map & assess initial exposure

Start with what you know or can find out:

• Identify your top 5-10 SKUs and map their primary (and, if possible, secondary) production locations.

• Collect available supplier data: locations, seasonal production patterns, recent disruption history.

• Document data gaps for future supplier engagement.

Use free risk mapping tools:

🌊 Water Risk: WRI Aqueduct Water Risk Atlas, a global water stress mapping used by hundreds of organisations.

⛈️ Multi-Hazard Risk: World Bank ThinkHazard!, a district-level assessment of 11 climate risks with recommendations.

📊 Climate Risk Screening: World Bank Climate & Disaster Risk Screening Tools, sector-specific assessments used in thousands of World Bank projects.

🔬 Advanced Modelling: CLIMADA, developed by ETH Zurich, requires Python skills to use.

2. Evaluate potential interventions

Based on the results of your risk assessment, you can prioritise practical resilience interventions:

• Operational: Scheduling shifts during high-risk periods, facility retrofits like enhanced ventilation.

• Sourcing: Geographic diversification, seasonal buffers.

• Financial: Parametric insurance, adaptation financing.

Focus on both high-frequency, moderate-impact events (e.g. seasonal heat) and catastrophes (e.g. floods or wildfires).

Define a small KPI set to track the impact of climate:

• “Loss-stack”: monthly/quarterly tally of weather-related costs like short stoppages, repairs, expedited freight, labour rescheduling.

• On-Time-In-Full (OTIF) performance during weather events.

• Time-To-Recovery from disruptions.

3. Deploy, monitor, learn

• Start small: Test a couple interventions once you have established measurable baselines or identify a relevant risk.

• Track systematically: Monitor monthly/quarterly KPIs and compare with historical performance.

• Iterate: Regularly update risk maps and extend analysis to more SKUs/geographies, scale interventions that work.

Moving beyond reactive risk management

Most climate risk approaches analyse either past events or model long-term scenarios. While the framework above helps companies begin mapping climate exposure and plan for potential disruptions, few solutions offer short-range operational foresight that enables companies to proactively manage coming disruptions.

At Swanstant, we are developing Predictive Climate Intelligence to translate short-term climate signals into specific operational decisions and help companies protect margins.

We are currently inviting a small number of partners from industry and finance to pilot this approach across different operational context - including materials, manufacturing geographies, and product categories. These collaborations are designed to prove real-world value while refining our methodology through actual business applications.

If you would like to explore whether your supply chain could benefit from Predictive Climate Intelligence, get in touch.

After the publication of my markets and emissions study, several people asked me if based on this analysis, I could point them towards companies that are on a clear decoupling pathway.

So I got back into my database and looked. I found quite a few relative decoupling examples, across the different consumer markets. However finding one that looked like absolute decoupling was quite a challenge.

Given the lack of data on volumes and quantities, I had to look for decoupling of revenues and emissions, rather than revenues and production. But it seems like a close enough proxy for now.

When I got to Apple’s financial and environmental performance between 2019 and 2023, they seemed to be on a decoupling trajectory, so let’s dive in!

Observations

The company does well financially

Despite a slight revenue drop in 2023, the company continues to do well and grew by 163% between 2014 and 2024. Contrary to the majority of companies who grew over the same period, Apple managed to improve its profitability too, matching its high of 30% EBIT margin in 2022 and 2023, and improving it to 32% in 2024.

Its emissions are down

Both absolute and relative emissions are down during the period between 2019 and 2024. Revenue emission intensity decreased by 54% over the period - one of the top performances across the 140 companies we monitor. Its absolute emissions are down 39% over the same period.

The share of services in its revenues is up

The share of services in Apple’s revenues continues to rise, going from 15% in 2018 ($39.75bn) to 24.6% in 2024 ($96.17bn). Over that period, the company launched a range of new service offerings including Apple TV+, Apple Arcade and Apple News+.

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What actions are contributing to Apple’s decoupling?

Economic Efficiency

Apple is maximising economic efficiency through:

• Lean inventory and just-in-time manufacturing: Tim Cook - the company’s CEO and former COO - famously called inventory “fundamental evil”.

• Waste minimisation: as of 2023, all of the company’s final assembly sites were certified zero waste to landfill by Underwriters Laboratories.

• Limited discounting practices: Apple rarely engages in discounting maximising the revenues it gets from the products it manufactures, contributing to its high environmental and economic efficiency.

• Recycled inputs: Apple sources the majority of its aluminum from recycled sources (71% in 2023) while numerous devices now include recycled cobalt or lithium.

Apple has also focused on improving the energy efficiency of its products, as the use phase represented 29% of its scope 3 emissions in 2024. Since 2008 the company claims to have reduced the energy use across its main product lines by 70% through hardware and software improvements.

Product circulation

Although Apple is not directly involved in the second hand market, the stability of its platform - devices can benefit from software updates for up to 7 years - contributes to high resale value and interest from second hand shoppers. In 2024, iPhone made up 56%1 of the global refurbished smartphone market.

Value added services

Adding value to circulation

• Extended warranties: AppleCare and AppleCare + support the longevity of products and protect users from faulty or damaged items, even when they are the source of those damages.

Adding value to products over time

• Platform stability: by providing software updates for up to 7 years, Apple allows older devices to benefit from some of its latest innovations, like advances to Siri.

• Cloud services: iCloud+ for example helps increase the storage capacity of devices by storing data on the cloud, solving a key frustration from customers while allowing them to use their devices for longer.

• Digital services: subscriptions like TV+, Fitness+, News+ are deeply integrated into the Apple ecosystem and enable the company to increase the lifetime value of its customers, but also to generate revenues from second-hand buyers of its devices.

Complete dematerialisation

N/A.

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Performance against eco-environmental indicators

I have been working on two indicators to measure the intersection between economic and environmental performance: Carbon Profitability - the profits the company extracts per ton of carbon emitted - and Carbon Speed - which is the speed at which the company emits carbon per million euro of additional revenue. Let’s see how Apple performs against both.

EBIT/tCO2e

Apple improved its carbon profitability by 185% between 2020 and 2024, to a point where it is now leading the GAFAs and other consumer tech leaders. For comparison Dell’s carbon profitability was 10 times less than Apple’s in 2023.

Carbon Speed

This graph tracks the carbon speed of leading tech companies, defined here as the ratio between the change in absolute emissions over the change in output (here revenues) over a given period.

It seems to confirm what charts in the second image of this newsletter suggested: that Apple’s emission reduction efforts, while remaining industry leading, might be reaching a plateau.

This potential plateau raises important questions about the next chapter of Apple’s decoupling journey. Are they reaching the abatement limits of the levers we explored above? Will they - and can they - push harder on business model and customer offerings innovation? What new levers can help accelerate their journey? One area to continue watching is how their services division expands as a share of total revenues, and whether it still strengthens their decoupling path.

At the same time, investment in AI has triggered significant increase in absolute emissions for other tech leaders, including Microsoft and Alphabet. Whether Apple Intelligence follows a similar trajectory remains to be seen.

In all cases, 2025 will be a year to watch!

Sources: Apple’s public reporting, incl. 10-K fillings and environmental reports.

To go further

This week, someone shared a very insightful report dating back to 2023, looking at the profits per ton of carbon for 184 companies: https://carbongap.org/who-can-pay-for-carbon-removal/

I was joined by , co-founder and executive director of Paris Good Fashion, for a conversation that unpacked the study’s key takeaways and explored their implications across the industry.

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You can also download the slides from the presentation below.

Swanstant Fashion & Goods Market & Emissions Study Webinar 300425

8.25MB ∙ PDF file

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And, as always, I’d love to hear your thoughts or questions so feel free to get in touch.

While we are still in the midst of an unprecedented degree of uncertainty regarding the trade strategy of the current US administration, the rest of the world continues to move forwards, with the majority of the tensions centered around the US-China relationship.

Over the past couple weeks, I tried to make sense of the stock variations resulting from the tariffs announcement. Following the publication of the Q1 results of LVMH earlier this week, I have looked at the analyst consensus - as reported by S&P Global Market Intelligence - to see how the current state of global affairs impacted financial forecasts.

What I saw brings some hope. Across our luxury, premium and sportswear1 indexes, revenues are expected to grow by 3%, while our mass index is forecasted to grow by 4%2. Those numbers are slightly higher than expectations around global GDP growth. This could be seen as a moderate expectation of impact from the trade war, and a view of global resilience to US turmoil.

We will continue to monitor this glimmer of hope for confirmation or not, in light of both upcoming Q1 reporting of numerous brands across our indexes, and ongoing global developments.

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Positive fashion and luxury outlook

Brands topping our indexes in 2025 growth expectations are:

• Luxury: Brunello Cucinelli, Hermes, and Prada - expected growth of around 11%.

• Mass: Fast Retailing - expected growth around 9%.

• Premium: Ralph Lauren and Tapestry - expected growth around 3-4%.

• Sportswear: On Running - large expansion around 28%; Asics and Amer Sports - expected growth around 14-15%.

General hope across consumer segments

Wines & Spirit: The normalisation of demand is expected to plateau and the industry should renew with a small growth (1%).

Beauty: Our index shows a 4% growth forecast, led by Puig (7%) and Beiersdorf (5%).

Automotive: While premium German and all American car manufacturers are expected to face a challenging year, affordable manufacturers like Renault and Toyota are expected to experience moderate growth.

Today, I am excited to launch the inaugural edition of what I hope will become a yearly occurence: the 2025 Fashion & Goods Market & Emissions Study. This study explores how fashion’s financial performance intersects with its environmental footprint and puts the industry’s performance in perspective by comparing it with other consumer markets.

The study was announced this morning in Vogue Business - where I share more details about the thinking and approach that led to its creation.

I created it to answer the following questions:

• Is luxury truly experiencing a slowdown or a natural post-boom normalisation?

• How does fashion’s financial and emission performance compare to other consumer industries?

• What pattern emerge when analysing emissions per revenue across fashion segments?

• How are ultra-fast fashion players reshaping the industry?

• What does past performance indicate about future growth opportunities – especially on the relationship between revenues, profitability and emissions?

This study approaches the fashion industry is a segmented way, between luxury, mass, premium, sportswear and ultra-fast, to provide a more granular perspective on its evolution. The segmentation is based on the preliminary outcomes of a project with Paris Good Fashion supported by le Defi Mode, to create a segmented decarbonisation trajectory for the fashion industry - the results of which will be published later this summer.

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On Carbon tunnelling

A needed simplification of environmental performance?

Amidst the complexity of ESG ratings, emissions offer pragmatic and comparable lens to evaluate performance. They can be benchmarked, and tracked over time. In addition, emissions data - especially in scope 3 - can provide perspectives on a company's level of operational control and maturity in managing its supply chain. As The Economist argued in a special report in 20221, boiling ESG down to a single measure like emissions can help cut through the noise and increase the focus of key stakeholders on progress.

Some caveats

But emissions data is not perfect. Differences in methodology, assumptions, and disclosure standards introduce uncertainty. This is reflected in the yearly measurement variations that we see with some of the companies we track. Ensuring more uniform and universal standards for emissions calculations and disclosure would help significantly. There is also a risk of falling into a “carbon tunnel” view of sustainability. That’s why emissions can be used to assess performance from a top line perspective, but cannot replace a broader understanding of a company's impact, from biodiversity to waste to social issues, that leads to concrete actions across those impact areas.

Still, when used thoughtfully, emissions can provide a common language that helps us compare, contextualise, and question progress in a very concrete way.

Happy reading and I would love to hear your thoughts on the study and on the role emissions should play in assessing business performance?

As markets adapt to the upending of the global trade order, we continue to try and understand what factors may impact their decisions in rearranging their portfolios.

Last Friday, our preliminary analysis showed that US brands were sanctioned more than brands from other geographies and that premium brands suffered larger losses than luxury and mass ones.

Today, based on markets evolutions between opening on April 1 and close on April 8, we look at:

• Impact of segment1

• Impact of geographic HQ

• Impact of share of revenues coming from the US

• Impact of operating profit margins

We also have a preliminary look at the impact of production geography.

Impact of segment

The trend we identified on Friday - for different segments to be evaluated differently - was confirmed over the past few days. Premium remains the segments fairing the worst, while mass, CPG and beauty groups all experienced similar drops by close on April 8th.

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Impact of geographic HQ

The trend we identified on Friday - for US brands to fair worst than one from the rest of the world - was confirmed over the past few days. However, British and Japanese brands, who initially seemed quite immune to the markets’ reactions, dropped significantly by April 8th.

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Impact of share of revenues coming from US

Predictably, brands with a higher dependance on the US market are fairing worst than those with a lower one2. However, this trend reverses for brands with an extreme (>60%) dependency to it. Of those, Abercrombie, Deckers and Lululemon are fairing better that the others, that are more aligned with the general trend (losses larger than 14%). One explanation might lie in their higher than average operating profit margins.

Impact of EBIT margin

There seem to be a correlation between better margins and better stock resilience. The significantly stronger performance of brands with EBIT margins between 15 and 20%. This is due to the strong performance of Fast Retailing, Inditex and Next, who have limited (20%<) US market exposure, which shows the interconnection between the two factors in valuations.

Production geography

[Preliminary] The geography of production seems to have less impact on market dynamics than the share of revenues coming from the US. As part of the segmentation project with Paris Good Fashion and le Defi Mode, we identified significant variations in tier 1 geographies between luxury, mass and premium, with a shift towards lower production cost countries between premium and mass. The fact that mass is performing better than premium and luxury could indicate that their lower dependance of US market is weighted stronger than their reliance on south east Asian supply chains. We will do a more quantitative assessment to better understand the dynamics there.

Apendix

Sharing more analytical details here for those interested.

Geographical location

The drop of Japanese brands is driven by Sony and Shiseido.

Share of revenues in US

This is a more detailed view of how dependance on US markets is affecting valuation for each of the main fashion segments.

With all the noise around tariffs, I wanted to understand two things from the markets’ reaction yesterday:

1. How does a brand’s market segment1 - e.g. luxury, mass, premium, or sportswear - shape investors’ perceptions of its exposure to tariffs?

2. How does a brand’s country of registration influence how the potential impact of tariffs is assessed by investors?

Segment analysis

We see that on average each segment is impacted very differently. A few thoughts on the dynamics:

1. Luxury: having significantly raised their prices (on average) over the past few years, brands have limited room to redistribute the impact of tariffs entirely on their prices. However their robust (on average) profitability probably could make investors think that they can absorb some of those - which would explain why brands with profitability issues like Burberry or Kering had a worst day than others.

2. Mass: compared with the rest of the industry, mass market brands on average did not have a bad day. This is a little surprising but may be explained by the fact that their revenues are well balanced globally. For example Fast Retailing’s stock was up 1.14% between April 1st and 3rd, which may be explained by the fact that the US, although a growing market for the group, only accounts for 7% of its revenues.

3. Premium: largely reliant on countries that were hit with the highest potential tariff rates - incl. China, India, Bangladesh - and already in difficult market positions, premium brands got all quite severely hit yesterday, with Capri Holdings’ stock losing nearly 22% in two days.

4. Sportswear: the surprise high tariffs on Indonesia (32%), Cambodia (49%), and Vietnam (46%), which are countries where sportswear brands manufacture a significant proportion of their shoes, may explain in part the very negative reaction of the market for this segment.

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Geographical Analysis

US based brands suffered the largest losses in the stock market yesterday. This may be explained by the combination of supply chains heavily reliant on China and south-east Asia, combined with a significant revenue dependance on the American market - for example 50% of Ralph Lauren’s revenues are in North America, a number that climbs to over 80% for American Eagle Outfitters.

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Details on the analysis

The analysis was done over 8 luxury groups, 10 mass market groups, 7 premium groups, and 6 sportswear groups. The stock evolution was computed based on the opening price on April 1 and closing price on April 3. The average was weighted based on the market cap of individual companies at the end of 2024 to ensure representativeness of the indexed average.

It is well established that the fashion industry is a key contributor to global emissions. Yet, an analysis I recently conducted, using publicly available data from leading brands, reveals significant variation in impact across the industry’s main segments - including luxury, mass, premium and sportswear. The definition of these segments is based on the results of an ongoing project for Paris Good Fashion with the support of the Defi Mode.

As regulatory pressure increases, sometimes lacking the granularity to promote a more measured approach to stimulating industry action, gaining a better understanding of emission profiles is critical.

Pointers when reading the analysis1:

It is by no means intended to point the finger at a particular segment or actor, nor to clear the responsibility of any part of the industry to act on climate. Rather, it is meant to highlight the differences in performance which should inform tailored approaches and priorities to reducing emissions.

I present both revenue-based intensity as a useful benchmarking tool, and absolute emissions which remain the most critical metric as global climate goals depend on absolute reductions, not just efficiency gains. To assess a company’s progress both offer valuable insights.

Finally, differences in methodology impact the calculation of scope 3 emissions, making direct comparisons complex, but these are the best data we currently have.

Emission intensity of fashion’s main segments

Luxury has a lower emission intensity than other segments, thanks to high margins - around twice that of the rest of the industry - lower production volumes and supply chains mostly located in geographies with stricter environmental regulations and lower-carbon electricity grids like Europe2.

Mass market has the highest emission intensity, driven by high production volumes - often retailing thousands of SKUs at any given time3, lower price points and a reliance on production hubs with carbon-intensive energy grids - notably in southeast Asia where coal remains dominant.

Premium and Sportswear show similar emission intensity, however their trajectories differ. While Premium’s intensity reduction has slowed down in 2023, likely due to a more challenging market affecting sales, Sportswear brands have made steady progress, benefitting from being early movers in sustainability.

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Emission intensity of leading fashion groups

The segment a company operates in has a significant impact on its carbon intensity, and within segments the differences between companies are quite pronounced. Three groups are emerging: the super performers, the improvers and the worsening brands.

Observations

The super performers are the brands that have decreased their emission intensity by over 15% over the past three years. The top performers in this category are: Chanel (-31%), Nike (-30%), Inditex (-26%), Ralph Lauren (-22%), and LVMH Fashion & Leather Goods (-19%).

The improvers have decreased their emission intensity by less than 10% over the past three years. Two companies are in this category, Fast Retailing (-5%) and Kering (-3%).

The worsening brands have experienced raising emission intensity. Two brands are part of this category but demonstrate very different patterns. H&M shows fluctuating performance - it reduced its emissions over three years (-13%), but saw an increase over two (+23%) and four years (+4%). Shein has the most dramatic increase in intensity, +24% in just two years.

Potential performance drivers

Factors that have enabled brands to decrease their emission intensity4 include:

Supply chain efficiency and regionalisation:

• Some brands, including Inditex and Nike, have invested in supply chain efficiencies including AI-driven logistics and inventory management to minimise waste and overproduction

• Luxury brands like Chanel and Hermes have lower intensity due to both control over and vertical integration of their European supply chains, which have lower fossil fuel dependance and stricter environmental regulations.

Renewable energy and scope 3 decarbonisation:

• Deployment of renewable energy in direct and indirect operations enable the best performers to very significantly reduce their scope 1 and 2 emissions.

• Long-term scope 3 emission reduction targets combined with investment in renewable energy and low-carbon manufacturing technology have accelerated supply chain decarbonisation.

• Stronger supplier engagement helped some companies further accelerate decarbonisation work.

Lower-impact materials sourcing:

• Several companies have increase their use of certified, recycled or bio-based materials, helping lower their footprint.

Revenue growth outpacing emissions:

• Strong revenue growth, driven by higher AUR (Average Unit Retail) through price increases or lower discounting helped drive down or maintain emission intensity.

Key challenges remain to accelerate decarbonisation, including:

• Deploying decarbonisation systematically across their supply chain. This is something most brands struggle with, lacking clear and detailed CAPEX plans to achieve it.

• Strong positive correlation between volumes, revenues and emissions, which limits a brand’s ability to achieve relative decoupling5.

• Over reliance on discounting to drive revenues and inventory challenges lower margins and drive intensity up.

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Absolute emissions of leading fashion groups

Most luxury brands have maintained fairly stable absolute emissions - ranging from -7% to +15%, except for Hermes, which saw a 22% increase in absolute emissions over three years, driven by a +66% surge in revenues.

Mass market brands have struggled to reduce emissions, with Fast Retailing and H&M Group experiencing fluctuations, reflecting the challenges of sustaining continuous emissions abatement efforts. Shein’s explosive growth has lead to a sharp increase in the company’s emissions, making it the top emitter in this analysis6 for 2023.

In sportswear, Nike, Adidas and Puma (not displayed in the above chart) have each reduced their absolute emissions by over 13% demonstrating consistent progress in decarbonisation.

Premium brands show a mixed record but, overall, have mostly maintained their absolute emission over the period of the analysis.

Where do we go from there?

The fashion industry is still a long way away from aligning with the ambitions of the Paris Agreement, with absolute emissions remaining stubbornly high, despite progress on emission intensity.

My bet is that the winners of the next decade, across all segments - although it will be easier for some than others - will be those who successfully decouple revenue growth from emissions, while maintaining or improving profitability. Achieving this will lower emission intensity but also stabilise or reduce absolute emissions, freeing up resources to tackle scope 3 emissions more effectively.

Our data shows that progress is uneven. While 76% of the companies analysed are implementing efficiency measures - such as AI-driven supply chain optimisation - only 53% are actively integrating circular business models like resale, repair, rental. The next phase is now to scale those early signs of new business and operating models beyond niche programmes and pilot projects.

“Study the past if you would define the future” - Confucius.

Is focusing on a ‘luxury slowdown’ missing part of the picture? Rather than focusing on whether luxury is slowing down, the real questions are: What is it slowing down from? And more importantly, where is it heading next?

After over a decade outpacing every other consumer segment, it looks like the industry is entering cruising speed. Take LVMH FY24 results as an example, maintaining 1% of organic growth in 2024.

Since 2014 - and well before - luxury fashion has experimented a period of continuous growth, outperforming the rest of the industry (including mass, premium and sportswear1) and all other consumer goods segments. This difference has only accelerated in the years following the global pandemic.

My latest analysis looks back at a the exceptional performance for the industry, to contextualise its current evolution, looking at both revenues and operating profits. We uncover that:

• Luxury surged post covid outperforming every other consumer markets - including premium fashion, consumer tech, and automotive.

• Growing wealth disparities are creating long-term opportunities at both ends of the market: luxury and mass. In between, the mid-market struggles.

• The “Chinese Miracle” dropped shipped to the west is generating exponential opportunities for its players, and, for now, its impact does not seem evident in the results of the largest incumbents.

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Luxury is one of the few consumer goods industries that has managed to not just recover but to thrive post Covid. How can it create enduring success by making the most of this cruising period to tighten its model while inventing the next propositions that will continue to surprise and delight its customers?

This reports is designed to equip you with quantitative information and help reframe the current narrative. Download it to:

• Explore individual company performance, from both a revenue and operating profit perspectives.

• Benchmark the performance of different sectors over time.

• Shape perspectives on attributes that can create long term differentiation and start imagining what the future may look like.

Swanstant Fashion & Goods Market Study Vfinal

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For over a decade, I have been working at the intersection of strategy and sustainability, helping businesses understand not just where the market is - but actively shape where it is heading. Reach out if you want to further discuss how our insights can help your journey.

For those familiar with innovation theory, 2024 felt a little like the pit of desillusionment for the sustainability community. But, as always, the year brought a mix of challenges and glimmers of hope, offering clues on the trends which may shape 2025.

To get some perspectives on how to make sense of 2024, and what we should both expect and focus on in 2025, I reached out to John Atcheson from CircularWay, Isabelle Lefort from Paris Good Fashion, Lewis Perkins from the Apparel Impact Institute, Nic Gorini from Spin Ventures, and Pascal Brun from Zalando to get their insights!

From a high level, they point towards the need for pragmatism, concrete solutions and tangible outcomes. Specifically, their answers helped identify a few trends for 2025: towards a course correction on policy, bridging the funding and innovation gap, and rebuilding trust and alignment across stakeholders.

Please note that the below is informed by the responses of the consulted expert but does not represent their opinion.

Policy: towards course correction?

2024 Recap

For numerous European companies, the cost of compliance went through the roof this year, and many were surprised by the resource intensity and cost of leading EU regulations like the CSRD. A key aspect of this comes from the support of consultants and technology companies in meeting regulatory requirements.

This mobilisation of resource and budgets has had two adverse consequences:

• It reinforced boards’ perspective that sustainability is expensive and without ROI at a time where budgets are often constrained.

• It limited the ability to advance actual mitigation or adaptation work by the teams.

2025 Trend

While no one questions the importance of regulations in driving and aligning industry action, there is a need to strike a balance to avoid overburdening companies with bureaucratic demands.

Last year, we discussed the opportunity to focus on “policies that demonstrate how the green transition can contribute to local economic development and job creation”. There are emerging signs that European leaders may be reconsidering their approach, moving towards a less business sceptic and more innovation driven strategy. This shift may be primed by the learnings from the “The Future of European Competitiveness” led by Mario Draghi. For instance, Wopke Hoekstra, the European Commissioner for Climate, Net Zero and Clean Growth, acknowledged to Bloomberg last week that ““we have been too one-dimensional […] And therefore it is so important that we invest way more into the competitiveness side.”

We also mentioned the potential for the EU to develop their own version of the IRA. Could 2025 be the year it comes to life? Signs such as the collaboration between the European Investment Bank and the Societe Generale to unlock €8 billion in investments supporting manufacturers across the wind energy supply chain in Europe suggest it might just be.

Open Questions

How will a climate sceptic and isolationist US government, who threatened to pull out of the UNFCCC entirely, affect global regulatory and investment dynamics in sustainability?

How will policymakers navigate the tension between the growing demands for action from communities experiencing the devastating impact of climate change, and the fatigue many constituents feel towards highly constraining climate regulations?

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Bridging the funding and innovation gap

2024 Recap

Last year, we highlighted the risk of economic tightening for innovators and the opportunity for collective derisking. As forecasted, the economic context of 2024 significantly influenced investment strategies, away from exponential growth, towards quality growth and proven paths to profitability. This made it more challenging for novel approaches or pre-revenue companies to secure funding. In addition, the maturing green technology space saw investors becoming more pragmatic, placing greater emphasis on understanding actual demand and process scalability.

Collective derisking approaches also faced challenges, with many private companies remaining hesitant to embrace blended capital models. Despite this resistance, these models began to demonstrate their potential, particularly in renewable energy investments within supply chains.

2025 Trends

There will be significant opportunities for innovative solutions in 2025, but they won’t be evenly distributed, requiring thoughtful considerations to unlock their full potential, with a few key topics likely to grow in importance.

First, circular solutions like waste to value - whether in closed loops for batteries or textiles, or in open loops from agri-food to textiles - and regenerative practices will gain in interest. However, this interest will be coupled with more realism around the systems approach needed to scale these solutions, and particularly the need for specialised expertise and infrastructure. Increased investments in upskilling and public-private partnership will likely play an important role in the development of the core infrastructure necessary for the commercial viability of circular systems.

Second, decoupling strategies are set to make their way to the boardroom, with more companies exploring what “less but better” approaches could mean for them. This shift will not necessarily be driven by sustainability alone, but as a reaction to evolving consumer markets where fatigue and product saturation are becoming more apparent, leading to slower growth. These dynamics will encourage brands to explore new models that balance financial performance with reduced resource intensity.

Actions to advance these priorities will be more focused and targeted than before, moving away from big picture statements. Instead, the emphasis will shift to answer the critical question: what can truly make a material difference in the medium term from both a business and sustainability perspectives?

Open Questions

Who pays for sustainability? Suppliers, brands, governments, customers? Everyone in some way? As scaling sustainable solutions in a commercially viable way becomes a priority, this question will be highly contentious and likely condition many outcomes.

How willing will companies be to explore new development pathways? Can they recognise that tried and proven approaches are showing signs of exhaustion and embrace innovative alternatives?

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Rebuilding trust and alignment across stakeholders

2024 Recap

One thing became clear in 2024: the ambition to use sustainability and circular economy as a means to align stakeholders across industry and policy needs more work. Policymakers, particularly in Europe, expressed frustration with the lack of progress made by corporates, while tensions emerged within industries over who should bear the cost of transitioning to greener supply chains.

Within companies, board-level interest in sustainability decreased, with many viewing it as costly and disconnected from immediate business needs. Heavy investments in compliance, combined with mixed results from some sustainability innovation programmes, have led business leaders to demand clearer ROI.

Customer behaviour in 2024 continued to expose deep contradictions. While surveys continue to indicate that consumers care about sustainability and claim they are willing to pay more for sustainable options, their spending habits often contradict this. Few actively consult transparency pages, and their purchasing decisions continue to favour cheaper, faster alternatives.

This inconsistency is exacerbated by a decline in trust towards institutions and brands, polarisation on major issues, and a fatigue with the relentless product and information flow. In this saturated, commodified landscape, many products and brands have lost their unique value, becoming interchangeable or reduced to mere memes.

2025 Trends

To address these growing misalignments, 2025 will see a stronger focus on aligning stakeholders through projects that balance business impact with sustainability. Initiatives will need to demonstrate concrete, measurable business outcomes to gain support. The same expectations will apply to supply chain greening efforts, with stakeholders seeking tangible benefits before committing further investments or engagement.

Leaders will need to adopt a dual focus: maintaining a long-term vision and ambition for sustainability - such as 25-year decarbonisation or regeneration goals - while delivering shorter-term projects that build trust and achieve meaningful results within 5 years or less. Expect increased investment in scalable circular systems and supply chain transparency, driven by regulations and innovations in lifecycle assessments and traceability.

To onboard customers in circular solutions, brands must fully integrate these systems rather than offering half-hearted initiatives. Consumers want to feel part of an innovative, dynamic ecosystem - not like experimental participants in clumsy model. Successful circular solutions will be seamless, trustworthy, and fully integrated into the brand experience.

As dissatisfaction with declining product quality and unmet brand promises continues to grow, customers will increasingly focus on the perceived and delivered value of products. This shift will favour brands that offer durable, high-quality goods alongside transparent, meaningful engagement around their sustainability efforts.

Open Questions

Will the politisation of every issue start to fade as more and more communities experience the tangible impacts of climate change?

Will we see the emergence of visionary leaders, willing to venture in uncharted territories to create transformative business and environmental opportunities?

While much of the fashion industry continues to chase rapid growth – more collections, more product, more discounting – Maria Grachvogel dared to pause, question the status quo, and rebuild her brand with intention. In doing so, she provides a rare example of how a luxury fashion business can align with the principles of decoupling by achieving economic growth while minimising resource use and environmental impact.

Her approach epitomises the foundation of our decoupling pyramid, fostering the right economic efficiencies by controlling inventory, discounting and other sources of unproductive waste.

Challenging the acceleration trap

Maria Grachvogel wanted to counter the fundamental paradox of modern fashion: the relentless cycle of production exhausts creativity, multiplies collections of limited relevance, which in turn leads to discounting and inventory, harming margins and creating perverse incentives to compromise on quality to maintain or boost profitability. This also ends up eroding the value people place on their clothing, resulting in products that are cared for and worn less and less.

As she was starting to be forced into this trap by her wholesale stockists, Maria noticed that despite this acceleration, her business was not necessarily doing much better, at least if you were focusing on the bottom line.

So, rather than falling into that trap, she dared to investigate, which led her to a realisation: this acceleration of product cycles and discounting was not as good as the general wisdom would assume for her business. In addition, assuming that carbon is in everything she creates, how could she ensure that her designs wouldn’t generate unnecessary impact?

Through this investigative process she established a leading principle for the future: produce only what is needed, minimise waste, and ensure products are loved and worn for longer. Using this guiding principle, she analysed her business, deciding to keep only the parts that were aligned with it, and to redesign what was not. This led to a new structure that opened space to create purposefully, a new production and stock system, and a new approach to sales and wholesale.

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Space for purposeful creation

This new approach allowed her to regain space to sense what the modern woman really wants, and bring truly desirable – and desired – products that fit the evolving lifestyle of her customer. In addition, her focus on timeless and seasonless fashion allows to create a flow between her collections, enabling her customers to build their wardrobes more purposefully.

Underpinning this process is an approach to build collections using core fabrics, that minimise deadstock, and iconic styles, that drive sales and create a welcome sense of continuity for her customers. Sampling is eliminated, the editing of the collection is done at the sketch phase and all the products that are made end-up being available as stock.

This thoughtful process creates garments with enduring relevance, fostering a deeper emotional connection with customers and encouraging longevity – some customers wear their Maria Grachvogel pieces for decades, having them re-tailored once in a while as their physiognomy evolves. In addition, Maria’s passion for garment construction and fit, enables her to build garments that feel highly valorising for her customers and less sensitive to small changes of body shape, further reinforcing their value for the wearer.

The circular stock system

To prevent waste and inventory, while responding to the evolving demand of her customers and the growing unpredictability of seasons, Maria developed what she calls the circular stock system, an innovative approach relying on real time stock monitoring and local, agile manufacturing.

Local production: her pieces are made in London, enabling fast turnaround and greater flexibility, allowing her to be very agile and adapt her production schedule in real time. This control over her production, combined with longstanding relationships with fabric mills enables her to have a very tight control over the quality of her products.

A collection planning that influences supply strategy:

• Core and Iconic pieces are managed to always be in stock and are replenished based on sales velocity to ensure consistency of offering.

• New styles are tested and introduced cautiously in limited runs and are either made to order or replaced based on sales. In all cases they are progressively phased out towards the end of the season.

• Archive pieces and occasion wear are always made to order.

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Rethinking sales and wholesale

To align her sales strategy with her guiding principle, Maria had to do away with a lot of the mainstream fashion calendar and traditional sales channels.

Small designers face two major challenges when showcasing their collections six months before they’re available for purchase. First, by the time the pieces reach stores, they often feel less exciting to customers who have already seen them on every digital platform available. Second, this delay gives copycats a chance to release similar designs more quickly, undercutting the originals.

To overcome this challenge, Maria stopped her runway shows. Instead, during Fashion Week, she privately presents her upcoming collection to industry professionals, such wholesale partners, enabling them to place orders and helping her plan production more efficiently. She also presents the items that are available to purchase immediately to her customers through a dedicated film release.

Another challenge is dealing with large wholesale stockists, who often impose their terms, such as stock buybacks or discount cycles, which erodes margins and renders financial predictions really complicated. Maria moved away from most large stockists, focusing her strategy on trunk shows and partnership with smaller stockists who understood her circular stock strategy, agreed to adopt it, with no discounting.

General takeaways

Maria Grachvogel’s unique positioning might not be universally replicable, but her principles and approach to developing solutions that work for her brand are, especially in luxury.

To foster the economic efficiencies that will not only strengthen their bottom line, positioning in the market, and client relationships, brands can:

• Adopt a sense of flow between their collections to allow customers to continuously build and refine their wardrobes while ensuring that the real and perceived value of products remains high over time.

• Reduce inventory and deadstock, by rethinking assortment strategies, adopting core fabrics that can be used across collections, and fostering supply chain agility via demand driven production.

• Foster a higher sense of value through curation and scarcity. This is enabled by tighter control over stock and more edited collections that focus on great products highly desirable to customers, cancelling the need to stimulate demand through discounting, which over time erodes the perceived value and price expectations of customers alongside profits or product quality.

Through her work, Maria demonstrates that less but better might actually means less but stronger, showing that decoupling strategies can drive profitability, exclusivity and business sustainability simultaneously.

Check out Maria’s work here.

Happy Holidays and see you in January!

The fatigue of the current model

The fashion industry is at a critical inflection point. After three decades of impressive growth, multiple trends and signals indicate that the current model is starting to fail brands.

There are growing signs that key markets are approaching saturation, and consumption fatigue is setting in. Customers are increasingly disconnected from brands, leading to slower growth, a declining appetite for new products, and increasingly transactional relationships. This is resulting in brand dilution, as ubiquity diminishes the distinctiveness that once made brands aspirational.

At the same time, the relentless pursuit of novelty, and ever faster product cycles have led to creative stagnation, not providing the necessary mind space for creatives to birth meaningful new ideas. Instead of fostering cultural relevance, the industry is recycling ideas or chasing fleeting online trends.

With few exceptions, the focus on quantity over quality is eroding the fashion industry’s role as a cultural touchstone. Customers are getting lost in the plethora of offerings, while key frustrations around fit, product discovery and wardrobe management haven’t been solved. In addition, the perception – if not reality – that quality has been decreasing could have a perverse effect and lead to cynicism from customers who will prefer lower cost alternatives where the transience of products is not veiled.

This product over-supply also creates economic inefficiencies in the form of excess inventory, deadstock, and a dependence on discounting to clear unsold goods.

Finally, geopolitical instability and shifting political landscapes are further testing the industry’s resilience. Trade wars, supply chain disruptions, and evolving regulations are challenging even the most established brands. Meanwhile, emerging environmental policies are adding layers of complexity, forcing companies to play a complex balancing act between current operations and compliance with stricter standards.

These factors are all illustrations of the symptoms of a model that offered fabulous growth, but as it progressively favoured speed and volumes over value and quality, is falling out of favour with customers and eroding profitability.

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Developing new economic models and customer propositions.

The theory of decoupling, which aims at breaking the link between revenue growth and resource consumption, can help identify profitable new models to tackle some of those challenges.

These new models and propositions shift the focus away from a top-line and volume-based vision of success to one that focuses on profitability and value maximisation. In our preliminary research, we identified three main decoupling strategies for businesses:

1. Economic Efficiency: Maximising profits by minimising inventory, discounts and other sources of waste across the business.

2. Product Circulation: Creating multiple revenue streams from the same product through repair, resale, and remanufacturing.

3. Value-Added Services: Offering services like warranties, upgrades, or digital experiences to generate revenue beyond the physical product itself.

By shifting the focus towards absolute profitability and revenue sources with limited marginal costs, decoupling can offer attractive development pathways for the industry, allowing brands to build strong individual and differentiated offerings.

These new value creation strategies can help strengthen connections with customers by offering more curated collections rather than overwhelming ones that are aimed at providing for all potential desires. They also allow for the creation of more continuous relationships with customers, and to potentially better provide for their higher needs on the Maslow Hierarchy of Needs.

These models, being less reliant on global supply chains and cross-border trade – revenues are not solely generated through high volumes of new products – can create more resilience against geopolitical, legislative and environmental risks.

Of course, despite some pioneers proving elements of the economic viability of these new models, such as Maria Grachvogel and Eileen Fisher, many questions remain to accelerate this transition. However, the time seems right to explore these opportunities, as the current market challenges the industry faces most likely won’t be solved using past tactics.

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So, what is next?

An economic study to power industry transformation

As we see from the above, there are currently more questions than answers when it comes to the practicalities of this transformation. To contribute to answering those questions, with Swanstant and in partnership with Institut Francais de la Mode and Paris Good Fashion we are starting a project combining academic rigour with business acumen to explore the economic case for decoupling. This foundational research will highlight gaps, opportunities, and pathways to scaling decoupling strategies across the industry. If you are interested in contributing, please feel free to reach out.

Corporate workshops

In parallel, to bridge the gap between the research and short-term exploration opportunities, John Atcheson, a veteran circular economy entrepreneur, and I have developed a practical 3-h workshop for companies wanting to explore concrete opportunities.

This workshop is designed for senior leaders across strategy, finance, innovation and sustainability, and is an opportunity to:

• Understand what decoupling is—and what it isn’t.

• Identify two actionable opportunities for your business, including operational insights and value creation potential.

Before we go

Dispelling Myths About Decoupling

“Decoupling means no new products.” False. It’s about focusing on profitability while addressing overproduction, not halting innovation.

“It’s not realistic today.” While full decoupling is a long-term goal, incremental steps can yield significant benefits now.

“It’s just a buzzword.” Decoupling can serve as a practical framework for aligning profitability with evolving market trends.

How you can help

If you have publications or experts relevant to our research, or perspectives and experience you would like to share, please reach out! contact@swanstant.com