As the clothing industry is influenced by fierce competition and fast changing trends, firms must handle high stakeholder pressure such as for example, increased environmental and social awareness. According to the UN (2019), the clothing industry is the second biggest polluter to the environment, thus demonstrating the urgent need for CSR initiatives to make significant impact in this industry. In fact, many firms have been innovative, but the benefits from these innovations have yet to be seen. 

The main purpose of this study is to understand how innovation and CSR can be combined to offer value for stakeholdersin the clothing industry and evaluate this through the relationship of the Porter hypothesis, stakeholder theory and value co-creation.

This thesis adopts a mixed-method approach by responses from interviews and from a self-completing questionnaire. This is supported by the analysis of secondary data reports from firms in the clothing industry and governmental institutions.

The results of this study conclude that firms experience two forms of stakeholder pressure which forces them to innovate, supporting the argument for the ‘strong’ form of the Porter hypothesis. Furthermore, it finds that value creation is inextricably linked to stakeholder theory.