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Hennes & Mauritz, the world's second-biggest fashion retailer, is launching a new effort to promote recycling as it seeks to cut its environmental impact, boost its ethical credentials and address looming shortages of raw materials.

The move comes as critics point out the damage being caused by a throwaway culture fueled by cheap clothing that has seen a sharp rise in the number of garments sold annually around the world.

Sweden's H&M, which is launching a line of jeans containing recycled cotton next week, will offer an annual 1-million-euro ($1.16 million) prize for new techniques to recycle clothes, Chief Executive Karl-Johan Persson told Reuters.

"No company, fast-fashion or not, can continue exactly like today," Persson said. "The (prize's) largest potential lies with finding new technology that means we can recycle the fibers with unchanged quality."

As population pressure mounts, retailers like H&M are concerned about potential future shortages of cotton, which is heavily water and pesticide dependent.

Existing cotton recycling methods make poor-quality fibers, and there is no efficient way to recycle garments of mixed materials, so the vast majority of clothes end up in land fill.

Johan Rockstrom, environmental science professor at Stockholm University and a jury member for the H&M prize, said the fashion industry needs to find new business models to respond to global resource shortages.

"This is a great challenge for H&M whose trademark is cheap clothes at good quality ... The fact it's cheap means there's a risk people buy and throw away, or buy too much," he said.

H&M revenues have more than doubled since 2006, reaching 151 billion Swedish crowns ($18.3 billion) in the year to last November, making it the second biggest fashion retailer after Spain's Inditex.

The award is being launched by a foundation established by H&M that is funded by the retailer and the Persson family, its main owners.