The UK-headquartered Chartered Institute of Procurement & Supply (CIPS) defines ‘ethical sourcing’ as the process of ensuring the products being sourced are obtained in a responsible and sustainable way, the workers involved in making them are safe and treated fairly, and the environmental and social impacts are taken into account during the sourcing process as well as throughout the supply chain. To achieve this, the companies are required to ensure an ethical sourcing of materials along with identification of environmental and social impacts of involved processes. This is required not only to reduce companies’ carbon footprints but also to conserve natural resources. Being one of the most polluting industries on earth, global textile and apparel industry shoulders a greater responsibility in this regard.

Backdrop
Globally, the textiles and apparel industry accounts for up to 10 per cent of GHG emissions and consumes over 200 trillion litres of water each year. Much of that environmental impact is generated upstream in the value chain and has not traditionally been captured by major brands or apparel businesses. A 2024 report found that corporate supply chain emissions (Scope 3) are on average 26 times greater than operational emissions (Scopes 1 and 2). Add to that, the issues of natural resource depletion, chemical & microplastic pollution, waste generation and deforestation caused by the industry put it under higher scrutiny and accountability. This very industry is also marred by human exploitations, in the form of low wages, excessive hours, unsafe working conditions, sexual harassments, modern slavery and child labour. Among all stages in textile value chain, fibre production alone accounts for 49 to 57 per cent of such exploitations, featuring forced labour, gender inequality, corruption, toxin exposure etc. Additionally, there are statutory as well as social pressures to cut down on use of detrimental raw materials, and processes too. To address all these issues, the industry has to open up its supply chains to higher traceability and transparency in regard to origin of the material, their suppliers and working conditions of people throughout the value chain. However, due to diverse and complex nature of supply chains in the textile industry, it faces some significant challenges to come out clean, although the shift from traditional practices towards enhanced and responsible sourcing behaviour has already started.

Sustainable Products Market
Current global market for sustainable products is estimated at $150 billion—a market size that reflects a robust demand for ethically sourced goods across various sectors. It is further estimated that companies prioritising ethical sourcing will capture an additional $1 trillion in revenue by 2030, driven by consumer demand for sustainable products. The brands which prioritise ethical sourcing see, at an average, a 20 per cent increase in customer loyalty as consumers are drawn to companies that demonstrate a commitment to social and environmental responsibility. In contrast, the companies that fail to adhere to ethical sourcing practices can face fines averaging $4 million per incident due to regulatory non-compliance. This underscores the financial risks associated with neglecting ethical standards. A proactive approach to risk management is reflected in the fact that over 50 per cent of organisations conduct regular audits of their suppliers to ensure compliance with ethical sourcing standards. As per estimates, the businesses investing in sustainable practices can expect a ROI of up to 30 per cent, because sustainable operations often lead to both cost savings and efficiency improvements. The fact that nearly 90 per cent of large companies now publish sustainability reports, also demonstrates a commitment to transparency and accountability in their supply chain practices.

With consistent growth in consumer awareness and regulatory pressures, therefore, companies across sectors are prioritising ethical practices within their supply chains not only to mitigate risks but also to capitalise on new market opportunities. By embracing ethical sourcing, companies are enhancing their brand reputation, fostering customer loyalty, and driving long-term growth. In the textiles sector too, consumers are increasingly demanding products that are produced ethically and sustainably besides being high-quality and affordable.

With increased awareness in this regard, the sector is working towards aligning its supply chains with ethical and environmental standards, and aiming for better and sustainable world. Seeing this need of the industry, the globally standardised, independent testing and certification systems for textile products like OEKO-TEX, are upgrading their testing criteria and standards, reflecting the latest scientific and legal developments. At the same time, the collective regulatory initiatives like EU Regulations as well as nation-specific regulations like Germany’s LkSG are also addressing the challenges of ethical sourcing in their own way.

OEKO-TEX Updates Standards
The new regulations by OEKO-TEX Association, updating its testing criteria, limiting values and guidelines for its certifications, was announced in mid-January and came into force on April 1, 2025. Aiming to strengthen trust and transparency in textile supply chains, five key standards have been updated:

Standard 100: OEKO-TEX Standard 100 certification will not include any claims of ‘GMO-free’ or ‘organic’ cotton in the certificate scopes. Instead certifying cotton as ‘organic’ will now be through OEKO-TEX Organic Cotton. This change, specifically pertaining to cotton materials, aims for greater control and traceability, and to check the fraudulent labelling of materials as ‘organic’. Other organic materials such as hemp, linen or wool, however, will remain unaffected. In addition to this, the permitted limit for Bisphenol A (BPA) present in textiles has been drastically reduced from 100 mg/kg to 10 mg/kg since it is found to act as an endocrine disruptor (a substance that, if it enters the body even in small amounts, can change the hormonal system) when it comes in direct contact with the skin. This has been done to strengthen safety in OEKO-TEX standards and to enhance consumer health care.

Leather Standard: Aiming for traceability and transparency in leather supply chains, as mandated by Europe’s Deforestation Regulation (EUDR), OEKO-TEX Leather Standard Certification can now be earned by companies on demonstrating the origin of leather materials. This will include documents such as delivery notes from slaughterhouses ensuring that their leather materials do not come from deforested areas. The EUDR was supposed to come into force at the end of 2024 but was postponed by one year in November 2024. This change underlines a commitment to global sustainability and meeting the objectives of the European Green Deal and the Biodiversity Strategy for 2030.

Eco Passport: The scope of OEKO-TEX Eco Passport now includes basic commodity and maintenance chemical products, beyond those specialised in textile and leather applications. This change will apply controls to a wider range of substances from the beginning of the supply chain, eliminating harmful products at an earlier stage, while enhancing worker safety and prioritising environmental protection. Additionally, second-life commodity chemicals will be subject to more frequent testing to ensure quality. Eco Passport customers will be able to highlight the biodegradability of their chemical products, such as surfactants, softeners and complexing agents, on their certificates. They will be required to demonstrate their biodegradability through testing by OEKO-TEX institutes or authorised third parties. Existing products in these categories will have a one-year transition period to comply with the new requirements.

STeP: The OEKO-TEX STeP certification, which assesses sustainable production processes, strengthened its integration with the ZDHC (Zero Discharge of Hazardous Chemicals) platform. The collaborative effort is to empower the textile, apparel, footwear and leather industries to improve environmental impact by optimising guidelines and solutions. The STeP certificate holders are now eligible to participate in the ZDHC Supplier to Zero Programme. The companies can upload their STeP certificate and report to the ZDHC Supplier Platform for acknowledgement within the Supplier to Zero Programme.

Made in Green: OEKO-TEX Made in Green label now recognises OEKO-TEX Organic Cotton as product certificate in addition to above mentioned Standard 100 and Leather Standard. This allows the companies that have their cotton products certified to combine both supply chain traceability and verification from farm to product with responsible and safe production.

Comprehensive CSDDD
Meanwhile, EU Corporate Sustainability Due Diligence Directive (CSDDD), enforced in July last year, mandates companies and partnerships, including both the upstream and downstream partners, to identify, assess, prevent, mitigate and remedy the negative impacts they have on people and the planet. They are also required to publicly communicate their due diligence policies as well as monitor their effectiveness. The effective due diligence must cover human rights and environmental adverse impacts that occur throughout the whole life cycle of production, encompassing sourcing of materials within companies own operations that would also include their subsidiaries and business partners in their chain of activities. The regulation assigns companies with responsibility of ensuring that material sourcing through their direct and indirect suppliers remain free from human rights abuses like child labour, and environmental harms such as deforestation or unlawful carbon emissions. In terms of chain of activities, due diligence obligations primarily focus on the upstream value chain activities such as design, extraction, sourcing, manufacturing, transport, storage, supply of raw materials or products, and product development, because chain of activities among downstream partners are limited to storage, transport and distribution only. Thus, EU CSDDD emphasises responsibility beyond tier 1 of the supply chain, requiring companies to address risks even at the raw material extraction stage. This ensures that the sourcing practices align with human rights standards and environmental sustainability, fostering responsible business conduct across global supply chains.

German Regulation
Likewise, the German Supply Chain Due Diligence or LkSG sets legal obligations for companies to respect human rights and mitigate environmental harms. Covering features of CSDDD, LkSG wants companies to submit an annual report to the Federal Office for Economic Affairs and Export Control (BAFA) on how they met their due diligence obligations during the reported fiscal. This includes identification and finding of any human rights or environmental risks, actions taken to fulfil due diligence obligations, methods used to evaluate the impact and effectiveness of these measures, and conclusions derived from the assessment to inform future actions.

Being a nation-specific regulation, LkSG features few exclusive aspects. Unlike CSDDD, LkSG covers all products and services and includes all steps necessary for production and delivery to the end customers, whether domestic or abroad. LkSG broadens the definition of supply chain by defining direct suppliers as contractual partners essential for production and services. This limits its scope to fewer supplier tiers while CSDDD’s extends due diligence to tier 2 and beyond. Since CSDDD must be absorbed into the national law of all Member States, the LkSG adaptation excludes more companies as its current applicability depends only on the number of employees of company, with no turnover restriction.

The other regulations, such as the Omnibus package that attempts to streamline sustainability reporting, and the DPP Delegated Acts that sets new transparency standards for product data, also aim to direct progress in ethical sourcing standards.

Sustainability-linked Finances
As a major textile manufacturing hub, Asia stands at the centre of global textile industry. Accounting for 65 per cent of global textile and apparel market, the trade in the region has grown at a CAGR of 4.5 per cent over the past 20 years. Key developments in the area of supply chain management have been observed in the region.

Many businesses in the region are reworking on their supplier network in order to benefit from free trade agreements, such as the Regional Comprehensive Economic Partnership (RCEP) connecting 15 Asian economies, also supported by governments of the land. For instance, India introduced Production Linked Incentive Scheme for electronics manufacturing in 2020, and later expanded it to other sectors in 2023, including textiles—a sector worth $150 billion, which is projected to reach $177 billion in 2026. Similarly, Indonesia’s ‘Making Indonesia 4.0’ roadmap targets textiles and apparel as one of the five priority sectors for manufacturing growth, sustainability being the focus area. Another textile producing nation Bangladesh witnessed the launch of the Future Supplier Initiative in 2024 to promote collective action across the value chain.

To accomplish the larger goals of the apparel and textile sector, access to financing emerges as a key tool for businesses that are investing to shore up their place in global supply chains. This has caused a need for sustainable supply chain finance facilities and sustainability-linked trade facilities to support businesses in the region which aim to build more sustainable supply chains. Key developments have been observed in this regard too. Taiwan’s Makalot Industrial—a clothing maker for many of the world’s retail chains, availed $30 million worth of sustainability-linked trade finance facility through HSBC in 2022. This facility was linked to the company’s energy efficiency improvement targets. The Hong Kong-based clothing manufacturer Epic Group also availed similar facility in which pricing was tied to the intensity of the company’s greenhouse gas emissions and freshwater use. In addition to the Asian companies, retailers that manufacture within Asia, such as American PVH—owner of Tommy Hilfiger and Calvin Klein, are among the ones availing sustainable supply chain finance programme. The New York-headquartered fashion company’s finance programme is innovatively tied to environmental and social objectives as well as the sustainability ratings of its suppliers.

Impact of Tariff War
The world trade order is witnessing a change owing to shifts in geopolitics. The revised country-specific tariffs—announced by President Donald Trump on April 2—stirred the global trade. The collective as well as nation-specific responses to these tariffs are expected to impact resourcing that will be marked by increased trading with either politically-aligned states or nearshoring, as deemed fit. As expected, tariffs in the US against goods imported from foreign lands caused brands and manufacturers to reshuffle pieces in the supply chain and rethink sourcing strategies. Cost and risk management escalated quickly into top priorities, with many businesses diversifying production locations to avoid penalties and maintain profitability. The shift is leading to increased nearshoring or sourcing from tariff-friendly markets, ultimately reshaping global trade supply chains in fashion.

At the same time, ever-increasing pressure from international bodies to find solutions to fashion’s wastefulness and harmful eco-affects is encouraging investment in new technologies and ever-more innovative materials. At top of the supply chains, smaller businesses are adversely impacted by the climate crisis too, forcing brands and companies to focus on long-term rewards by investing in sustainable practices to protect their suppliers. This will help them to benefit from more efficient business operations alongside a competitive advantage. This need is highlighted by recent developments in global textile supply chains which include a focus on sustainability, digitalisation and regional sourcing, aided by modern-day revolutionary technologies of blockchain and AI. These technologies are known to drive transparency and resilience in a world where consumer demand is also pushing for ethical practices and traceable products.

What Companies Are Doing
By prioritising ethical sourcing, the textile and fashion companies are working towards managing their social risks and driving positive impacts in their supply chains. Companies like Patagonia pay fair prices to suppliers, ensuring that workers receive living wages and have access to adequate safety equipment which helps to protect workers from harm. Contributing to both environmental and social responsibilities, there is an increased shift towards sourcing either organic cotton or GOTS (Global Organic Textile Standard)-certified sustainable fabrics. The ever-growing need of ethical sourcing is making companies implement transparent supply chain practices and sustainability programmes, such as tracking the origins of materials used in production and committing to sustainable cotton sourcing. By following a strong ethical framework that includes providing ethics training, creating a robust code of conduct and ensuring transparency, among others, businesses are instilling trust with stakeholders. Simultaneously, the preventive measures are being introduced to check unethical practices. In this regard, the independent hotlines are being made available for reporting malpractices and nonconformities, so that swift action can be taken.

These crucial initiatives help in maintaining credibility of the companies. By adhering to ethical standards in their supply chains, the companies are able to drive operational efficiencies when they prioritise workers’ health and safety by ensuring safe working conditions in garment factories. They can additionally reduce injury-related costs, absenteeism and lost productivity. By doing so, they end up developing more reliable and skilled workforce who contribute to greater supply chain resilience. More so, when companies maintain ethical practices complying with national and international legislations, they are better placed to avoid penalties. Add to that, the committed delivery of ethical sourcing enhances a company’s reputation with investors, consumers and employees.

Ethical Luxury
Luxury brands are also facing rising scrutiny on ethical sourcing. Like other segments of fashion, they are required to integrate eco-friendly and ethical practices into their core values. For brands like Stella McCartney, it all begins with the use of variety of sustainable and eco-friendly materials, such as organic cotton and vegetarian leather, which have lower environmental impact. The brand even works to reduce fashion wastefulness by reusing and recycling. There are others like Patagonia and Eileen Fisher who believe in transparency into their supply chains from sourcing of materials to manufacturing processes. They offer information about their factories, their labour practices, and even the environmental impact of their products. Since luxury is driven by quality and craftsmanship, brands that collaborate with artisans who use traditional techniques can preserve heritage and skills, provide sustainable livelihoods, and help alleviate poverty in some regions. By using local production to reduce transportation emissions, designing products that are made to last, and even offering repair services to extend the lifespan of their products, luxury brands not only benefit the environment but also ensure that consumers invest in pieces that would stand the test of time. Many of the luxury brands are committed to well-being of animals, with pledge to avoid the use of fur, exotic skins, angora wool and such materials. They use cruelty-free alternatives instead. At the same time, brands like Gucci have launched initiatives to support social causes, including sustainability, human rights and gender equality to give back to the society.

These efforts on part of the luxury brands are seen as a shift towards eco-friendly and ethical practices and not just a passing trend. It is a reflection of changing consumer values and the growing awareness of environmental and ethical issues, as well as a more mindful and responsible approach to luxury consumption.

Shift in Consumer Behaviour
Earlier consumers were more concerned with fashion aspect of clothes rather than how they are made. With increased awareness about sustainability, and social and environmental impacts of businesses, the fashion consumers have also evolved in their demand for ethically sourced products. They have realised the darker side of fast fashion, which depletes the earth’s resources and exploits labour to offer them low-cost products. Consequently, they have woken up to the realisation that their spending or non-spending can either help or work against the people and resources involved in the making of their fashionable clothing. Today, they are conscious enough to shop sustainable clothes as such a shopping behaviour can reduce the drastic impact that fast fashion has on people’s lives and planet. They do not mind paying extra for a sustainable product because higher price tags represent lower consumption of these products compared to fast fashion. More so, the higher cost also includes cost of eco-friendly practices, ethical production standards, timeless designs and high-quality essentials that never go out of style. The sustainable products thus produced come with much longer shelf and utility life, unlike fast fashion which forces a change every season. Fashion customers have educated themselves to look for relevant and credible certifications on the fashion products they plan to buy. For instance, GOTS-certified organic fabrics assure them that the item is made from at least 70 per cent organic fibres and meets environmental and social standards; a Fairtrade certificate signifies fair wages and safe working conditions for the people who made the clothes; OEKO-TEX Standard 100 verifies that the fabric has been tested for harmful substances; and a bluesign certification confirms sustainable production practices from start to finish. They prefer a product that must have at least one of these third-party labels. This, in turn, has pressed more responsibility on fashion companies to adhere to these standards and certifications. As a result, their approach to garment production has transformed into more ethical and transparent.