The fabric of risk: responsible business conduct in fashion’s supply chains

# I. Introduction

In today’s global economy, supply chains are not just operational backbones – they are strategic assets that directly impact business continuity, profitability, and corporate reputation. As supply chains extend across borders and involve layers of subcontractors, responsibility becomes increasingly fragmented. This opacity introduces significant exposure to business conduct risks. These risks can arise from unethical, illegal, or irresponsible behavior by a company or its employees – such as biodiversity degradation, forced labor, or greenwashing – and can result in serious consequences, including regulatory penalties, compliance breaches, reputational damage, and financial loss. Beyond the harm to the environment and society, the fallout can shake investor confidence and expose banks, asset managers, and insurers to financial and reputational risks.

Analyzing 2,500,000+ documents in 80 languages daily from 150,000+ public sources and stakeholders,¹ RepRisk adopts a risk-based, outside-in approach – drawing exclusively from external public sources and intentionally excluding company self-disclosures. Its methodology captures supply chain risks by intersecting two of the 28 issues covered in its research scope: the cross-cutting issue of supply chain and any other issue.² While not all flagged incidents constitute legal violations, they still pose serious reputational risks, can erode stakeholder trust, and may signal deeper structural problems that merit attention. Understanding and addressing these risks early is critical for companies aiming to build resilient and responsible supply chains.

This report presents key findings and insights from RepRisk’s analysis of data on supply chain risk exposure, with a particular focus on the fashion sector.³ Due to its vast scale, complex supply chains, and dual role as both a producer of essential goods and a major employer in many regions, the fashion industry represents a critical focal point for supply chain risks.

# II. Mapping accountability

RepRisk data from the past year illustrates the scale and scope of supply chain-related challenges. In total, 3,958 supply chain risk incidents were linked to 6,596 companies globally. Notably, private companies made up a disproportionate share of the exposure: 87% of implicated firms were private, versus just 13% that were publicly listed.

The world map in Figure 1a captures five years of supply chain risk incidents (May 2020 to April 2025), pinpointing the countries where the incidents occurred, irrespective of the sourcing company’s origin.

Due to their economic scale, the world’s largest economies are both the source and the site of a high number of supply chain-related risk incidents. The United States and China top the list, each with over 2,000 recorded incidents. They are followed by other major economies, including France (with around 1,000 incidents), as well as Italy, Brazil, and Germany.

# Large economies face a high number of supply chain risk incidents at home

Figure 1a: Global supply chain risk exposure by incident location

Looking at risk exposure from the perspective of where sourcing companies are headquartered, rather than where incidents occur, further underscores the accountability of the world’s most advanced and globally integrated economies. Over the past five years, RepRisk recorded more than 5,000 ESG-related supply chain incidents linked to companies headquartered in the United States, followed by significant numbers tied to firms based in Germany (2,079), as well as in France, the UK, China, and Japan. Figure 1b below shows a world map illustrating the distribution of supply chain risk incidents based on the locations of the companies bearing the risk.

# Large economies have a high exposure to supply chain risk incidents across the globe

Figure 1b: Global supply chain risk exposure by headquarter location

Importantly, supply chain risk exposure is not uniform across all issues. For instance, European companies are more than twice as likely to be linked to labor-related incidents in Asia than within their own region. This disparity reflects Asia’s central role in the global supply chain ecosystem and its heightened exposure to business conduct risks.

# III. Retail sector’s high risk profile

Among all industries, the retail sector is by far the most exposed to supply chain-related risks. This is unsurprising given the vast number of companies, people, and goods involved in this sector. Since 2020, the number of incidents in retail has increased from 1,521 to 2,182 – including a 22% rise in the past year alone. The financial services sector follows as the second most risk-prone, with incidents rising 32% since 2020 (from 518 to 684), including a 3% increase over the past year. Following closely is the food and beverage sector, which has seen a 16% increase since 2020, with 5% of that growth occurring in the past year.

The line chart below illustrates the five-year trend (May 2020 to April 2025) of supply chain-related risk incidents across the top ten sectors, based on total incident counts.

# Retail is by far the most exposed sector to supply chain risk

Figure 2: Supply chain incident trend in the top ten sectors by absolute incident count

# IV. Social risks dominate fashion supply chains  

The remainder of this report will focus on one particularly significant segment of the retail sector: fashion. Fashion is highly visible and deeply embedded in consumer culture, making it both a symbol of sustainability challenges and an accessible starting point for action. According to the 2023 United Nations Environment Programme report “Sustainability and Circularity in the Textile Value Chain: A Global Roadmap,” the textile sector accounts for 2 – 8% of global greenhouse gas emissions each year and generates 9% of the microplastics found in the world’s oceans. The sector also carries profound social risks. Workers, especially women – who represent 68% of the garment workforce – are vulnerable to exploitation, unsafe working conditions and labor abuses throughout the supply chain.⁴

Over the past five years, social risks have accounted for two-thirds of all recorded supply chain risk incidents in the fashion industry across all three brand tiers – fast, premium, and luxury.

The overall 62% social risk share is based on 791 unique incidents. In the brand tier comparison, incidents can contribute to multiple pillars, so shares are normalized to 100% within each tier to enable comparison.

# Social risks fuel fashion’s supply chain risks across all brand tiers

Figure 3: Distribution of supply chain risk incidents across ESG pillars and fashion brand tiers

RepRisk data from the past five years shows that the majority of social risk incidents in fashion supply chains are linked to poor working conditions, human rights abuses and corporate complicity, and forced labor. Together, these three issues account for approximately 35% of all recorded incidents across the three fashion brand tiers.

In fact, these risks are neither abstract nor confined to far-off locations. Recent legal actions in Europe underscore their real and immediate relevance. Since 2023, a court in Milan – Italy’s fashion capital – has placed four fashion companies under judicial administration after uncovering serious labor abuses in their supply chains. In one case, prosecutors alleged that a luxury brand was potentially able to sell handbags at up to 50 times the price it paid a supplier who reportedly employed staff working illegal 15-hour shifts. The incident, which drew international media attention, illustrates how social risks in supply chains can quickly escalate into significant legal and reputational threats for brands.⁵

# Human rights and poor working conditions drive most social risks in global fashion supply chains

Figure 4: Breakdown of social supply chain issues by incident share in the global fashion sector

Shifting from social to environmental risks, RepRisk data reveals that certain types of environmental harm are particularly concentrated in specific segments of the fashion industry. One such issue is animal mistreatment, which shows a notably higher share of incidents in the luxury (10%) and premium (7%) segments than in the fast fashion segment (4%). For example, last year, a European fashion retailer was accused of selling fur products despite repeated appeals and evidence highlighting the mistreatment and unethical slaughter of animals such as foxes, rabbits, and chinchillas. These animals are allegedly confined in cramped, unsanitary cages with no provisions to meet their basic needs.⁶ Taken together with the data, this incident illustrates the particular reputational exposure fashion brands face around animal welfare and ethical sourcing.

# Share of top supply chain risks by fashion brand tier

Figure 5: The relative share of supply chain risk incidents for the 12 most prevalent issues across fast, premium, and luxury fashion brands

Another major environmental concern is product-related health and environmental damage, which is more prevalent in the fast fashion segment – accounting for 13% of relevant incidents – compared to 7% in premium and just 1% in the luxury tier. This trend is likely driven by fast fashion’s emphasis on rapid production, low costs, and large volumes, which can heighten both environmental degradation and consumer safety risks. In mid-2023, for example, a Chinese retailer was linked to fashion suppliers accused of environmental degradation, excessive resource use, and non-compliance with EU chemical regulations – raising concerns that the products may pose safety risks.⁷ This example underscores how product-related health and environmental risk embedded in the supply chain can quickly extend to the brand level.

# V. From catwalk to rulebook: fashion faces regulatory heat

Due diligence regulations can play a crucial role in guiding fashion companies on how to identify, assess, and address risks, particularly those related to human rights and environmental impacts. In the EU, the forthcoming Corporate Sustainability Due Diligence Directive (CSDDD) – although significantly narrowed from its original scope – is still expected to have a substantial impact on the fashion and retail industry, particularly affecting large companies operating within or selling to the EU.

Likewise, the Corporate Sustainability Reporting Directive (CSRD) may significantly impact fashion and retail by requiring a detailed and deep assessment of environmental and social risks across the supply chains including labor practices and material sourcing. By mandating standardized, auditable disclosures, the CSRD intends to drive greater accountability and transparency, compelling companies to actively manage sustainability risks, potentially beyond reporting.

Finally, the EU Forced Labor Regulations, set to take effect in 2027, will directly target forced labor in the supply chain, The regulations does not explicitly mandate due diligence, but by banning products linked to child labor, companies will need to identify and eliminate any form of child labor from their supply chains.

Beyond EU-wide legislations, many countries have already adopted or are in the process of enacting mandatory national due diligence legislation:

• Germany’s Supply Chain Due Diligence Act (LkSG) and France’s Duty of Vigilance Law are reshaping the fashion and retail landscape by imposing strict obligations to identify, assess, and mitigate human rights and environmental risks throughout the supply chain.
• The Netherlands’ Responsible and Sustainable International Business Conduct Act (Dutch Due Diligence Act), if enacted, will enhance corporate accountability, particularly around child labor and broader sustainability issues across sectors including fashion and retail.
• In Australia, a 2023 review of the Modern Slavery Act proposed mandatory due diligence for high-risk sectors like fashion and retail. However, these requirements have yet to be legislated.
• The Norway Transparency Act requires companies, including fashion brands selling in Norway, to conduct human rights due diligence across their supply chains through regular assessment, prevention, and reporting of potential abuses.
• In the United States, the proposed Slave-Free Business Certification Act could impose significant obligations on large companies with global supply chains, requiring annual audits to detect and eliminate forced labor.
• The Modern Slavery Act in the United Kingdom has a profound impact on the fashion and retail industry, particularly following the 2025 guidance update, which emphasized the need for proactive measures to address supply chain risks. Although due diligence is not yet a legal obligation, large companies are increasingly expected to conduct comprehensive risk assessments, integrate anti-slavery practices into their core operations, and report transparently on any identified incidents and the steps taken to address them.

In Switzerland and Japan, the applicable codes are of a less binding legal nature:

• In Switzerland, the Swiss Code of Obligations is increasingly influencing the industry. While it doesn’t mandate due diligence, companies committed to responsible business practices are expected to validate and document their value chains from raw materials to retail.
• In Japan, the Guidelines on Respecting Human Rights in Responsible Supply Chains are not legally binding, nevertheless, they strongly encourage companies – including those in fashion and retail – to conduct due diligence.

When it comes to environmental due diligence, the EU Deforestation Regulation (EUDR) directly targets the fashion and retail industry by focusing on key commodities integral to its supply chains – most notably leather and rubber, both widely used in apparel, footwear, and accessories. Under the EUDR, companies must demonstrate that their products are not linked to deforestation or forest degradation through robust due diligence procedures.

In summary, while these regulations vary in scope and enforcement, they reflect a growing recognition by governments of their role in promoting responsible business conduct. These measures provide both a framework and a push for companies – especially in high-risk sectors like fashion and retail – to embed sustainability and human rights due diligence into their operations.

# VI. The future of fashion supply chains: building resilience

Looking ahead, the fashion sector’s supply chains are expected to face increasing disruption due to a combination of geopolitical tensions, climate change, and regulatory shifts. The rise of protectionist policies and fluctuating tariffs – particularly between major trading blocs – threatens the stability of global sourcing networks. At the same time, climate change is causing more frequent and severe weather events such as floods and droughts, which can halt production, damage infrastructure, and disrupt transport routes.

These emerging uncertainties make effective supply chain due diligence significantly more complex. While this raises the bar for compliance, it also presents an opportunity for companies to integrate sustainability more deeply into their business models and to build trust with increasingly conscious consumers.

One example of this shift toward proactive engagement is the Global Fashion Agenda (GFA), a nonprofit uniting brands, policymakers, and experts to reshape the fashion industry into one that is “circular, equitable, and net positive.”⁸ This initiative reflects growing awareness of the sector’s business conduct risk challenges and a collective commitment to address them.

While some brands may fear the cost implications of more sustainable sourcing, research by McKinsey shows that smart investments can bring both environmental and financial returns. More than 70% of the fashion industry’s emissions come from upstream supply chain activities – especially textile production – meaning that changes in sourcing decisions can have outsized impacts.⁹ For example, choosing to produce fabrics in Pakistan rather than China can cut related emissions in half due to cleaner energy sources.¹⁰ According to McKinsey’s analysis, up to 50% of tier-two emissions can be addressed in a cost-neutral way, particularly by collaborating with suppliers on energy efficiency.¹¹

From a bottom-line perspective, long-term partnerships with fewer, more strategic suppliers can help fashion brands consolidate costs, improve quality control, and build in sustainability from the ground up. These relationships also enable brands to influence and support sustainable practices through shared investments and incentive structures.

A case in point is the 2024 Future Supplier Initiative, a collaborative CEO-led effort to decarbonize the fashion supply chain. It provides brand-backed financing to help factories afford green upgrades, such as energy-efficient equipment or renewable energy. By sharing financial risks with suppliers and focusing on high-impact projects, the initiative encourages wider participation and supports both brands and factories in meeting their climate goals.¹²

Finally, brands that invest in supplier risk assessments and screening processes will be better positioned to comply with supply chain regulations, such as the UK and Australia’s Modern Slavery Act, Germany’s Supply Chain Due Diligence Act, and the EU’s Corporate Sustainability Due Diligence Directive (CSDDD). However, while compliance is non-negotiable, it is not a natural driver of competitiveness – smart risk management is.

By leveraging real-time data, engaging strategically with suppliers, and embedding sustainability into decision-making, companies can build supply chains that are not only resilient, but also aligned with the demands of a rapidly changing world. This, in turn, builds stakeholder trust. It also positions companies for long-term success in an increasingly sustainability-focused marketplace.

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