Ethical sourcing in the textiles industry

Modern consumers have progressively concerned themselves more and more with the ethical sourcing of the items they purchase. This ethical consideration covers various areas of items’ production — from where it was made and who made it to the materials used, where and how they’re sourced, and the environmental impact of its production and shipping. Consumers want to make conscious purchasing decisions, and more businesses are becoming aware of the need to fulfil this expectation.

In this article, Senior EHS and Sustainability Regulatory Consultant Laura Pastor explores what ethical sourcing in the textile industry entails, the regulatory requirements surrounding them, and how public expectations are influencing them.

What does ethical sourcing mean in the textile industry?

The 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, considering that workers involved in making them are safe and treated fairly, and that environmental and social impacts are taken into account during the sourcing process and throughout the supply chain.

This is particularly relevant to consider within the textile industry, where trends such as “fast fashion” have resulted in an explosion of demand for clothing and other products. As this demand has surged, so too has the need for companies to increase production and distribution while keeping costs low.

To make matters more complicated, the textile supply chain is diverse and complex, spanning four different tiers:

• Fiber production: The sourcing of natural agricultural materials like cotton and processing them into fibers, or extracting crude oil to create synthetic fibers like polyester — or a blend of both.
• Yarn and fabric production: The spinning of fibers into yarn, and the process of knitting, weaving, or bonding the fibers. These fibers, made into fabric, are then subject to chemical and/or mechanical processing to produce a textile.
• Garment assembly: The cutting and sewing of the textile into the desired garment or product.
• Distribution and sales: Finally, the textile product is made available to consumers for their use.

Many textiles combine natural and synthetic fibers, or require both natural materials and chemical processing. It’s crucial that the environmental and social impacts of said processes are identified, to ensure an ethical sourcing of materials is carried out by companies, thereby reducing companies’ carbon footprints and conserving natural resources.

Environmental impacts of the textile industry

There are four different environmental impacts of the textile industry, which can be identified as…

Climate change

Fiber production is the third largest contributor to climate impact, driven mainly by synthetic fibers, which make up nearly two-thirds of global apparel. Made from fossil fuels like crude oil, synthetics are linked to high non-renewable resource use and emissions from fossil fuel extraction and chemical production.

Water resources

Fiber production also uses significant amounts of water, mainly for growing cotton, making this cultivation the largest contributor to the whole apparel value chain’s water scarcity footprint, especially in water-scarce regions. Thus, the textile sector amplifies water scarcity by polluting water, making it unusable for other purposes.

Land use

Much like the water usage of cotton cultivation, these types of cultivation have a huge impact on land use, as currently, they occupy 2.5% of global arable land, followed by wool and other natural fibers that also have high land footprints. Cellulosic fibers like viscose, modal, and lyocell require less, however the rising demand for these fabrics — which consumed over 140 million trees in 2018 — highlights the need to avoid sourcing wood from ancient or endangered forests.

Ecosystem quality

Cotton cultivation significantly impacts ecosystems through habitat loss, high water use, soil degradation, and the intensive use of chemicals. Though it occupies just 2.5% of arable land, cotton consumes 16% of global pesticides (around 200,000 tons) and 4% of fertilizers (8 million tons) annually. Grown mainly in arid regions, cotton is water-intensive and pollutes freshwater ecosystems with nutrients, salts, and pesticides, while poor soil quality in these areas heightens the risk of degradation.

Social impacts of the textile industry

The textile industry also faces significant social challenges, including low wages, excessive hours, unsafe working conditions, sexual harassment, and instances of modern slavery and child labor. Fiber production is the riskiest stage in the apparel value chain, accounting for 49-57% of social risks like forced labor, child labor, gender inequality, corruption, toxin exposure, and below minimum standard wages.

Therefore, at the heart of ethical sourcing is a commitment to fair labor practices that uphold the rights and dignity of workers. Companies must be aware that choosing ethical sourcing entails a fair treatment of workers throughout the supply chain, providing safe working conditions, fair wages, reasonable working hours, and opportunities for personal and professional growth.

With a modern consumer-base increasingly feeling the urge to inform themselves and care about the origins of their clothes and apparel, ensuring ethical sourcing of materials and prioritizing sustainable practices is practically a necessity for textile companies that want to build trust and loyalty with their consumers.

Nonetheless, monitoring sustainable and ethical sourcing practices and working conditions in supply chains is a huge challenge — one that becomes an even greater challenge for the textile industry. Most textile industries are outsourced in developing countries to lower costs and avoid restrictive legislation regarding environmental and labor concerns. Three common practices in the textile value chain enhance the mentioned high social risks, and the resulting inaccuracy of data:

• Short lead times: Fast-changing trends force producers to meet tight deadlines, often requiring workers to endure long hours.
• Demand for flexibility: Market volatility pushes producers to adjust production rapidly, creating job and income instability.
• Cost-cutting pressures: The push for lower prices drives production to areas with weak wage laws and poor labor standards.

Poor traceability across global supply chains, involving numerous enterprises with varying ethical, legal, and commercial practices, makes it difficult for buyers and companies to identify unethical suppliers. As one moves further down the supply chain, visibility into ethical risks—such as poor working conditions and child labor—diminishes. Therefore, maintaining clear oversight of each phase of the supply chain and implementing an ethical sourcing policy to guide procurement activities is essential.

Applicable ethical sourcing regulations in the EU

Due to the general increasing concern around the ethical sourcing of materials and other general ethical business practices, corporate sustainability and human rights due diligence have become major focuses for legislation across the EU.

Two such important regulations have addressed these issues, namely, the German Supply Chain Due Diligence Act (LkSG) and the EU Corporate Sustainability Due Diligence Directive (CSDDD).

Textile ethical sourcing in the CSDDD

The EU Corporate Sustainability Due Diligence Directive (CSDDD) entered into force on 25 July 2024. It initially focuses on large EU limited liability companies and partnerships with more than 1,000 employees and over EUR 450 million in net turnover worldwide and large non-EU companies with more than EUR 450 million in net turnover in the EU. Under the CSDDD, these companies must identify, assess, prevent, mitigate, and remedy the negative impacts (including those of their upstream and downstream partners) they have on people and the planet. Moreover, said companies must publicly communicate their due diligence policies as well as monitor their effectiveness.

The CSDDD states that “adverse human rights and environmental impacts might occur in companies’ own operations, operations of their subsidiaries, and of their business partners in the chains of activities of the companies, in particular at the level of raw material sourcing and manufacturing.”

For due diligence to work effectively, it must cover human rights and environmental adverse impacts that occur throughout the whole life-cycle of production. This includes the sourcing of materials at the level of companies’ own operations, including the operations of their subsidiaries and of their business partners in their chains of activities.

Companies must therefore ensure the materials they source through their direct and indirect suppliers — including raw materials and components such as cottons or fibers — aren’t linked to either human rights abuses (e.g. child labor), or environmental harms (e.g., deforestation or excessive carbon emissions).

The EU CSDDD defines the “chain of activities” broadly for upstream business partners, including the design, extraction, sourcing, manufacturing, transport, storage, supply of raw materials or products, and product development. For downstream partners, it’s limited to storage, transport, and distribution in direct fulfillment for the company. This focuses due diligence obligations primarily on the upstream value chain, taking a product- or service-oriented approach.

The importance of the EU CSDDD lies, among others, in the emphasis it makes on responsibility beyond Tier 1 of the supply chain, requiring companies to address risks even at the raw material extraction stage. This ensures that sourcing practices align with human rights standards and environmental sustainability, fostering responsible business conduct across global supply chains.

Ethical sourcing of textiles under the LkSG

The German Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz, or LkSG), establishes legal obligations for companies to respect human rights and mitigate environmental harms by implementing defined due diligence obligations.

The LkSG applies to companies with 3,000 or more employees in Germany (from January 2023) and to companies with 1,000 or more employees (from January 2024). It also applies to foreign companies with significant operations in Germany. Following the provisions of the LkSG, companies must establish processes to identify, prevent, and address human rights and environmental risks linked to their operations. The LkSG also promotes responsible supply chain management through proactive risk identification and mitigation procedures.

Under the LkSG, companies must ensure materials sourced are not linked to:

• Human rights violations, such as forced labor, child labor, discrimination, or lack of adequate workplace safety
• Environmental harm, such as illegal deforestation, pollution, or other practices causing significant ecological damage

Under the LkSG, companies must submit an annual report to the Federal Office for Economic Affairs and Export Control (BAFA) on how they met their due diligence obligations during their previous fiscal year, including the following elements:

• Whether any human rights or environmental risks have been identified, and if so, specify which risks were found
• Actions taken to fulfill due diligence obligations
• Methods used to evaluate the impact and effectiveness of these measures
• Conclusions derived from the assessment to inform future actions

In contrast to the CSDDD, the LkSG covers “all products and services” and includes all steps necessary for production and delivery to end customers, domestically and abroad. While its definition of “supply chain” is broader than the CSDDD, the LkSG focuses on “direct suppliers,” defined as contractual partners essential for production or services. This limits its scope to fewer supplier tiers, as seen in risk analysis and preventive measures. By contrast, the CSDDD’s broader definition of “chain of activities” extends due diligence to tier 2 and beyond for upstream activities.

However, as the CSDDD must be transposed into the national law of all Member States, the German LkSG will have to be adapted. This adaptation will exclude more companies, as currently the applicability of the LkSG depends only on the number of employees of a company, without any turnover restriction.

What risks do businesses face when sourcing textiles?

With limited applicable ethical sourcing requirements placed on companies, businesses can encounter a variety of unethical sourcing practices throughout their supply chain, including forced or compulsory labor, unsafe labor conditions, and environmental harm. Unethical practices in supply chains often stem from financial pressures, inconsistent regulations, lack of oversight, and power imbalances:

• Cost pressures: Companies face profit demands, leading to cost-cutting in supply chains. Lower costs can result in unethical practices like cheap labor and irresponsible sourcing.
• Regulatory disparities: Laws on labor, safety, and transparency vary widely by region, enabling practices in one location that may be illegal elsewhere.
• Oversight challenges: Supply chain managers often lack visibility and control over down-tier suppliers, with many companies unaware of how their suppliers operate.
• Power imbalances: Small businesses have limited leverage to influence suppliers, whereas larger companies with substantial purchasing power can drive ethical changes.

Financial risks: Fines and penalties

Not tackling the unethical practices and risks in the sourcing of textiles can result in fines, denial of trade, and affect business reputation. For instance, under the mentioned German LkSG, companies not complying with its provisions, can be fined up to EUR 800,000, or up to 2% of their annual global turnover.

Reputational risks

Businesses that neglect ethical practices and don’t consider their long-term sourcing decisions will face an undermining in the trust and credibility they’ve established with their stakeholders, customers, employees, and investors. This erosion in trust and credibility can lead to significant reputational damage, followed by financial damage in view of that reputation. With the growing emphasis on ethical business practices, customers now have more tools than ever to hold companies accountable. In the era of social media and online reviews, news of unethical behavior spreads quickly and can significantly harm a business. To succeed, companies must not only commit to high ethical standards but also ensure this commitment is upheld across all aspects of their operations.

Supply chain risks

Considering the multitude of agents involved in the supply chain and the difficulty of obtaining accurate data, businesses cannot fully control how that network of agents operates. However, businesses must strive to address social and environmental risks and commit to ethical sourcing practices, particularly in industries like textiles, where sourcing materials can present significant challenges.

Prioritize ethical sourcing to mitigate business risks

By prioritizing ethical sourcing, companies can manage social risks and drive positive impacts in their supply chains. In the textile industry, ethical purchasing decisions help reduce risks such as forced labor, unsafe working conditions, and poverty wages.

Companies like Patagonia and Fair Trade Certified 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 while promoting sustainable practices. Moreover, sourcing organic cotton or certified sustainable fabrics, such as those from the Global Organic Textile Standard (GOTS), contributes to both environmental and social responsibilities.

Adhering to ethical standards also drives operational efficiencies. When companies prioritize workers’ health and safety — such as ensuring safe working conditions in garment factories — they reduce injury-related costs, absenteeism, and lost productivity. This not only improves the wellbeing of workers but also contributes to greater supply chain resilience, as companies benefit from a more reliable and skilled workforce.

Maintaining ethical practices also ensures compliance with national and international legislation, helping companies avoid penalties. For instance, the UK Modern Slavery Act and the California Transparency in Supply Chains Act both require companies to disclose efforts to combat slavery and human trafficking within their supply chains. By ensuring supply chains meet these standards, textile companies can avoid legal repercussions, such as fines or restrictions on trade.

Furthermore, a commitment to ethical sourcing enhances a company’s reputation with investors, consumers, and employees. Companies should implement transparent supply chain practices and sustainability programs, such as tracking the origins of materials used in production and committing to sustainable cotton sourcing. By following a strong ethical framework —providing ethics training, creating a robust code of conduct, and ensuring transparency — businesses can instill trust with stakeholders. Open communication channels, such as independent hotlines for reporting unethical practices, and swift action to address any issues, are crucial for maintaining credibility.

Unethical behavior in a company’s supply chain, especially in industries like textiles, can severely damage its reputation, erode trust, harm customer relationships, and lead to legal consequences. Companies must prioritize ethical sourcing practices, implement comprehensive frameworks to address unethical behavior, and ensure transparency throughout their operations. By doing so, they can safeguard their reputation, attract top talent, and maintain a competitive edge in the global marketplace.