The Ethical Supply Chain Advantage: Risk Reduction in Fashion

“Ethical” supply chains — lofty ideal or achievable reality?

Fashion brands — especially ESG managers tasked with steering the company’s CSR and sustainability practices — are asking themselves that right about now. And it’s not just because of legislative and regulatory rollouts across the EU and the U.S.

The ethics of the fashion industry’s supply chain have long been debated, and the “answers” we’ve collectively come up with in the past decade have ranged from pure PR speak to some good-faith attempts, albeit without teeth enough to truly make a dent in a way that upholds ethics and prioritises profitability. 

Things look different in 2025 and beyond, however. Not only have consumer demands been rising, holding even small brands to a higher standard, but alongside this escalation, technology has been evolving as well. The twin rises of these phenomena the world over set the stage for some real innovation that catalyses true change in the industry across segments and price points. 

Simply put, fashion brands stand to gain a significant competitive advantage if (and when) they operationally translate the idea of an “ethical supply chain” into one that begins with risk reduction. 

So, in this article, we’ll explore the very tangible connection between the call for ethical standards applied to supply chains and the implementation of risk reduction strategies as a path to sustainability and social responsibility for fashion brands. 

Let’s dive in.

Hand-in-Hand: Understanding the Relationship Between Ethical Supply Chains & Risk Reduction

Currently, in the fashion industry, we are not without clear, compelling, and consistent examples of “brands doing ‘it’ right.” 

“It,” in this case, refers to the priority of balancing that sweet spot between ethics, transparency, and profitability.

Gobi Cashmere, AGI Denim, and Patagonia’s Supply Chain Environmental Impact Program are trailblazers with plenty of immediately actionable and highly tactical learnings and strategies for ESG managers to adopt and implement. 

“Most fashion supply chains are these big, opaque, complex structures where it’s hard to even see who’s in your supply chain, let alone where the risks might be. We’re advising companies to shorten and de-complexify their supply chains.” — Donna Marshall, professor of supply chain management at University College Dublin, “Meet the brands setting a new blueprint for supply chain traceability,” Vogue of Business

So, through a combination of…

• Technology: Digital traceability, certifications, third-party auditing

• Governance: Binding agreements and supplier oversight protocols

• Collaboration: Alignment across brands, suppliers, governments, and workers

…fashion brands, together with their in-house ESG managers, are developing their own unique models, and the procedures that flow from their well-designed and defined social responsibility policies.

But plenty of ESG managers experience some resistance around mere “adoption,” whether that’s clearly called out or just internally experienced. It’s usually some form of an age-old anxiety: “It worked for them, but we’ve got X/Y/Z limitation. How can it work for us? How do we make it work for us?”

These are valid concerns, but the answers don’t necessarily start with tactics — they start with a mindset and overall approach. Only once these are shifted and adopted can they enable the strategies that align with a change in this type of perspective.

To arrive there, we’ve got to first ask (and define) the connection between a truly ethical supply chain, risk reduction, and the operational ways these are being addressed today.

Operationalizing an “Ethical Supply Chain” — Examples in Action

An ethical supply chain in fashion encompasses four core components:

1. Fair labour & worker welfare: Ensuring safe working conditions, living wages, freedom to unionise, and no forced or child labour.

2. Environmental responsibility: Sourcing sustainable materials, reducing pollution and waste, and optimizing resource use throughout production.

3. Transparency and traceability: Providing visibility at every stage, from farms to factories to finished products, aided by digital passports or supply chain maps.

4. Accountability and governance: Holding all partners to consistent standards and acting decisively on violations—through audits, remediation, and enforceable agreements 

Think of it like a four-legged stool — knock out just one of the legs, and the whole thing becomes unwieldy, potentially falling apart altogether. 

Of course, it wouldn’t be much of a story without these lofty ideals facing very real obstacles or challenges to their achievement. Below, we’ve compiled a table of the most common challenges that fashion brands experience:

As you consider the solutions presented for these challenges — and some of the brands we’ve already discussed above — clear patterns emerge:

• Harness pre-existing tech tools: If the goal is a fully traceable model, fashion brands don’t need to reinvent the wheel. Simply harness platforms and tools already in place but adapted for the realities of their own operations.

• Hit two goals with one shift: Using vertical integration and local sourcing (as a means to gain direct control over raw materials) reduces risk and improves traceability in supply chains.

• Make responsibility a must-have: Instruments like third-party certs, agreements, and watchdogs setting industry guidelines now have the backing of regulatory requirements such as the CSRD, Eco Score, UFLPA (and more) to give voluntary efforts the support of governance and enforcement.

We’ve got several key takeaways here. But, for brands wondering how they can truly begin to make incremental, progressive changes in their own operations today, there’s a missing component to the ethical supply chain conversation — and it’s called “risk reduction.”

Proving the ROI of Ethical Supply Chains: Connecting “Risk Reduction” Strategies to a Higher Ideal

SEKO Logistics offers a solid logic that’s hard to argue with when making the business case for risk reduction as a path to ethical supply chains:

“Consumers are paying close attention to how companies source…[E]thical sourcing and transparency…are essential components that shape brand trust, compliance, and long‑term business success.” 

Wise words and well-worth the effort it will take to implement. So, let’s explore how risk reduction, when tied to an “ideal” of ethical supply chains, reveals that the two are sides of the same coin.

At its core, risk reduction means anticipating and mitigating any event that could interrupt supply chain continuity, damage a brand's reputation, or expose it to legal/regulatory penalties.

Key risk categories include:

• Operational disruptions: Production delays, logistics breakdowns, or natural disasters.

• Regulatory and compliance violations: Non-conformance with labour, environmental, or trade standards.

• Reputational issues: Negative media, stakeholder pressure, or consumer backlash.

• Financial volatility: Cost spikes, tariffs, or demand fluctuations.

• Systemic vulnerabilities: Over-reliance on single suppliers, lack of visibility into sub-tier issues.

But we’ve already seen how brands like Gobi Cashmere, AG1 Denim, and Patagonia’s are “ethicalizing” their supply chain with moves like sourcing passports, vertical models, and mapping tools to achieve a more ethical supply chain. The twist, of course, is that these actions bring an additional benefit: they also reduce risks across categories.

And these are not the only ways risk reduction connects to ethical supply chains (and vice versa). Consider our compilation of the following examples:

• Italy’s 2023 “Memorandum of Understanding” aims to centralise ethical suppliers and prevent labor abuse linked to high-risk fast fashion operations — the unintended side benefit is the collection of data and the building of a database that, longitudinally, will provide a significant  bumper crop of data that we can use to develop new practices.

• Ethical brands may source closer to HQ or diversify supplier networks to avoid overreliance. Allbirds, like Gobi Cashmere, maintains long-term partnerships with ethical material suppliers (e.g., New Zealand Merino), which also helps stabilie costs when innovative materials like bio-based soles command a premium.

Let’s also name the elephant in the room here: brands cannot be expected to (and, likely, won’t ever be able to) achieve 100% perfectly ethical operations. 

Issues will inevitably arise, as they always do, and the key here is not to run away from or be afraid of them. Rather, it’s about having a plan in place to respond proactively and with a clear track record of following promises up with demonstrable action, as was the case following the Boohoo scandal in 2020, when several UK brands ended production in Leicester. 

Today, ethics-focused manufacturers like Meesha and Shahtex are rebuilding the region’s reputation, underscoring the long-term reputational impact of ethical sourcing and the very real hope for improvement even if and when unintended issues arise.

So, what’s the “TL;DR” for ESG managers here? 

It’s simple: We cannot achieve ethical supply chains without risk reduction, and we cannot pursue risk reduction, operationally speaking, without ethical supply chains as the ultimate goal. 

Instead, we’ll need to view ethics through a risk-management lens, not just a values framework, to build supply chains that “do good” by first being safer, more resilient, and more profitable at every level.

Future-Proofing Fashion Through Responsible Sourcing

In today’s volatile global landscape, the brands best positioned for long-term success aren’t those that cut corners — they’re the ones that can see risk coming and act before it hits. Responsible sourcing is no longer just a badge of ethical intent; it’s an operational strategy for resilience. 

Here are the key takeaways:

• Ethical sourcing is a risk management tool. From labour violations to regulatory crackdowns and reputational damage, responsible sourcing helps brands pre-empt the most disruptive threats.

• Data and traceability are non-negotiable. Visibility across all supply chain tiers enables better sourcing decisions, faster crisis response, and more substantial proof of compliance.

• Long-term supplier relationships build stability. Brands that invest in their suppliers — through fair contracts, training, and collaboration — reduce turnover and build more reliable, higher-performing supply chains.

• Regulation is rising — and transparency is the baseline. As due diligence laws expand globally, brands that have already embedded ethical practices and clear documentation will be better equipped to comply and compete.

Responsible sourcing isn’t just the right thing to do. It’s a strategic imperative. The fashion brands that treat it as such today will be tomorrow’s market leaders — equipped not only to weather disruptions, but to shape a supply chain model that’s more sustainable, agile, and aligned with what stakeholders now expect.