Supplier emissions account for around 80% of fashion’s climate footprint, putting decarbonization, financing and supply-chain resilience at the center of the industry’s transition agenda.
London, September 25, 2026 — Fashion brands need to treat supply-chain decarbonization as an investment and enterprise-value issue rather than solely a sustainability commitment, according to a new analysis by EY.
The analysis, published by EY on September 17 and authored by Anna Ryott, EY Nordic Chief Impact Officer, and Helena Ernbo, EY Sweden Consulting Sustainability Leader, highlights the upstream supply chain as the industry’s largest climate exposure. Supplier activities generate approximately 80% of fashion’s emissions, while brands’ own operations account for less than 5% of their total footprint.
For textile and clothing manufacturers, the finding puts greater attention on raw-material production, textile processing and garment manufacturing — activities that sit within companies’ Scope 3 emissions and often span highly fragmented, multi-tier international supply chains.
EY said climate disruption is also becoming a direct supply-chain risk. Changing weather patterns could reduce yields of key fibre crops including cotton, hemp, flax and jute by up to 8% between now and 2050. In Mississippi, a 1°C increase in maximum temperature between 1970 and 2020 was associated with a 6.1% decline in cotton production, according to research cited by EY. Extreme heat and flooding are also threatening manufacturing operations and logistics, particularly in major production hubs across South and Southeast Asia.
At the same time, decarbonization progress across fashion remains slow. EY cites Apparel Impact Institute research showing a 7.5% increase in sector emissions between 2022 and 2023, driven mainly by increased virgin polyester use and overall sales growth.
Supplier investment remains a major challenge
EY argues that the fragmented structure of the fashion supply chain makes supplier decarbonization difficult. Factories commonly serve several brands and depend on multiple sub-suppliers, reducing the influence of any single buyer and making it harder to establish where the most significant emissions occur.
This also creates a “free-rider” challenge. A brand that helps finance a factory’s rooftop solar installation, energy-efficient machinery or another emissions-reduction project may not receive all of the resulting benefits because the supplier also produces for other customers. That can make internal approval for decarbonization investment more difficult.
EY therefore sees the CFO function as increasingly important, arguing that climate investments need to be linked to cost, risk, resilience and long-term enterprise value. Apparel Impact Institute research cited by EY indicates that climate risks could affect fashion brands’ bottom lines by up to 34% in 2030 and 67% in 2040.
H&M approach links carbon reduction with financial planning
EY points to H&M’s collaboration with the Apparel Impact Institute (Aii) as an example of how common data standards can help overcome supply-chain fragmentation.
The companies streamlined data collection through common reporting and carbon-benchmarking standards. H&M subsequently worked to connect sustainability targets with traditional financial KPIs and developed internal programs, including the Green Fashion Initiative, to establish return-on-investment objectives for supplier decarbonization measures.
EY says this enabled H&M to create an investment roadmap showing the relative cost of different interventions in US dollars per tonne of carbon dioxide equivalent reduced. The approach also introduced carbon-intensity measurements for shorter-term performance tracking and comparison across projects.
The wider implication for textile and clothing suppliers is that energy transition projects could increasingly be evaluated not only by their environmental contribution, but also by their effect on operating-cost volatility, energy security and production resilience.
Blended finance emerges as a potential solution
Another barrier is the mismatch between conventional climate finance and the smaller-scale investments required by textile mills and garment factories. EY notes that conventional financing often targets larger projects such as industrial wind or solar developments, whereas suppliers may need comparatively smaller investments in biomass, energy storage or production-efficiency equipment.
EY highlights blended finance as one route around this problem, combining public, private and philanthropic capital. The analysis cites HSBC’s work connecting financial institutions, insurers, manufacturers and brands to identify shared capital-expenditure needs, while multilateral development banks can provide a de-risking function.
The report also points to the Deployment Gap Grant, developed by Aii, which provides suppliers with partial grants for decarbonization projects that can be repaid over four to six years.
From sustainability targets to supply-chain execution
EY concludes that fashion needs stronger collaboration between brands, suppliers and financiers, supported by shared data standards, scalable financing mechanisms and clear investment frameworks.
Its recommendations include establishing trusted third-party alliances, expanding precompetitive collaboration, involving CFOs early in sustainability decisions and developing aggregated or risk-sharing financing structures.
For the global textile, clothing and footwear supply chain, the message is increasingly commercial: decarbonization is moving beyond corporate sustainability targets toward energy costs, production resilience, climate exposure and access to capital. EY argues that connecting these issues within financial decision-making could help turn supplier decarbonization from a compliance cost into a longer-term enterprise-value strategy.
