Regulation and Risk in the Textile and Apparel Industry

By Milind Khangan, Marketing Manager, Vertex Market Research & Consulting

For decades, the global textile and apparel industry has been competing mainly on labor cost, manufacturing scale, sourcing efficiency and speed-to-market. Today a new competitive reality is emerging. Market access, investment and long-term growth are increasingly impacted by regulatory compliance, supply chain transparency, sustainability performance and geopolitical resilience.

According to research study by market research firm Vertex Market Research & Consulting, the global textiles and apparel industry is estimated to generate US$1.7-1.9 trillion of annual economic activity and support hundreds of millions of jobs around the world. But the sector is increasingly facing scrutiny over its environmental footprint, labor practices, waste generation, and supply chain complexity.

The Apparel Impact Institute (Aii) estimated that in 2023, approximately 944 million metric tons of fashion-related greenhouse gases were emitted, accounting for almost 1.8% of the world's total emissions. 2023 was also the first year that fashion-related greenhouse gases began to rise, after a total of three years of emission declines. The data and evidence show that the fashion industry continues to rely on rationing raw materials that are derived from fossil-fuel-based resources and on manufacturing that involves high carbon emissions.

The challenge is illustrated by trends involving the consumption of various materials. Of the total global fiber production in 2023, 57% were polyester fibers, a figure that continues to rise owing to the demand for ultra-fast fashion and value driven fashion. Without substantial new sources of competitively priced virgin polyester or other fibers, the implementation of government regulations will likely curtail large-scale releases of polyester, even if the current low cost of virgin polyester makes existing polyester recycling systems economically less desirable.

The result is a fundamental shift in industry dynamics. Competitive advantage is no longer determined solely by production efficiency. Increasingly, it is defined by transparency, traceability, resilience, and regulatory readiness.

Europe Is Redefining Global Textile Compliance

No region is exerting greater influence on the future of textile regulation than the European Union. The EU has been creating a regulatory framework on Sustainable and Circular Textiles Strategy, Ecodesign for Sustainable Products Regulation (ESPR), Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), which has a deeper and broader impact on designing, procuring, production, marketing and use of products throughout their life cycle.

In consumer product sectors, the EU ranks textiles to be the 4th biggest sector of environmental and climate impact and the 3rd largest sector in water consumption and land occupation. Thus, European compliance is increasingly the requirement to entering the EU market instead of a voluntary CSR action.

The July 2026 Turning Point

One of the most significant regulatory shifts will take place on July 19, 2026. Large businesses will be banned from destroying unsold clothing, footwear, and accessories under the ESPR. The law aims to put a stop to an estimated 4% to 9% of textiles placed on the European market, which are wasted without reaching customers. European authorities estimate that this leads to around 5.6 million tonnes of CO-equivalent emissions per year. As a consequence, EU member states produced roughly 6.94 million tonnes of textiles waste in 2022, corresponding to about 16kg per capita, according to the European Environment Agency (EEA). Overproduction had been treated as a normal operational cost for many decades. Unsold stock could be discounted, shipped, stored or eventually destroyed. This model is disappearing. Starting in February 2027, the companies affected will also be required to make transparent, comparable public information about discarded products available on volumes, weights and causes of destruction. Concurrently, EPR scheme systems are appearing all over Europe, pushing the responsibility of collection, sorting, recycling, and disposal toward producers and brands. As a consequence, reverse logistics, repair, resale, remanufacturing systems, and textile recycling infrastructure are becoming central.

Corporate Accountability Is Expanding

Besides product regulation, apparel companies face increasing demands to disclose and exercise due diligence regarding their impacts.

The CSRD requires European businesses to disclose climate risk, emissions and sustainability governance, as well as value-chain impacts. For apparel brands where the bulk of their impact, and particularly their emissions, occurs upstream, in manufacturing and raw material sourcing, collecting accurate supplier-level data has become an enormous burden and a major pain point for compliance.

Even the Omnibus reforms enacted by the European Commission to simplify the implementation timeline and scope of CSRD do not change this overarching trend toward greater transparency, sustainability disclosures and value chain accountability.

Complementing the CSRD, the CSDDD obligates companies to assess and mitigate human rights and environmental risks within their value chain.

Human Rights Compliance Has Become a Trade Requirement

The issue of human rights due diligence has transitioned from being merely a reputational concern into becoming a trade compliance necessity. Of all trade compliance requirements for the textile supply chain, the US Uyghur Forced Labor Prevention Act (UFLPA) still stands out. By establishing a rebuttable presumption framework in relation to the supply of goods in China's Xinjiang region, an importer may be presumed to have shipped products connected with forced labor, unless adequate evidence can be submitted by an importer to prove the contrary. As such, the commitment from brands and importers towards the traceability and due diligence of their respective supply chains, encompassing supplier verification schemes, supply chain mapping, chain-of-custody evidence, fiber testing methods, and traceability technologies in an effort to cover suppliers down to spinning, weaving, dyeing, and fiber productions, has begun to soar. Being able to show the market that the product has been sourced responsibly, with the provision of auditable evidence has now come to be a deciding factor, alongside the price and quality of a product.

Transparency Becomes Mandatory

The market pressure for more transparency is now also being implemented through the DPP, or Digital Product Passport. This was designed within the scope of the ESPR and should eventually lead to digital data linked to a product through its entire life cycle. A focus on the textile sector has been selected and will be launched on a phased basis later this decade while specific requirements for individual products are being developed. Further passport information will likely also include: origins of the raw materials, chemical composition, recycled content, environmental performance parameters, water consumption, durability attributes, repair potential, and post use sorting instructions. For many organizations technology is not the problem, data quality is. Supply chains within textiles can cross national borders many times, contain dozens of suppliers, and multiple processing steps. The failure to create auditable, verifiable data regarding these supply chains can have major compliance consequences for many as DPPs are rolled out.

New Frontiers of Regulatory Risk

From manufacturing/sourcing practices to sustainability marketing claims and chemical compliance are of growing regulatory interest.

Regulators throughout key consumer markets are increasing scrutiny over environmental claims, including those involving recycled content, carbon neutral/circularity, biodegradability, and sustainability performance. Apparel brands are expected to back up marketing claims with proven facts and data-based methods.

Separately, per- and polyfluoroalkyl substances (PFAS)-a category also referred to as forever chemicals-are facing ever-increasing regulations, on the back of environmental and human health concerns. As of January 2025, a law is banning PFAS added in all general apparel within New York State; exemptions for severe wet-weather outdoor apparel will sunset in January 2028. As manufacturers look to stay ahead, substantial investments must be made in new materials, testing, product reengineering, and compliance certification.

Trade Fragmentation Is Reshaping Supply Chains

Alongside sustainable regulation, geopolitical developments and customs reform are rewriting sourcing and distribution strategies for the apparel sector. China Plus One remains the main sourcing trend for 2026, and while the nation retains its status as the key supplier for the global textile industry, brands are diversifying production to include countries such as India, Vietnam, Indonesia, Turkey, Morocco and certain Eastern European nations to spread the risk and ensure resilience in their supply chains. At the same time, a vital regulation development that will impact apparel retail will be the removal of the de minimis exemption which fuelled the business model of ultra-fast fashion. From July 1, 2026, the EU has removed the 150 de minimis duty free concession for goods below 150. The phased introduction means that low-value B2C shipments under the scheme will, subject to qualifying, incur a flat duty charge of 3 per item under the import one-stop shop (IOSS) system. It is not merely about the duty charge-greater customs examination, greater product compliance, evidence of origin, fluctuating tariffs, and increasing oversight of retail supply chain are challenging how apparel retailers approach their distribution methods, stock positioning and their strategy by region.

Compliance as a Competitive Advantage

Compliance is beyond just a reporting task today. Compliance has become a capital allocation issue. MNC apparel brands are investing billions a year in setup and management of Supply Chain Traceability Platform, PLM systems, ESG data management platforms, carbon accounting platforms, supplier audit programs, chemical management platforms and preparation for Digital product passport. The task for many of the suppliers, especially the SME's, can be considerable. The cost of not complying with compliance, however can be far more costly and lead to delayed shipments, custom intervention, blocked markets, financial penalization, reputational issues and damage. Quite frequently compliance itself is becoming a competitive advantage.

Conclusion

The textile and apparel industry has entered a new era defined by transparency, accountability, and resilience. The synergy between ESPR, DPPs, EPRs, CSRD requirements, CSDDD duties, UFLPA enforcements, restrictions to PFAS, custom changes, investigation of green claims and shifting trade dynamics is drastically changing the process of products design, manufacturing, purchasing, marketing and selling.

The ability to be regulatory compliant might become even more essential than efficiency, fast time-to-market, product development or cost-efficiency by 2030. Future industry leaders will not be the companies that simply cope with the changing regulatory environment, but those who can integrate transparency, traceability, sustainability and resilience into their core business model.

In an increasingly regulated marketplace, regulatory compliance is turning into one of the core competitive advantages for the industry as well as one of the most crucial sources for reducing risks.

Important Regulatory Mandates & Milestones