Climate Risk & Resilience in Fashion

How often do you refresh your wardrobe — every month, every season, or every year? Behind those style choices lies an industry undergoing a much deeper transformation. The global fashion system, built on creativity and speed, now stands at the intersection of climate exposure and financial scrutiny. Every runway show and e-commerce drop depends on cotton farms, dyeing houses, and logistics networks that are increasingly vulnerable to extreme weather, carbon costs, and resource scarcity. Once an abstract ESG talking point, climate change has become a measurable risk on fashion’s balance sheets — one that no investor or insurer can ignore.

The New Reality: From Fabric Trends to Financial Trends

Climate risk now shows up not only in sustainability reports but in the balance sheets of major fashion conglomerates. The industry, valued at over US $2.5 trillion globally, depends on stable weather patterns, inexpensive shipping, and predictable resource flows. All three are eroding.

Physical climate impacts are the most visible. In 2022, catastrophic floods destroyed roughly one-third of Pakistan’s cotton crop and drove agriculture-sector losses to about US $9.2 billion, with cotton among the worst-hit commodities. Cotton prices subsequently rose more than 20 %, forcing mills and apparel brands across Asia and Europe to absorb higher costs or pass them on to consumers. Heatwaves in China’s Sichuan province and droughts in India further constrained supply, exposing how geographically concentrated textile inputs really are.

Key stages of the fashion supply chain are globally distributed and have a broad environmental impacts (energy use, water use, waste production and chemical use) (Source: Kirsi et al. (2020))

Transition risks are equally pressing. The EU’s Carbon Border Adjustment Mechanism (CBAM) and the International Maritime Organization’s carbon levies are set to make carbon-intensive imports and shipping more expensive by mid-decade. Analysts estimate that for a company emitting 10 million tons of CO₂e in transport and production, a carbon price of just US $50/tCO₂e could translate to half a billion dollars in added annual costs — a liability too large to remain “non-financial.”

Legal and reputational risks also have real balance-sheet consequences. In 2025, the Italian Competition Authority fined SHEIN €1 million for misleading sustainability claims, citing unsubstantiated carbon neutrality messaging. The fine itself may be minor compared to its annual revenue, but the reputational drag and compliance cost echo far beyond that figure, particularly as EU’s Green Claims Directive and similar laws proliferate.

Case Study I: SHEIN — Growth Meets Exposure

Few companies illustrate climate-transition tension as vividly as SHEIN. The company’s 2024 Sustainability Report revealed that its transport emissions rose 13.7 % year-on-year, reaching 8.52 million t CO₂e — despite investment in renewables and logistics optimization. At a conservative carbon price of US $50/t CO₂e, that alone represents a potential US $426 million annual exposure if explicit carbon costs are internalized.

SHEIN has expanded renewable electricity across its facilities, now sourcing 76 % of its operational power from renewables, and invested in 114 MW of solar capacitywithin supplier factories. These measures reduced nearly 884,000 t CO₂e in 2024, but total emissions still climbed because of surging output and continued reliance on air freight.

The company’s operational choices have clear financial implications. Air freight emits roughly 50 times more CO₂ per ton-kilometre than ocean shipping. Transitioning even 20 % of air shipments to sea freight could cut both emissions and logistics costs by double-digit percentages — but only if inventory and marketing cycles adapt. The tension between speed-to-market and carbon accountability exemplifies fast fashion’s central paradox: agility drives profits in the short term but magnifies exposure in the long run.

Case II: Inditex and Lululemon: Managing Physical and Reputational Exposure

Inditex, the parent company of Zara, Bershka, and Massimo Dutti, identified climate and weather-related disruptions as material operational risks in its 2023 Non-Financial Information Statement. While the company did not quantify specific event counts or financial losses, external reviews note that Inditex’s transport emissions increased in 2024, partly due to supply-chain stresses and climate-related logistics bottlenecks. This illustrates a broader pattern of rising exposure to physical and transition risks across global retail networks.

Inditex has improved renewable sourcing and circular-design initiatives, but its disclosures lack clear Value-at-Risk (VaR) quantification. Without modeling how a 2 °C or 3 °C scenario affects costs and margins, the company’s risk narrative remains qualitative. For investors, this omission complicates pricing of long-term equity and debt.

Lululemon, in contrast, embeds climate oversight at board level and reports through CDP and TCFD frameworks. Yet its Scope 3 emissions make up more than 99 % of its footprint, concentrated in supplier factories across Asia. These regions face compounding heat, water stress, and carbon-pricing pressures. Unless Lululemon’s suppliers invest in decarbonization and adaptation, the brand’s operational risk remains largely externalized — and therefore unaccounted for.

The Path Forward: Resilience as Financial Strategy

For fashion companies, resilience must evolve from a sustainability buzzword into an investment thesis. That means stress-testing operations under multiple climate futures, embedding scenario analysis into capital allocation, and treating adaptation as growth insurance rather than sunk cost.

Leading brands are already experimenting. Some are mapping geospatial climate hazards across supplier tiers to anticipate flood or drought impacts on textile mills. Others are contracting sustainability-linked loans where interest rates are tied to environmental performance or supply-chain resilience targets. Companies such as Kering, H&M Group, and VF Corporation have all structured multi-billion-euro facilities linked to emissions and circular-material goals, while multilateral lenders like IFC are piloting ‘resilience-linked’ credit lines for apparel manufacturers in Asia. In parallel, insurers are piloting parametric coverage — weather-indexed insurance that triggers automatic payouts when rainfall, temperature, or flood levels exceed set thresholds. Programs led by leading insurance companies and international organizations now cover textile factories in Bangladesh, Vietnam, and India, helping global apparel brands maintain cash-flow stability after extreme weather events. Such coverage shortens recovery time and enhances resilience along supply chains.

Adaptation investments — such as flood-proof warehouses, renewable micro-grids, or water-efficient dyeing — may raise short-term Capex but yield compounding returns in risk reduction and brand equity. According to McKinsey estimates, climate-resilient infrastructure can deliver internal rates of return exceeding 10 % in avoided losses and operational continuity. In fashion’s thin-margin environment, that is not philanthropy; it is prudence.

Lessons for Executives and Investors

First, quantification precedes credibility. Climate risk reporting must evolve from narrative to numeric. Board-approved scenario models and VaR estimates signal seriousness to regulators and investors alike.

Second, Scope 3 is destiny. The majority of emissions and vulnerability lie upstream. Brands that ignore supplier resilience are effectively outsourcing both risk and responsibility.

Third, adaptation is differentiation. When extreme weather disrupts competitors, resilient firms secure supply, maintain delivery, and capture market share.

Fourth, credibility is capital. Overstated climate claims invite litigation and brand damage. Transparent disclosures, even of slow progress, now inspire greater investor confidence than empty slogans.

Finally, integration is inevitability. Climate metrics should sit beside financial KPIs in corporate dashboards. The firms that manage emissions, exposure, and adaptation with the same rigor as cash flow will define the industry’s next decade.

Closing Reflection

In fashion, resilience is the foundation of longevity. Every garment begins with raw materials drawn from the earth (even for those from recycled materials), and every business ultimately depends on the stability of that same planet. As the weather becomes more unpredictable and consumers grow discerning, the industry’s survival will hinge not on who sells the most, but on who adapts the fastest.

The moon that rises each Mid-Autumn reminds us of cycles — sowing, loss, renewal. For fashion leaders, this is the season to sow resilience: through honest accounting, decisive investment, and steady stewardship. The harvest, in time, will be not only sustainability reports, but stronger margins, sturdier supply chains, and brands that endure through the climate change century.

Piles of used clothes in Chile’s Atacama Desert (2021) (Photo Credit: AFP)

[First published on Substack "Ginci Insights" on October 8, 2025: https://gincinno.substack.com/p/climate-risk-and-resilience-in-fashion?r=2cxt8s]