I suspect you already know how climate risk affects our food systems. We can all imagine how a wheat harvest in one region travels through a global supply chain, through milling, processing and logistics until it becomes a crisis in a country that is entirely reliant on imports for that most fundamental of grains. When a major harvest fails, global prices spike. When prices spike, people notice.

Fashion faces a structurally similar set of risks, but almost none of the same urgency. The geography of production is concentrated in some of the most climate-exposed regions on earth. The value chain is long, opaque and deeply interdependent, and the businesses at its centre sit at the furthest possible remove from the physical realities embedded in it.

The critical difference from food is not one of scale but of consequence. When grain harvests fail, food prices spike, governments fall and the IMF convenes. Nobody goes hungry when a coat fails to arrive, or when a fashion brand posts disappointing quarterly results. The moral distance between a disrupted dyeing cluster and a poor financial result is (understandably) so long that the underlying physical cause is rarely named and even more rarely addressed.

“Nobody goes hungry when a coat fails to arrive”

But anyone with a cultural or financial interest in the world of fashion should recognise that the fashion industry faces a structurally similar set of risks to our food systems. Nor do these risks discriminate, affecting everyone from the fastest of fast-fashion brands to the highest of luxury houses.

In this article, we’ll explore why the fashion industry is more exposed to physical climate risk than it first appears, how climate risks cascade through the fashion value chain and how fashion brands can take the first step towards building resilience.

A quick note on scope: the fashion industry faces substantial climate-related transition risks,  from regulation, shifting consumer expectations, green claims legislation and mandatory supply chain due diligence. That risk is real and growing, but it is a subject for another article. The focus here is on physical climate risk: what rising temperatures, changing precipitation pattern, and more frequent extreme weather events do to the physical systems on which the fashion industry depends.

Why fashion’s business model makes it particularly susceptible to physical climate risks

While each layer of the fashion supply chain faces specific risks from climate change (more on those later), it’s worth dwelling on some of the structural features that shape the industry’s inherent vulnerability.

Geographic concentration. Let’s start with an obvious one: the fashion supply chain is very poorly distributed. Cotton production is clustered in a handful of regions, particularly Pakistan’s Indus basin, Uzbekistan’s river-fed plain and the American South. These just so happen to overlap with some of the highest climate risk zones on the planet. Textile dyeing and finishing are even more concentrated, dominated by a small number of river-basin clusters in South and East Asia. Garment assembly follows a similar pattern, with Bangladesh, Vietnam, and Cambodia together accounting for a disproportionate share of global apparel exports. Concentration of this kind is efficient in stable conditions, but the reliance on regions that are highly susceptible to climatic instability turns an isolated risk into a systemic vulnerability.

Long forward planning cycles. Fashion typically operates on a 12 to 18 month horizon. Brands commit to volume and specification far in advance of the selling season, purchasing fabric, placing manufacturing orders and booking logistics capacity on the assumption that conditions at the point of production will be roughly similar to conditions at the point of order. That assumption has always held more or less true, but is already becoming less reliable. As climatic conditions become less stable, a system designed for predictability will increasingly be tested in conditions of growing volatility.

Supply chain opacity. Like many industries, fashion brands have reasonable visibility of their Tier 1 suppliers. In most cases, these are the factories that cut and sew the garments they sell. Very few have meaningful visibility of the rest of the supply chain: the mills that produce the fabric, the facilities that dye and finish it or the farms that grow the fibre. The practical consequence of this opacity is that brands are rarely able to locate their own climate exposure. The inability to accurately identify points of risk or understand how they might impact production represents a systemic challenge.

The great cascade: how climate risk affects the entire fashion value chain

The fashion industry’s systemic risks exacerbate the significant physical risks at each level of the supply and value chain, from the production of raw fibre through to the final customer.

Raw fibre

Almost every fibre, natural and synthetic, face vulnerabilities to climate risk. There are detailed studies of the impact of climate change on almost every fibre used in clothing, but here are just a couple of the most important examples:

Cotton is extraordinarily sensitive to heat and water availability. The 2022 Pakistan floods, driven by a combination of glacial melt and an intensified monsoon, destroyed more than a third of the country’s cotton crop in a single season. Pakistan produces around five per cent of global cotton output and its loss sent ripple effects through spinning mills across South Asia. Meanwhile the US South, another major producing region, faces increasing heat stress during the critical boll development phase and the southern High Plains portion of the Ogallala aquifer, which irrigates much of the American cotton belt, will approach depletion in decades at its current rate of decline. Regions which for so long have been relied upon to grow a steady, cheap supply of cotton are increasingly threatened.

Perhaps less obvious is the risk to synthetic fibres. Polyester and nylon, which collectively account for more than two thirds of all fibre production globally, are derived from petrochemical feedstocks. Petrochemical infrastructure is concentrated along coastlines and river deltas, making it vulnerable to flooding and storm surge. Refineries and cracker facilities are also energy-intensive and sensitive to grid instability, particularly in the countries where they have traditionally been concentrated. The assumption that synthetic fibres provide a reliable climate-independent alternative to natural fibres does not stand up to a proper understanding of climate risk, even before the transition impacts on petrochemical derivatives is considered.

Yarn and fabric production

Spinning and weaving tend to follow the geography of fibre production, with facilities situated close to the fields and factories producing raw natural and synthetic fibres. This means that they share many of the same physical risks, compounding the impacts of increasingly likely climate events. What is less commonly considered is that these are among the most highly energy-intensive processes in the fashion supply chain, dependent on stable and affordable electricity. As climate events stress power grids, through peak demand during heatwaves, damage to transmission infrastructure and the cascading effects of flooding on power stations, manufacturing facilities face operational disruption even when they are physically undamaged. A factory may be well protected, but without power it produces nothing.

Dyeing and finishing

In all our conversations with fashion procurement teams, this remains the most underappreciated step in the fashion supply chain from a climate risk perspective. Textile dyeing is extraordinarily water-intensive. A single kilogram of dyed fabric can require anything between 30 and 500 litres of water to process depending on the fabric type, process and dye. The world’s dyeing and finishing clusters, from the Pearl River Delta in Guangdong to the Narayanganj corridor in Bangladesh, are built around river systems that are under increasing stress from changing precipitation patterns, glacial retreat and competition for water between industrial, agricultural and domestic users.

In some ways, this risk is even more profound than what happens in the fields and factories upstream. Cotton fields can, in theory at least, be relocated. River-dependent dyeing clusters cannot. The infrastructure is fixed, the water dependency is total and the alternatives are limited. A multi-month drought or contamination event affecting one of these clusters has the potential to hold up production across every brand that depends on it, regardless of where the fabric is produced or the garments are assembled.

Garment assembly

Within fashion procurement, Bangladesh, Vietnam and Cambodia have become the most widely recognised and well-discussed places at severe risk from climate change. Coastal flooding, cyclone intensity and rising sea levels threaten infrastructure, while wet-bulb temperatures approaching the limits of safe working threaten worker productivity and health. The International Labour Organization has estimated that productivity losses from heat stress in the agricultural and manufacturing sectors of South and South-East Asia could be equivalent to tens of millions of full-time jobs by 2030.

What receives less attention is the adaptation gap. The regions that carry the most physical risk also tend to be those with the least institutional and financial capacity to adapt.

Logistics

Shipping routes are not passive infrastructure. They are geographically determined, physically constrained and increasingly exposed to a range of challenging climate dynamics. The Straits of Malacca, through which the majority of fashion’s Asian production must pass, sit at the intersection of typhoon risk, sea level rise and the compounding climate vulnerability of the port cities at either end. The increasing risk of drought on the Panama Canal (whose vulnerability was demonstrated in 2023 when significant draft restrictions were applied) constrains the rerouting options that brands might otherwise rely upon in a crisis.

Retail and demand

The final node is the least discussed in physical climate terms, but carries real financial significance. Fashion’s volume-forward buying model, committing to large quantities of seasonal stock months before the selling season, rests on the assumption that seasons are broadly predictable. That assumption is eroding fast.

Warm winters damage sell-through on outerwear; cold springs delay the transition to summer ranges; unseasonable heat spikes demand for stock that has already been marked down. While none of this is catastrophic in isolation, the repeated disruption to carefully calibrated pricing models creates pressure when margins are already tight.

The financial model of many fashion brands can absorb a seasonal shock or two, but it has not been designed to cope with consistent inconsistency.

When the Pearl Water Delta dries up: a real-world scenario

Abstract supply chain analysis is all well and good, but it only gets you so far. Let’s imagine for a second what a real cascade actually looks like, from a physical event to real financial impact.

It is spring 2027. A prolonged drought across Guangdong province has, over three months, cut water availability in the Pearl River Delta to well below seasonal norms. The dyeing and finishing clusters that process a significant share of Asia’s export fabric begin rationing water allocations between facilities. Higher-margin orders are prioritised and mid-market volume orders, the kind that fill the shelves of European and American retailers, are pushed back. Some facilities reduce operating hours. A handful shut temporarily.

Brands with fabric orders in the pipeline receive delay notices. Procurement teams escalate. Some attempt to redirect orders to alternative dyeing facilities in Bangladesh and India, which are already running at capacity. Lead times that were tight become impossible. Garment factories in Dhaka and Ho Chi Minh City and now waiting on fabric that has not arrived and begin falling behind on cut-and-sew schedules. They were already managing rising summer temperatures that are pushing effective working hours earlier in the day.

The brand’s options are now all expensive. They could air-freight the fabric when it finally clears and absorb the margin hit on those SKUs. Alternatively, they could accept the late deliveries into a shortened selling window and markdown earlier. If things get really rough, they may even cancel orders, take the inventory write-down and enter the autumn season with gaps in the range.

By the time this appears in a quarterly results presentation, it will be described as supply chain disruption, elevated freight costs or challenging trading conditions. It will not be described as a drought. The causal chain from reservoir levels in Guangdong to a margin miss reported in London or New York is real and traceable, but almost never traced.

This is how physical climate risk tends to arrive in fashion. They are almost never described as catastrophes, but as a cluster of ordinary-looking commercial problems, spread across a chain that most brands cannot fully see. In food systems, the signal from a harvest failure is fast, loud, and visible. In fashion, the equivalent signal is slow, diffuse, and arrives dressed as underperformance. By the time it is visible, the decisions that could have mitigated it are long past.

“The causal chain from reservoir levels in Guangdong to a margin miss reported in London or New York is real and traceable, but almost never traced.”

So what can you to do manage the risk?

Until very recently, very few fashion brands designed their information architecture to understand physical climate risks.

Brands know their Tier 1 factories. They do not systematically know where their fabric comes from, which river their dye house depends on, which aquifer feeds their cotton supplier’s irrigation system or which coastal road their logistics provider uses when the highway floods. This means that they routinely make sourcing decisions and create financial forecasts on the assumption of stability in a supply chain that is largely opaque at best.

The question for fashion businesses is whether they understand their physical climate risk exposure to be able to make strategic decisions with confidence.

The good news is that the first step to addressing these very real risks is much more achievable than it might appear.

Brands do not need to solve supply chain opacity overnight to begin managing physical climate risk meaningfully. Mapping Tier 2 and Tier 3 suppliers for the highest-volume product lines can reveal where the most material exposures sit. Understanding the specific risks affecting each of those suppliers and how these could affect production can help identify the nodes where disruption is most likely and most consequential

From there, the options are familiar to every fashion buyer: supplier diversification away from single climate-stressed geographies, contingency sourcing arrangements, adjusted inventory buffers for climate-exposed categories and scenario planning that treats climate disruption as a foreseeable operational risk.

The brands that take these first steps will not be immune to physical climate risks, but they will be significantly better prepared than their competitors when climate events disrupt vulnerable supply chains.

Understanding your true exposure to climate risk is complex but achievable. If you’d like to explore how to identify, quantify and manage climate risks across your value chain, Sirocco can help.

Climate change is already putting global food systems under stress, with isolated commodity crises wreaking havoc on some of the world’s largest manufacturers of coffee, chocolate and olive oil.

The climate risks facing food and beverage supply chains are broad, deep and interconnected, but there is still a case for optimism. But while these risks are material, they are not unknowable and they are not unmanageable. As the climate crisis deepens, the future will belong to those who understand their exposure risks and build resilience into their future strategies.

An uncertain future

In his book Ravenous, Henry Dimbleby (the co-founder of Leon and author of the UK’s National Food Strategy) presents compelling evidence that the biggest threats to our food supply are climate change and ecosystem collapse. The past two years have offered food manufacturers and consumers a glimpse of that unpredictability.

In 2024, cocoa prices surged by 300% in less than a year, coffee hit near-50-year highs, sugar prices shot up and olive oil yields collapsed. For consumers, the most visible consequences were increased prices in the shops and rapid ‘shrinkflation’ of our favourite sweet treats. But for an industry already feeling the effects of rising input costs, these headlines were just the warning shots of an ever-growing threat.

For any food or beverage business, their response to these risks will be individual and nuanced, but understanding these risks is a huge first step towards adapting to an uncertain climatic future. By mapping exposures, understanding vulnerabilities and building strategies that can flex to the growing pressures of a changing climate, resilience is possible.

In this article, we’ll take a look at how these risks might shape the sector in the coming years, exploring how businesses should respond to the threats to gain a strategic advantage over their competitors.

Note: this article doesn’t dig into the mechanisms by which individual commodities are threatened (water, temperature, pollinators, etc.). These are specific to each commodity and region and require far deeper and more nuanced analysis than can be given here. Instead we’ll focus on how food manufacturers should think about the threats to both individual commodities and the wider food system as a starting point to building resilien

Growing threats to key commodities

TL;DR: as the forces of climate change intensify, raw materials will continue to become more expensive and less predictable, impacting not just individual commodities but the global food system as a whole. The effects of demand substitution mean that the impact is not limited to those in at-risk sectors, but almost all food manufacturers and suppliers.

The commodity crisis of 2024-5 brought the climate-related risks facing our food systems into mainstream conversation. The headlines told a story of systemic supply failure that rewrote the economics of everything from chocolate bars to instant coffee.

In the simplest terms, the cause was a year of El Niño-induced droughts, record wildfires in Brazil and crop disease spreading through West African cocoa farms. The highly interconnected nature of our food systems meant that these seemingly isolated issues cascaded into a nightmare scenario for some of the world’s biggest manufacturers: Hershey’s gross margins fell from 47% to 33%, Mondelez saw its earnings-per-share estimates slashed by double digits Nestlé’s leading brands had to quietly drop the word “chocolate” from some product labels as falling cocoa content breached legal thresholds.

In a single year of disruption, the fragility of the supply chains of these corporate behemoths was laid bare.

And yet there was one big source of optimism: while the giants of the chocolate world suffered, the Dutch chocolate brand Tony’s Chocolonely proved a beacon of resilience. Since 2019, Tony’s have pioneered traceability and prioritised farmer relationships through their Open Chain sourcing programme. When the supply chain shock arrived, they were significantly less impacted than their larger competitors, suffering crop losses at half the industry average. As competitors struggled, Tony’s revenue and volume both grew, with gross margin barely impacted. CEO (or Chief Chocolonely) Douglas Lamont explicitly credits their sourcing model for the company’s resilience. Tony’s resilience in the face of climate shocks should serve as an inspiration as we look ahead to an even more uncertain climatic future. As in all things, preparation is key.

“We’ve shown how resilient and effective our model is with strong growth in revenue, volume, profitability and, most importantly, impact on the ground for cocoa-farming families.”

Douglas Lamont, Chief Chocolonely at Tony’s Chocolonely

While the success of Tony’s should be cause for optimism, the climatic threats to our food system, both chronic and acute, are growing. By way of a single example, corn (one of the world’s most important food crops) loses yield sharply when temperatures breach 35°C during its short pollination window. In the world’s great cornbaskets, such as the US Midwest, this threshold is now being crossed with increasing and alarming frequency.

The hidden risks of demand substitution

It would be easy to imagine that this threat is limited to those manufacturers reliant on the crops and commodities most at risk from climate change. However, such a view ignores the structure of our food economy. In reality, there is a less visible threat that should be a major concern to a much wider range of food producers: demand substitution. In simple terms, those ingredients that will remain physically available in a hotter, drier world may become significantly more expensive as other industries compete for them when other commodities begin to fail.

Take, for example, the world’s reliance on cereal crops to feed the ever-growing global population. Most growth models show that barley yields are fairly resilient to climate change because it can be grown at a wide range of latitudes. That might sound like good news for the breweries and distilleries that rely on barley as one of their primary ingredients. However, under these same scenarios, yields of other cereal crops, such as wheat and corn, could decrease significantly. Under such a scenario, it is logical to assume that demand for barley as a substitute source of calories, livestock feed or biofuel would increase, raising prices of the brewer’s primary ingredient, despite its resilience to climate change.

We are facing a future in which raw materials become both more expensive and less predictable, in a way that impacts not just individual commodities but the global food system as a whole. The challenge this presents is that hedging and procurement strategies built around historical price relationships become increasingly unreliable, precisely when they are most needed.

The takeaway: manufacturers who haven’t mapped either their direct ingredient exposure or the second-order demand pressures have a strategic blind spot.  Those who understand these pressures will be in a significantly stronger position to make informed decisions towards building resilient ingredient supply chains.

Supply chain logistics are just as important as what happens in the field

TL;DR: most climate risk assessments in the food industry include a company’s own assets and a few choice suppliers. However, complex supply chains are vulnerable to disruption in much more complex and nuanced ways. A flood at a major port, energy grid failure in a processing region or a wildfire ripping through a warehouse could all impact production severely. These risks can be hard to see, but careful analysis can reveal hidden opportunities to build resilience.

Every food manufacturer sits at the end of a long and complex global value chain. Between a consumer and the ingredients in their food lies a network of farms, processing facilities, transport routes, ports, logistics hubs and packaging suppliers. Each node in this supply chain carries its own distinct vulnerabilities to a climate system that is becoming more volatile by the year.

The mistake most climate risk assessments make is to focus only on the very start and the very end of this complex chain.

A flood at a Southeast Asian port, for example, could be enough to stop a production line, without having any direct impact on a company’s own facilities or on the farm producing the raw material. In recent years, unusually dry seasons have caused low water levels on the Mississippi and the Rhine, disrupting commodity barge traffic and threatening production. The impact of excluding these ‘supporting’ nodes of the value chain from an assessment can be profound: research published in the International Journal of Disaster Risk Science found that just including power outages in a risk assessment showed an increase in economic losses by 300%.

The right question for a manufacturer to ask is not “which of our factories and suppliers are exposed to climate hazards?”. The question needs to evolve to “which processes underpin our revenue, and how do the climate vulnerabilities across the value chain impact these processes?”

This analysis, while complex, is entirely achievable. The most useful outputs are derived by mapping and focusing on the most revenue-critical nodes within the wider value chain. By analysing how each node is exposed to climate-related risks and modelling how disruption to these nodes might cascade to impact revenue, businesses can identify where mitigation is needed most.

The takeaway: an organisation undertaking a deeper level of assessment has the potential to make far better capital allocation decisions, build more resilient supplier relationships and be faster to respond when disruption arrives.

Regulation is accelerating and the investor-expectation gap is widening

TL;DR: Around the world, climate risk reporting and supply chain transparency regulations are evolving and growing rapidly. For those who are unprepared, the most obvious risk of non-compliance is limitations on market access. However, investors are increasingly becoming more literate in the topic of climate risk and are beginning to demand greater due diligence around climate risk. As a result, failure to stay ahead of complex regulation could threaten access to capital and increase exposure to litigation risk.

The global regulatory landscape for climate risk and supply chain transparency is evolving rapidly. Here in the UK, Sustainability Reporting Standards were formally published in February, with mandatory disclosure rules for listed companies expected from 2027. In Australia, Brazil and beyond, equivalent ISSB-aligned frameworks are either in force or in advanced development. In the EU, despite the Omnibus narrowing the scope of CSRD, the direction of travel remains firmly toward greater transparency.

Meanwhile, the UK’s Forest-Risk Commodity regulations are in development, with similar aims to the EU’s even more stringent deforestation regulation. While the specifics of the two regulations differ materially, both place material due diligence obligations for food manufacturers who source ingredients with high deforestation risk. Arguably, the fact the two regulations differ significantly may increase the burden on any manufacturers or importers operating across both the UK and EU.

The message is clear: climate risk reporting is quickly becoming a global commercial reality.

For food manufacturers, the most immediate consequence of falling behind these standards is market access. Driven primarily by compliance obligations, retailers across Europe are already demanding supply chain sustainability data from their suppliers as a condition of trading. Looking ahead, manufacturers who cannot demonstrate traceability, evidence their climate-related risks or show credible plans for addressing them may increasingly find themselves at a commercial disadvantage.

A less obvious but equally substantial risk lies in the availability of capital. As the maturity of disclosure grows, so investors are beginning to become sophisticated in their understanding of climate risk. In the immediate term, a disclosure that is technically compliant may still be sufficient, but that will change rapidly. As investors begin to consider the financial implications of climate risk, so a mature approach to mitigation will become an increasingly important factor in major investment decisions.

The takeaway: the manufacturers who will benefit from this emerging regulatory environment are those who work to understand how climate change will shape the future of their business and build genuine analytical capability. The quality of an organisation’s climate analysis will become an increasingly defining factor in the strength of relationships with both capital and customers. Those who get ahead of it will find that regulation and disclosure, paradoxically, can become a competitive advantage.

So what can food manufacturers do now?

The climate risks facing food and beverage manufacturers can feel complex, opaque and uncertain. However, they are not beyond the reach of any organisation that engages with them seriously. A deeper understanding of these risks and the development of an effective mitigation plan could be key to growing market share in an environment where supply chains are regularly threatened and investors increasingly prioritise climate risk.

Here are the 4 questions you should start asking right now:

1. Which of our ingredients face direct threat from chronic climatic change or acute hazards?
2. Which of our ingredients face substitution-driven demand pressure as other crops struggle?
3. Where else does risk enter our operations, supply chain and distribution networks?
4. Are our regulatory disclosures credible enough to withstand serious investor scrutiny?

The takeaway: none of these questions are easy, but all of them are answerable. Those who choose to investigate thoroughly, rather than scrambling to catch up, have the opportunity to seize the strategic advantage and build resilience for an uncertain future.

The climate-related risks facing the food sector are extensive, but they can be managed.

If you need support to understand and manage your organisation’s exposure to these risks, and how to turn them into a strategic advantage, we’re here to help.