The textile and readymade garments (RMG) industry is central to Bangladesh’s economic progress. It contributes to exports, job creation, and integration into global supply chains. Over the years, it has become a key driver of industrial development, generating over 80% of export revenue and providing employment for millions, many of whom are women. However, as Bangladesh approaches graduation from the least developed country (LDC) category in November 2026, the sustainability of this growth increasingly depends on how well the sector adopts environmentally friendly practices.

In fiscal year 2025, the RMG sector earned about $39.34 billion in exports, accounting for 81.46% of total exports and 8.5% of GDP. The sector’s main export markets are the European Union (EU) and the United States, where environmental compliance is becoming an increasingly integral part of trade policies, competitiveness, and consumer demand.

The evolving global environment presents both challenges and opportunities. Adhering to new frameworks, such as the EU Green Deal, border carbon adjustments, and circular economy standards, will require significant changes in the textile and RMG industry. Conversely, early adoption of green practices can enhance competitiveness, secure market access, and help Bangladesh position itself as a sustainable sourcing hub.

A sectoral analysis based on a primary survey of 403 textile and RMG factories conducted between June and November 2022 indicates highly uneven adoption of green practices across factories. Larger companies are far more advanced in adopting environmentally friendly methods, largely because they have better access to finance, technology, and information. Among the surveyed large factories, nearly a third have achieved internationally recognized green certifications, such as Leadership in Energy and Environmental Design (LEED), with others applying for certification. Conversely, most micro, small, and medium-sized enterprises (MSMEs) lag behind due to limited financial and technical resources. 

This difference is also seen in how investments are made. Large factories have dedicated significant resources to energy efficiency, water management, and waste reduction, allocating a substantial portion of their annual investment to environmental initiatives. In contrast, smaller factories have made minimal investments, mainly just enough to meet regulations, rather than pursuing proactive sustainability efforts.  The average green investment by large factories amounted to BDT 78.07 million ($0.710 million), representing 36.98% of the total investment. Small and medium factories, alongside micro-factories, invested BDT 1.37 million ($0.012 million) and BDT 0.16 million ($0.001 million), respectively. Despite their lower volumes, small, medium, and micro-factories allocate a higher proportion of their investments to ecological initiatives than large factories do.

Energy use patterns reveal existing structural differences. Smaller factories largely rely on grid electricity because of limited capital for alternative energy projects and restricted access to cleaner sources. In contrast, larger factories are better able to diversify their energy supply, using options such as captive power plants and renewable energy installations.

A key argument for the green transition is its positive impact on productivity and workers' well-being. Employees in eco-friendly factories experience better working conditions, including improved air quality, reduced noise, and safer environments. These changes lead to lower absenteeism, higher productivity, and improved morale.

Empirical evidence shows that larger, greener factories experience significantly less sickness-related absenteeism than smaller ones. Workers generally view green practices as advantageous, benefiting both environmental sustainability and their personal health and productivity. 

This link between environmental performance and labour productivity has significant policy implications. It shows that a green transition is more than merely meeting regulations. It is a strategic investment in human capital that can deliver concrete economic benefits.

Despite these advantages, Bangladesh’s textile and RMG sector faces several obstacles that slow the green transition, including policy issues, institutional challenges, factory-level hurdles, and market-related barriers. 

At the policy level, the lack of harmonized environmental regulations and clear long-term goals creates uncertainty for investors. Regulatory frameworks often fail to specify environmental standards clearly, and inconsistencies across agencies make compliance more difficult. Additionally, uncertainty in energy policy, particularly regarding access to reliable and clean energy, further increases complexity.

Institutional weaknesses exacerbate these issues. Weak enforcement, insufficient monitoring, and poor inter-agency coordination undermine policy effectiveness. Without a unified institutional framework for the green transition, efforts become fragmented and initiatives are duplicated.

At the factory level, major obstacles include awareness gaps and technological limitations. Many smaller enterprises lack the knowledge or expertise to adopt green technologies. Additionally, limited access to finance remains a key barrier, as high upfront costs deter investment in energy-efficient equipment, waste treatment facilities, and renewable energy systems.

Market-related barriers further reduce incentives for sustainability efforts. While global buyers frequently set strict environmental standards, they are reluctant to pay higher prices that cover suppliers' increased costs. This gap between compliance costs and market benefits discourages many producers, especially those with tight budgets, from adopting greener practices.

Tackling these obstacles requires a comprehensive, coordinated policy approach that makes green finance a central component. Providing affordable funding through soft loans, grants, and blended finance can significantly reduce entry barriers for smaller businesses. Financial institutions, in collaboration with development partners, should expand green credit options and tailor products to MSMEs.

Economic incentives also play a crucial role. Fiscal measures such as tax rebates, duty exemptions for green technologies, and performance-based subsidies can encourage investment in sustainability. Additionally, engaging international buyers is vital to ensure that compliance efforts are recognized and rewarded through fair pricing mechanisms.

The growth of domestic carbon markets and participation in international carbon trading could create new revenue opportunities for green investments. However, this will require robust measurement, reporting, and verification systems, as well as institutional capacity to manage complex market mechanisms.

Information asymmetry remains a significant challenge, especially for smaller factories. Many producers lack awareness of available technologies, financing options, and regulatory requirements. Targeted awareness campaigns, backed by industry associations and research institutions, can help close this knowledge gap.

Capacity building initiatives should be expanded. Training programmes in energy efficiency, waste management, and sustainable production can equip factory managers and workers with the skills to adopt green practices. It is important to prioritize women's involvement, given their substantial presence in the workforce.

Collaboration among government agencies, academia, and think tanks promotes knowledge exchange and innovation. Stakeholder dialogue platforms that bring together policymakers, industry leaders, and development partners can help align strategies and encourage collective efforts.

Ultimately, Bangladesh’s success in its green transition hinges on a coherent and credible policy framework. A clear national roadmap, aligned with international commitments and tailored to sector-specific needs, is crucial. This plan should set measurable targets, define roles and responsibilities, and establish mechanisms for monitoring and evaluation.

Several existing international initiatives provide a strong foundation for supporting Bangladesh’s green transition in the textile and RMG sector. Under the European Union’s Global Gateway strategy, the EU, the European Investment Bank (EIB), and Team Europe are already supporting the decarbonization of Bangladesh’s textile, apparel, and leather industries through investments in energy efficiency, environmental upgrades, and renewable energy. The EIB has further demonstrated its commitment by providing substantial financing for green investments in Bangladesh, including renewable energy and sustainable infrastructure projects. A notable example is the €60 million green credit line being developed through Brac Bank to support circular and environmentally sustainable investments in textile and garment factories.

Multilateral institutions have also established successful models. The International Finance Corporation’s (IFC) Partnership for Cleaner Textile (PaCT) programme has worked with more than 400 Bangladeshi textile factories to reduce water consumption, energy use, and carbon emissions while improving productivity and competitiveness. Global apparel brands are increasingly supporting supplier decarbonization through dedicated financing mechanisms. For example, H&M’s Green Fashion Initiative and the Fashion Climate Fund provide financing, guarantees, and technical support for energy efficiency and renewable energy investments across supplier factories in Asia. In addition, Bangladesh has benefited from the EU-backed Programme to Finance Safety Retrofits and Environmental Upgrades in the Ready-Made Garment Sector (SREUP), which provided a €50 million credit facility alongside grant support for environmental, social, and safety improvements in RMG factories. 

Building on these experiences, Bangladesh could pursue a comprehensive Green Textile Transition Partnership that brings together development partners, multilateral development banks, climate funds, and global brands to mobilize large-scale finance, technology transfer, and market support for the sector’s long-term green transformation.

Coordination among key institutions, including the Ministry of Industries, environmental regulators, and the National Skills Development Authority, needs to be improved. Establishing a central coordinating body could facilitate better collaboration, minimize overlaps, and promote consistent policies.

Equally important is the need to integrate the green transition into broader development strategies. As Bangladesh moves beyond its LDC status, sustainability should be a core component of industrial policies, trade negotiations, and investment plans.

Future trade should extend beyond market access to encompass climate action, green industry, and sustainable supply chains. In negotiations with partners such as the EU, UK, Canada, Japan, and South Korea, Bangladesh should seek technology transfer, capacity building, climate finance, and support for environmental standards. Trade agreements could include commitments to renewable energy, resource-efficient manufacturing, the circular economy, and green logistics. Bangladesh should advocate mutual recognition of sustainability certifications and transparent enforcement of environmental regulations to reduce exporters’ compliance costs. Engagement with development banks and global brands should align with trade talks to create packages that combine market access, financing, and technology support. 

This approach would turn environmental standards into catalysts for industrial upgrading, export diversification, productivity, and competitiveness. Embedding sustainability in trade could help Bangladesh leverage the green transition as a post-LDC economic opportunity.

Bangladesh’s textile and RMG sector must now embrace the green transition as an essential economic imperative. As international markets increasingly lean towards sustainability, the sector’s future competitiveness depends on its ability to adapt. Although notable progress has been made, especially among larger companies, considerable work remains to ensure an inclusive and thorough transition.

The future course requires a careful balance between regulatory enforcement and economic incentives, as well as between international compliance and local conditions. By combining appropriate policy support, financial innovation, and stakeholder collaboration, Bangladesh has the potential to turn its leading industry into a benchmark for sustainable industrialization, meeting environmental standards while boosting productivity, safeguarding workers, and ensuring long-term economic resilience.

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Fahmida Khatun is Executive Director, Centre for Policy Dialogue (CPD), Bangladesh.

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