Assessing ESG Governance Risks in Digital Transformation: A Fuzzy FMEA Approach for the Textile Sector

Abstract

The need for digital transformation has become increasingly essential among companies operating within export-oriented industries; nevertheless, little research has been undertaken on how digital transformation intersects with the management of ESG risks in organizations. The present research fills this gap in the literature by utilizing a fuzzy FMEA approach for the identification, evaluation, and prioritization of ESG-related risks that accompany digital transformation within the textile industry. In total, twenty critical risk factors were determined by undertaking a literature review along with a structured expert opinion-gathering process involving five senior executives with practical experience in digital transformation projects. The findings reveal that “Security Weaknesses” constitute the most significant ESG governance risk, exposing firms to data breach liability, regulatory sanctions, and compromise of sustainability disclosure integrity. “Inappropriate Technology Selection” and “Excessive Expectations from Digitalization” reflect systemic deficiencies in board-level oversight and stakeholder communication, both of which are fundamental ESG governance requirements. This study offers a practical guide for emerging market firms integrating digital transformation into sustainability governance frameworks by providing a repeatable and auditable ESG risk prioritization methodology. Thus, future research is encouraged to expand the framework to other sectors and integrate ESG rating criteria directly into the FMEA scoring process.