Big business and financial investors, not consumers, will force better conditions in the world's textile factories, according to the head of an investment firm aiming to pump $500m (£306m) into creating a more ethical garment industry.

With his Italian shoes, expensive watch and glossy hairstyle, Oliver Niedermaier seems a far cry from an eco-warrior or workers' rights activist. But the former partner at US private equity firm Advent International is sitting in one of Dhaka's swankiest western-style hotels, arguing for super-ethical clothing factories where respect for workers and the environment is paramount.

It is nearly 18 months since one of the world's worst industrial disasters, in which more than 1,100 people died and many more were injured when the eight-floor Rana Plaza garment factory building in the Bangladeshi capital collapsed last year. Since then many international retailers, workers' rights groups, factory owners and government bodies have come together to try to improve conditions in the country's $24.5bn garment industry. But few expected Wall Street to join the party.

Niedermaier is the head of Tau Investment Management, a group which wants to invest $500m in upgrading and modernising factories. It aims to attract big western brands by offering a supply base that uses modern technology to assure them of ethical standards as well as affordable prices. An in-house investigative team will aim to give assurances about the ethics of production from the cotton field to the retailer. Backed by the Soros family and Yahoo co-founder Jerry Yang, Tau is raising money to fund minority stakes in factories in Bangladesh, Indonesia, Cambodia, Vietnam and Sri Lanka this year or next.

Tau is not a charitable organisation; it believes there are profits to be made in cleaning up and modernising supply chains to create more sustainable and ethical sources of production. It may invest in fewer than five factories in Bangladesh, for example, but the aim will be to use those operators as the base to buy up other businesses and consolidate a fragmented industry made up of more than 5,000 factories.

"We are doing this because we think we can make a lot of money for our investors while we're going to have very positive impacts on communities in which our offices are operating," Niedermaier tells High Street Fashion: Weaving New Threads, a documentary which will air on BBC Radio 4 on Tuesday. "We think this is one of the biggest turnaround and growth equity opportunities in history."

He says that turnaround must be achieved without raising prices for shoppers, who may not want workers to be treated poorly, but cannot resist cheap clothing on the high street. "Unfortunately when you wait for the consumer to change the dynamics then probably it is far too late to save the system," says Niedermaier. " I think corporations and capitalist incentives are better mechanisms to change things."

While shoppers' choices are unlikely to drive change directly, Niedermaier argues that developments in communications technology, such as smart phones allowing factory workers to reveal their plight, will shine a brighter light on supply chains, giving malpractice no place to hide. Change will also be driven by increasingly tough regulations such as those in the California and UK anti-slavery legislation. "You may not be seeking transparency, but transparency is seeking you," he says. "If you are claiming that you couldn't prove that the cotton from your shirt is from child slaves in Uzbekistan, it is just not true. You can trace that, which ultimately means that corporations are being held accountable for it."

Bangladesh is already on the road to cleaning up its act, with three separate internationally backed agreements pushing through improvements to the structure and fire safety of factories, and more widespread union-backed worker representation which can help monitor conditions in future.

But changing practice in embattled developing countries such as Bangladesh, Cambodia and Thailand is not so easy. Rana Plaza did not meet planning regulations but it continued to operate because these were not enforced in a country where oversight systems are under-resourced and corruption is endemic. Stores such as Tesco, Primark, Sainsbury's and Marks & Spencer have tried to improve conditions and pay for workers with productivity, efficiency and health programmes among their Bangladeshi suppliers. These projects have seen positive results, but widespread suspicion of unions and problems ranging from lack of education to high inflation in food and accommodation costs can often see gains eroded.

Meanwhile, industry groups carrying out factory inspections have encountered difficulties in persuading the buildings' owners to fund the changes deemed necessary to make buildings safe, with some threatening legal action. MM Akash, professor of economics at Dhaka University, says: "The current owners of the industry here, the Bengali owners, some of them are traditional and do not want to upgrade." He adds that Tau's capital might tempt some, but the industry's many family businesses will be unwilling to give up a stake to a foreign investor. "They will ask the foreigners to lend them money."

But Rob Wayss, executive director of the Accord on Fire and Building Safety, which is overseeing improvements at nearly 1,600 factories for more than 150 retailers and brands including Marks & Spencer and H&M, insists that the industry must modernise or lose business. "The garment industry is an enormous element of the national economy, and that is an understatement. There is no option but to fix these factories and keep them safe, and demonstrate they can keep them safe, if the industry is to survive," he says. For some, that could make cash from the likes of Tau a lifeline.