Historically, fashion retail has underperformed in terms of sustainability and ESG. This is largely due to the sector’s rapid growth, e-commerce capabilities, and use of resources and raw materials associated with changing consumption patterns, as well as the globalization of trade.
Widespread social issues in the fashion supply chain and its ecosystem have been highlighted for decades, with few significant changes. Tragedy such as the collapse of the Rana Plaza factory in 2013 – causing the deaths of more than 1,000 garment workers, mainly women and children – have prompted some positive change, but there is still a lack of governance and regulation across the industry. However, there are signs that this may now be changing.
New York fashion ESG Act sustainability game changer
In January 2022, the New York State Assembly passed the Fashion Sustainability and Social Accountability Act. If passed, it would make New York the first city to pass a law requiring the biggest fashion brands to take responsibility for their role in climate change.
Backed by a strong coalition of nonprofits and designer Stella McCartney, the legislation would apply to global apparel and footwear companies with revenues of more than $100 million doing business in New York that is almost the same as any major multinational fashion brand.
Specifically, it would require such companies to map out at least 50% of their supply chain, from the farms where the raw materials come from, to the factories as well as shipping.
“The new law will require sustainability claims to be verified and disclosed by fashion companies, or the brand will be fined,” said Laura GibsonHead of Sustainability at a supply chain management company, English Core. “This will affect every major multinational fashion business, from Prada to Armani, as well as fast fashion giants like Boohoo.
Asked if he saw the New York law making a lasting difference, Gibson said that, although the law was “geographically restricted”, if passed, it would be a “significant milestone” for sustainability in the fashion industry and would likely prompt calls for for stronger laws. in other areas.
She added: “Despite the recent shift towards increased transparency and accountability in the fashion industry, this is largely voluntary and unregulated, so the Fashion Act can provide a blueprint for how to regulate these initiatives to drive change.”
Also pushing for change is the European Commission (EC), which has announced plans to make major changes to key sustainability reporting directives. Under the old European Commission directive, around 11,000 EU companies with more than 500 employees were required to report on their sustainability and ESG practices.
But under the new Corporate Sustainability Reporting Directive (CSRD), as many as 50,000 EU companies will be required to disclose transactions across their value chain and, unlike the previous system, data will have to be digitized.
Fashion goes hand in hand with supply sustainability
On increasing sustainability regulations, Gibson said: “Fashion is an industry known for its lack of regulation and limited supply chain transparency, but is now following broader global trends about sustainability and accountability.
“With the development of CSRD, there are signs of a broader shift in the legislative landscape, implying that industry stakeholders need to address sustainability issues sooner rather than later if they are behind the curve.”
Gibson points out that another problem for fashion retailers is the lack of best practice frameworks and initiatives to use when developing their sustainability strategies.
But this also seems to be changing. In Fall 2021, the UK Government’s Competition and Markets Authority (CMA) issued a set of ‘green marketing’ guidelines, and then in January 2022, announced it would start looking, sector by sector, on brands that failed to follow its guidelines – starting with fashion.
In the Netherlands, meanwhile, the Authority for Consumers and Markets (ACM) is currently conducting a ‘greenwashing’ investigation, investigating the sustainability claims of six clothing companies – four of whom are non-Dutch. ACM can fine any Dutch company that misleads consumers about the sustainability of their products.
“We are in an exciting transition period, where more and more sustainability frameworks and ESG metrics are available, but little guidance on which is most applicable,” said Gibson.
He added: “Indeed, fashion retailers are concerned that, at best, ESG efforts will be seen as a sign of change, and, at worst, so-called ‘green washing’. These challenges are exacerbated by the complexity and opacity of fashion supply chains, where supply chain transparency, traceability and data-driven solutions like Leaf can help.”
Transparency key supply chain digitization
Leaf is a platform that supports retail organizations in their pursuit of sustainable commerce, through integration with suppliers, operators and non-profit organizations.
Supply chain digitization is key to sustainability transparency and human rights abuses across the supply chain, says Gibson.
“Digitation facilitates the development of laws. Not only can you streamline and automate the collection of ESG data but this data enables you to map and analyze your supply chain, to identify sustainability hotspots, compare your impacts and track measurable impacts from sustainability initiatives, and demonstrate the ROI of these digital solutions.”
Gibson feels that there is no single answer to the ESG challenges facing the fashion industry, but “legislative oversight is definitely part of the solution”.
“Legislation such as the Fashion Act can spark important high-level discussions, provide a blueprint for more rigorous and scalable sustainable practices, and address the issue of ‘greenwashing’, leaving consumers in a much better position to make sustainable choices, ” said Gibson.
He also points out that many retailers – in fashion and beyond – have made bold sustainability commitments, and that the foundation of these commitments is their supply chain.
“Whether your goal is to reduce Scope 3 emissions, protect biodiversity or address social issues in your business ecosystem, how we meet those commitments in a measurable way will be one of the key challenges of this decade.”
In conclusion, he said: “It’s helpful to start by thinking of sustainability as a process, not an end goal, and that process starts with understanding what’s happening in your supply chain, using verifiable data.”