Historically, fashion retail has been a poor performer when it comes to sustainability and ESG. This is largely due to the sector’s rapid growth, e-commerce capabilities, and its use of resources and raw materials that are tied in with changing consumption patterns, as well as the globalisation of trade
Far-reaching social issues in the fashion supply chain and its ecosystem have been highlighted for decades, with little in the way of meaningful change. Tragedies such as the Rana Plaza factory collapse in 2013 – causing the deaths of more than 1,000 garment workers, predominantly women and children – have driven some positive change, but there remains a lack of industry-wide governance and regulation. Yet, 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 unveiled the Fashion Sustainability and Social Accountability Act. If passed, this would make New York the first city to pass legislation holding the biggest fashion brands to account for their role in climate change.
Backed by a powerful coalition of nonprofits and designer Stella McCartney, the law will apply to global apparel and footwear firms with more than US$100mn in revenue that conduct business in New York ‒ which is pretty much every large multinational fashion brand.
Specifically, it would require such companies to map a minimum of 50% of their supply chain, starting with the farms where raw materials originated, through to factories and also shipping.
“The new legislation will require sustainability claims to be verified and disclosed by fashion companies, or else the brand faces a fine,” says Laura Gibson, Head of Sustainability at supply chain management company, Core UK. “It will affect every large multinational fashion business, from Prada to Armani, as well as fast-fashion giants such as Boohoo.
Asked if she sees New York’s legislation making a lasting difference, Gibson says that, although the bill is “geographically limited”, if passed it will be an “important milestone” for sustainability in the fashion industry and is likely to drive calls for stronger legislation in other regions.
She adds: “While there have been recent shifts towards increased transparency and accountability within the fashion industry, this has largely been voluntary and unregulated, so the Fashion Act could provide a blueprint of how to regulate these initiatives to drive change.”
Also driving change is the European Commission (EC), which has announced plans to make far-reaching changes to a key sustainability reporting directive. Under the old EC directive, around 11,000 EU companies with more than 500 employees were obliged 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 obliged to disclose transactions across their value chains and, unlike the previous system, the data will have to be digitised.
Fashion is falling into line on supply sustainability
On the increase in sustainability regulations, Gibson says: “Fashion is an industry known for its lack of regulation and limited supply chain transparency, but now it is following a wider global trend on sustainability and accountability.
“With the development of the CSRD there are signs of a broader shift in the legislative landscape, implying that industry stakeholders will need to address sustainability issues sooner rather than later if they are behind the curve.”
Gibson points out that another problem for fashion retailers has been a lack of best-practice frameworks and initiatives to use when developing their sustainability strategy.
But this also appears to be changing. In Autumn 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 begin looking, sector by sector, at brands that fail to follow its guidance – starting with fashion.
In the Netherlands, meanwhile, the Authority for Consumers and Markets (ACM) is currently conducting a ‘greenwashing’ investigation, probing the sustainability claims of six clothing companies ‒ four of which are non-Dutch. The ACM can fine any Dutch company that misleads consumers about the sustainability of their products.
“We are in an interesting transition period, where there are an increasing number of sustainability frameworks and ESG metrics available, but little guidance over which is most applicable,” says Gibson.
She adds: “Indeed, fashion retailers are concerned that, at best, ESG efforts will be seen as token change, and, at worst, so-called ‘greenwashing’. These challenges are exacerbated by the complexity and opacity of the fashion supply chain, which is where supply chain transparency, traceability and data-driven solutions such as Leaf can help.”
Digitisation of supply chains key to transparency
Leaf is a platform that supports retail organisations in their pursuit of sustainable trading, through integration with suppliers, carriers, and non-profit organisations.
The digitisation of supply chains is key to transparency on sustainability and human rights abuses across supply chains, says Gibson.
“Digitisation facilitates the development of legislation. Not only can you streamline and automate ESG data collection but this data enables you to map and analyse your supply chain, to identify any sustainability hotspots, benchmark your impacts and track quantifiable impacts of sustainability initiatives, and demonstrate ROI of these digital solutions.”
Gibson feels that there is no singular answer to the ESG challenges faced by the fashion industry, but that “legislative oversight is definitely part of the solution”.
“Legislation such as the Fashion Act could spark important high-level discussions, provide a blueprint for more rigorous and quantifiable sustainable practices, and tackle the problem of ‘greenwashing’, leaving consumers in a much better position to make sustainable choices,” says Gibson.
She 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 within your business ecosystem, how we meet those commitments in a quantifiable way will be one of the key challenges of the decade.”
In conclusion, she says: “ It’s helpful to start by thinking of sustainability as a process, not an end goal, and that process starts with understanding what is going on in your supply chain, using verifiable data.”