A pending law in New York has the potential to transform the fashion world. If the Fashion Act is passed, retailers and manufacturers should map the sources of at least half of their materials and products and disclose the environmental and social impacts associated with bringing the latest trends to Soho stores. You will notice that is immediately requested.
The law applies to all fashion companies with global revenues of $100 million or more and also sells in New York, so the Fashion Sustainability and Social Accountability Act is the poised to have a ripple effect far beyond Large fashion companies could face new detailed reporting obligations that could prompt them to fundamentally rethink their supply chains and dramatically reshape their operations.
The Fashion Act is the first sustainability law of its kind to cover the fashion industry so broadly. By imposing new reporting requirements on large segments of the industry, it aims to bring transparency into the environmental and social impact behind stylish clothing and accessories modeled after the runway.
The Fashion Act gives companies one year to map their supply chains and 18 months to disclose their impact on their websites, but many businesses are unable to meet that ambitious timeline. may feel difficult. Congress isn’t expected to hold a vote on fashion legislation until later this spring, but businesses should consider preparing now. Here’s why:
strict disclosure requirements
Even for fashion companies that have embraced sustainability, the extensive disclosure requirements of fashion law are daunting. For example, businesses should:
- Map at least 50% of the sources of materials and products by volume across all tiers of production.
- Produce social and environmental sustainability reports.
- Disclose our responsible business conduct policy.
- Identify and assess risks in your own activities and supply chain.
- Publish corrective action plans and actions to track implementation.
- Set quantitative baselines and reduction targets for energy and greenhouse gas emissions, water and chemical management.
- Independently verify greenhouse gas reporting.
- Disclose the annual volume of materials they produce by material type.
- Report on the use of recycled materials.
- We report on the median wages of preferred supplier workers and how this compares to local wages.
- Disclose your approach to encouraging supplier performance on labor rights.
- Create timelines and benchmarks for preventing and remediating environmental and social impacts.
- Submit an annual compliance report.
If the Fashion Act is passed, businesses will be required to clearly disclose the environmental and social impacts associated with each step of the manufacturing and purchasing process and make the information available online. Brands that do not comply will face stiff fines equal to 2% of their annual turnover. The New York Attorney General is empowered to enforce the law, and consumers also have the right to private action to compel AG to investigate.
In addition to developing a compliance strategy, companies should consider how they will respond when supply chain issues are discovered that pose reputational risks, including issues that may anger consumers and other key stakeholders. It is also necessary to start considering whether to respond. His one weak link in the supply chain is all it takes to blow the corporate image.
For example, what if a company discovers that one of its suppliers actually sources cotton from Xinjiang, China? Alternatively, how would an Italian shoe company respond if forced to disclose that their leather was sourced from Thailand, Vietnam or Cambodia instead of truly being local?
So businesses need to plan sooner or later. Responding to the fashion law reporting requirements is not only time consuming in itself, but it is also necessary before companies disclose to the public any problems they may have in their supply chains (and thus the potential consequences of such disclosures). It also forces companies to address it (before reputational impact occurs). That is the point of this legislative work.)
Trends to sustainability
Fashion law is part of a larger trend in which companies in many industries are embracing sustainable capitalism and prioritizing their commitment to environmental, social, governance or ESG considerations. Unlike fashion trends that come and go year after year, this trend shows no sign of slowing down.
ESG issues have been bubbling under the surface for some time, and regulation is starting to catch up. No industry is untouched by this latest wave of rulemaking.
State governments are often driving these changes. More than a decade ago, California required retailers and manufacturers operating there to disclose their efforts to eradicate slavery and human trafficking from their direct supply chains through the California Transparency in Supply Chains Act. began to New York fashion law will go further by reaching out to its environmental impact.
Another example of recent regulatory activity impacting the industry is the California Garment Worker Protection Act, making California the first state to require hourly wages for garment workers. The Uyghur Forced Labor Prevention Law prohibits the production of cotton and other products from China’s Xinjiang Uyghur Autonomous Region under forced labor. French legislation for waste and the circular economy imposes new obligations on textile companies to encourage recycling. The draft EU Directive on Corporate Sustainability Due Diligence outlines the obligations of companies to identify and account for adverse human rights and environmental impacts throughout their operations and supply chains. Disclose your greenhouse gas emissions and the risks you face from climate change.
Important Considerations for Large Fashion Retailers and Manufacturers
What can fashion companies do to prepare for compliance with fashion laws and upcoming new legislation aimed at promoting sustainability?
Here are some ideas for brands to consider.
- We create a holistic approach to ESG by integrating it into our corporate governance structure.
- Appoint a person or team to oversee compliance. Having ESG embedded throughout the organization is important, but having a small, central team focused solely on ESG allows us to be more agile and proactive in strategy and integration.
- We gather information about the company’s environmental and social impacts and pressure test it to ensure the data is accurate.
- Work with a vast ecosystem of suppliers to start mapping all sources of materials and products and consider whether to move production to regions where you have more transparency and control.
- Focus on “predicting now” or anticipating potential ESG issues before they occur, including public reaction to potential disclosures.
If the fashion law is passed, it will be a game changer for the industry. Retailers and fashion companies will have to fundamentally rethink how they manage their businesses. A retailer that takes responsibility, embeds his ESG principles throughout the enterprise, reviews its supply chain, and discloses and addresses the issues mandated by this law to its customers, regulators, and other stakeholders. and you will be successful for many years to come. Those who do not actively do so may face a bumpy road ahead.
Andrew G. Gordon is a partner in the litigation department of Paul, Weiss, Rifkind, Wharton & Garrison LLP. Madhuri Pavamani is Director of Sustainability and her ESG practice at Paul, Weiss, Rifkind, Wharton & Garrison LLP.
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