2022 will continue to bring increased focus on sustainability and social accountability requirements and practices for the fashion, apparel and beauty sector up-and-down the supply chain.
Some of this increased focus will undoubtedly come from state and federal lawmakers and governmental agencies, as new or proposed legislation and regulations are being actively considered or are planned to be rolled out in the coming year. For example, the Environmental Protection Agency, the Food and Drug Administration, and various state agencies and legislatures are pursuing or considering measures such as additional chemical use restrictions and prohibitions, new notification and reporting requirements on chemical use and imports, limitations on product disposal options, and extended producer responsibility obligations.
In addition, the Federal Trade Commission (the “FTC”), indicated in summer of 2021 that the agency would initiate a review in 2022 of its Guides for the Use of Environmental Marketing Claims, colloquially known as the “Green Guides.” The Green Guides are a resource the FTC originally created in 1992 to help businesses avoid making unfair and deceptive environmental advertising claims and to assist the public in understanding and appreciating the statements included in such claims. The Green Guides have not been revised since 2012 and, as currently written, may no longer provide comprehensive guidance for businesses and consumers alike given the current sustainability-focused advertising landscape, especially because the Green Guides currently do not cover “sustainability,” “organic,” or “natural” environmental claims. While the FTC did not expressly indicate a specific focus area for its planned revisions to the Green Guides, some suspect that the agency’s revisions will address claims related to sustainability, organic, and natural, as well as climate-related claims, which are top-of-mind for consumers when making purchasing decisions. Brands should be on the lookout for the revisions to the Green Guides and understand them as they may significantly affect the types of environmental advertising claims that are available.
Legislators from the Empire State have their own ideas on how to increase focus on sustainability and social accountability in the fashion industry. In January 2022, the New York state legislature unveiled the Fashion Sustainability and Social Accountability Act (the “Fashion Act”), which is a bill that attempts to make New York the first state in the United States to effectively “hold the biggest brands in fashion to account for their role in climate change.” As currently proposed, the Fashion Act would apply to global apparel and footwear companies with more than $100 million in revenue who do business in New York (so, in other words, a majority of multinational fashion brands). The law would require, inter alia, qualifying brands to map a minimum of 50% of their supply chain and disclose whether in that chain the brands have a significant real or potentially adverse social and environmental impact when it comes to issues such as fair wages, energy, greenhouse gas emissions, etc. and then disclose targets for preventing and improving those impacts. Failure to comply could result in fines of up to 2% of a brand’s annual revenues over $450 million. Brands should keep tabs on the Fashion Act, which is currently making its way through New York legislative committees with an aim towards a vote in late Spring 2022, and the new local requirements that may follow therefrom.
Notwithstanding these planned governmental actions and the impact they may have, the greatest increased focus on sustainability and social accountability in the industry may be driven by non-governmental stakeholders, starting—as most initiatives usually do—with consumers and trickling down to investors, shareholders, and lenders. Now more than ever, there is high consumer demand for goods to meet certain environmental, social and governance, or “ESG,” criteria. Sustainably sourced materials, organically produced fibers, zero-carbon footprint, not tested on animals, no child labor, fair trade, all natural ingredients, plastic-free, environmentallyfriendly packaging – these are just some examples of consumers’ expectations that are driving purchasing, investing, and commercial decisions. And, as companies commit to these certifications and practices to meet consumer expectations, this in turn drives sustainability obligations up-and-down the supply chain, impacting producers and providers of ingredients, components, packaging, and labor.
Failure to comply with these sustainability and social accountability commitments and requirements can have broad ramifications – such as governmental agency enforcement (e.g., enforcement actions brought by the FTC or National Advertising Division for making unfair and deceptive environmental advertising claims), lawsuits (e.g., for failure to comply with New York’s proposed Fashion Act), loss of customers and licensing rights due to breach of contract claims, and other negative impacts to overall brand reputation, to name a few. So regardless of where you are in the supply chain, it will be challenging but important to have robust programs to keep up with the changing regulatory, contractual, and market requirements. In addition to monitoring and ensuring compliance with your reported sustainability and ESG commitments and existing laws and regulatory requirements, some other measures companies should consider:
Stay abreast of upcoming relevant legislation and regulatory requirements and restrictions and consider and plan for how they may affect your business;
Ensure robust processes to inventory all chemicals used in products and identify those chemicals to limit, phase out or prohibit in advance of regulations;
Inventory relevant contractual requirements and commitments and track execution of such obligations;
Assess supply chain contracts to ensure relevant requirements and commitments are passed through to suppliers;
Confirm compliance with commitments, both internally and within supply chain; conduct periodic auditing of operations and contract performance; require routine verification; and confirm execution of corrective measures to address non-conformances.
Those companies who monitor and plan ahead, including by implementing strong compliance programs, will be best suited to ride the ever-expanding sustainability wave, bolster market strength, and ultimately grow and protect brand reputation.