Textile Industry Faces Increasing Global Pressures Regarding Climate Disclosures, Green Marketing, and Human Rights in 2021
What Is Happening? Heightened focus on the environmental footprint of the fashion and textile industries suggests greater regulatory controls and enforcement in 2021, especially with respect to climate disclosures, environmental marketing, and human rights issues in the supply chain.
Who Is Impacted? Garment manufacturers, retailers, and textile manufacturers will be most directly impacted by these rising trends. Ultimately, industries whose work rely in any way upon textile manufacturers – as suppliers or customers – will be impacted.
What Should I Do? Prompt attention to these matters would be prudent, as heightened disclosure and green marketing requirements could go into effect as soon as January 2021. Manufacturers and retailers should:
Proactively assess and address their exposure with respect to global reporting obligations and track evolving requirements in key markets.
Ensure effective oversight of supplier practices and sufficient supply chain transparency to assess and meet human rights obligations.
Working with cross-functional teams including marketing and in-house counsel, review all externally-facing environmental claims to avoid misleading consumers, ensure accuracy, and mitigate risk of enforcement.
Over the past decade, the textile industry has faced greater scrutiny from regulators, investors, and customers, due to its significant environmental footprint and the high costs of producing, shipping, and selling textile products around the world. All signs suggest that this trend is only likely to intensify in 2021, particularly with respect to (1) requirements for greater supply chain transparency and mandatory climate-related disclosures; (2) enforcement against misleading environmental and sustainability claims; and (3) stricter measures to combat human rights abuses in the textile supply chain.
Global Trend Towards Mandatory Climate-Related Disclosures
Globally, climate disclosures are increasingly changing from voluntary to mandatory, recognizing the importance to investors of understanding climate risks, as well as corporate environmental impacts. The U.S. may be the next to follow this trend. The incoming Biden Administration announced its intent to require “public companies to disclose climate risks and greenhouse gas emissions in their operations and supply chains,” presumably by amending current U.S. Securities and Exchange Commission reporting requirements. The process of making such disclosures mandatory, as opposed to part of a voluntary sustainability disclosure framework, could begin as soon as President-elect Biden takes office on January 20, 2021.
Similar changes are at play in Europe. The European Union’s (EU) strategy for textiles seeks to increase transparency and incorporate reporting requirements relating to the textile industry. In November 2020, the United Kingdom’s (UK) Chancellor of the Exchequer announced that the UK will require certain companies to improve their climate-risk reporting, with reporting periods beginning in January 2021. Reporting rules are likely to be aligned with the Task Force for Climate-Related Financial Disclosures’ (TCFD) recommendations. Economy-wide mandatory climate-risk disclosure rules are expected to be in place by 2025. In addition, the EU released its Circular Economy Action Plan in March, identifying textiles as the “fourth highest-pressure category for the use of primary raw materials and water, after food, housing, and transport, and fifth for GHG emissions.” In addition to releasing a Strategy for Textiles in 2021 to enhance circular practices, increase transparency, and reduce waste, the Action Plan previews the Commission’s intent to “enhance disclosure of environmental data by companies in the upcoming review of the [EU’s Non-Financial Reporting Directive (NFRD)],” also in 2021.
Textile Manufacturers and Retailers Can Expect Increased Enforcement Against Misleading Environmental Claims and “Greenwashing”
While the fashion industry faces growing demand for “green” and “sustainable” products, it also faces increased consumer protection litigation and enforcement for making misleading environmental claims about their products. In the past decade, the U.S. Federal Trade Commission (FTC) brought enforcement actions against several national retailers such as Nordstrom, Bed Bath & Beyond, and Macy’s for labeling and advertising their products as made from bamboo, an eco-conscious material, when the products were actually made of rayon. In May 2019, the U.S. Department of Agriculture (USDA) released a report detailing the many enforcement activities that its National Organic Program has taken against manufacturers that deceptively label their products as “organic.” Citizen groups are also joining the fray, bringing claims against companies for failure to comply with FTC’s green marketing guidance (known as the Green Guides, 16 C.F.R. 260 et al.). In December 14, 2020, Greenpeace sued Walmart on these grounds in California State Superior Court claiming that Walmart employs “unlawful, unfair, and deceptive” advertising and marketing of certain products by marketing their products as recyclable, when in fact, consumers do not have access to recycling programs that accept the products, meaning the products go to a landfill.
Internationally, the EU Environment Commissioner described textiles as the “new plastic,” in March 2020, highlighting that new rules (as part of the aforementioned Circular Economy Action Plan) will require clothing labels to disclose information about resources used in manufacturing, empowering customers through greater supply chain transparency. In November 2020, the EU released its New Consumer Agenda, emphasizing the importance of protecting consumers against greenwashing and proposing that companies substantiate environmental claims using Product and Organisation Environmental Footprint methods. Also in November, the UK’s Competition and Markets Authority (CMA) announced that it will: (1) begin investigating “eco-friendly” claims in order to determine whether consumers are being misled, and to potentially develop new consumer protection legislation; and (2) partner with the Authority for Consumer and Markets in the Netherlands and the International Consumer Protection Enforcement Network to publish new guidance for businesses on environmental claims.
Recent Human Rights Protections Target Textile Industry and Global Supply Chain
In addition to mounting disclosure requirements and the need for supply chain transparency to substantiate environmental claims, the textile and fashion industries face growing human rights requirements for market access. In November 2020, U.S. Customs and Border Protection (CBP) took action to address human rights abuses in textile manufacturing supply chains by issuing a Withhold Release Order (WRO) for cotton and cotton products coming from the Xinjiang Production and Construction Corporation (XPCC) and its subordinate and affiliated entities. According to the CBP press release, the CBP issued the WRO against cotton products made by the XPCC “based on information that reasonably indicates the use of forced labor, including convict labor.” The WRO applies to all cotton and cotton products produced by the XPCC and its subordinate entities as well as “any products that are made in whole or in part with or derived from cotton, such as apparel, garments, and textiles.”
The November WRO followed a series of other similar WROs targeting state-sponsored forced labor in the Xinjiang Uyghur Autonomous Region that may impact fashion and textile industry supply chains. In September 2020, CBP issued five WROs involving hair products, apparel, and cotton. In addition to the WROs CBP issued during 2020, CBP also made its first forced labor finding since 1996, also targeting products originating in the People’s Republic of China. While the finding is not directed towards a textile or fashion company, CBP’s recent actions further suggest that the agency is placing increased focused on forced labor issues and will continue to do so in the coming year.
The trend towards increased oversight, scrutiny, and enforcement of the fashion and textile industries through disclosures, crackdowns on misleading marketing, and enforcement of human rights protections will continue into 2021. These trends are global, exemplified by the examples above. Given the many changes to come, U.S. fashion and textile industry stakeholders should continue to closely track legislative, regulatory, and enforcement developments, particularly with respect to direction from the Biden administration on mandatory non-financial disclosures, expanded green marketing enforcement by FTC, and further human rights-related actions by CBP. In addition, ensuring effective supplier oversight and accountability will help to address potential compliance risks, especially with respect to new requirements that might prevent access to key markets like the EU. Finally, that same supply chain oversight and transparency will allow stakeholders to ensure that all environmental marketing claims are accurate, avoiding potential exposure for consumer protection enforcement.