Around the world in fashion due diligence legislation
3-1-2024
AROUND THE WORLD IN FASHION DUE DILIGENCE LEGISLATION
In this essential guide to the ever-evolving world of fashion due diligence legislation, Just Style uncovers what it means and how it will impact everyone working within the fashion supply chain.
January 3, 2024
Regulators worldwide are cracking down on poor labour and environmental practices in fashion supply chains amid growing concerns about upstream parts of the clothing industry. Probes into major international fashion brands, who have been criticised about alleged malpractice by their suppliers have been encouraging legislation and regulation reforms.
Last summer (2023), for example, the Canadian Ombudsperson for Responsible Enterprise (CORE), a Canada federal government agency, launched investigations into NIKE Canada and Ralph Lauren Canada over allegations the companies used or benefited from forced Uyghur labour in their mainland China supply chains.
CORE was also weighing investigations against Hugo Boss Canada and Diesel Canada, having received complaints from numerous human rights groups that these companies had also benefited from Uyghur forced labour.
Last August, Swedish fashion company Hennes & Mauritz (H&M) announced plans to phase out sourcing from Myanmar, following reports of human rights abuses at the military-run country’s garment factories.
This announcement came weeks after Spanish brand Zara’s owner Inditex said it also planned to phase Myanmar out of its supply chain, citing a call from global workers’ union IndustriALL for major foreign companies to divest from the country.
Such moves to firm up supply chains from ethical criticism are likely to intensify in 2024 as legislators pass more laws that will require companies to root out such social and environmental dereliction in their supply chains, making them liable for breaches of human rights and environmental standards.
New due diligence legislation impacting the fashion supply chain
New legislation in this area includes the European Union’s (EU) corporate sustainability reporting directive and a proposed EU regulation banning products made with forced (and child) labour from EU markets.
Last month (December 2023) the EU Parliament and council negotiators informally agreed on new legislation for corporate sustainability due diligence that will apply to all big companies as well as smaller companies deemed to be in high-risk sectors, such as the textile and apparel sector.
A proposed New York Fashion Sustainability and Social Accountability Act has been introduced to the US state’s legislature and includes extensive due diligence commitments. And proposed ESG (environment, social and governance) disclosure regulations in India, aimed at extending due diligence obligations beyond individual entities to their supply chains, and mitigating the risk of mis-selling and ‘green-washing’.
According to Chee Yew Wong, professor of supply chain management, at Leeds University Business School in the UK, the chief positive effect of new regulations is that they provide a level playing field in terms of supply chain transparency obligations.
“Before such regulations, many companies did not feel [it was fair to expect them] to invest in human rights transparency and due diligence practices, while their competitors chose to avoid such costs,” he tells Just Style.
Nevertheless, Wong says that lack of enforcement for new legislation risks undermining its effectiveness. “We seldom see famous companies being penalised from human rights transparency and due diligence regulations. When nothing happens, most other companies [will] at most comply with the minimum reporting requirements symbolically.”
Peter McCormack, a UK-based partner and supply chain specialist at international law firm Eversheds Sutherland, tells Just Style clients are asking for help with assessing impending supply chain-related legislation emanating from the EU, in particular.
McCormack cites concern about the German Supply Chain Due Diligence Act, which requires companies to comply with environmental and human rights standards in supply chains, and a proposed EU Corporate Sustainability Due Diligence Directive (CSDDD). If approved by the European Parliament and EU Council of Ministers, it would require in-scope businesses to identify and address the negative impacts of their activities and ‘value chains’ on human rights and the environment.
As a minimum the CSDDD would seek to curtail the practice of adding contractual assurances in supply chain contracts without further action to implement or verify them and seeks to increase corporate liability.
All eyes on fixing the fashion industry with due diligence legislation
“We hear a lot about how polluting the [fashion] industry is, but never about what it’s doing (…) to change the way it works,” she points out.
According to Giji Gya Obradovic, head of human security and business at the Hove, UK-headquartered Counter Trafficking Network, the fashion industry needs to work better with national governments in countries with large textile industries to boost sustainability.
“If the fashion industry isn’t working with countries on their human rights regulation, then [it is] falling down on its sustainability,” she says, adding that once conditions get better in these major garment production centres, the profile of the entire value chain will improve.
Obradovic also thinks individual fashion brands need a concrete marketing incentive to push for more sustainable practices – one that goes beyond the opportunity to appeal to the growing but still comparatively limited group of ethical consumers.
Referring to the popularity of fast fashion brand Shein (worth an estimated $100bn in 2022, which receives the lowest rating offered by Australian ethical brand directory Good on You for its environmental impact, labour practices and animal welfare standards, Obradovic says consumers still flock to the brand because it is “desirable”.
She continues: “So, we need to make sustainability in fashion desirable.”
Simone Cipriani, founder and manager of the Geneva, Switzerland-headquartered Ethical Fashion Initiative (EFI) and chairperson of the UN Alliance for Sustainable Fashion, also thinks some fashion companies need a push in the right direction. “It’s an issue of governance, an issue of putting sustainability at the heart of the company’s business model,” he says.
Regular physical audits to become the norm
“The effect of the new legislation is very likely to mean fashion brands will need to conduct more stringent due diligence on their supply chains including more physical ‘boots on the ground’ checks and audits rather than relying upon contractual commitments,” McCormack explains.
He points out that one of the issues that will need to be addressed as new legislation is brought in is supply chain contracts, which may last for many years but might not give suppliers the rights they need to comply with their obligations – meaning these contracts will have to be renegotiated.
Catherine Detalle, a partner and head Eversheds’ UK consumer division adds: “There is currently no overarching legislative framework in the UK that exclusively applies to fashion supply chain.” A Fashion Supply Chain (Code and Adjudicator) Bill was placed before the UK parliament, which would impose supply chain monitoring requirements, but Detalle states: “We do not currently have any visibility on when, or if, this Bill will progress any further.”
Apparel associations push for legislation
Apparel industry associations are among those pushing for supply chain due diligence and transparency legislation to be passed because it will create a level playing field and discourage imports cheapened by malpractice.
Nate Herman, senior vice president of policy for the American Apparel & Footwear Association (AAFA), tells Just Style the “AAFA has been vocal in support” of Californian proposed legislation including a Responsible Textile Recovery Act, which would establish a textile extended producer responsibility (EPR) programme. The AAFA also backed a proposed California Climate Corporate Data Accountability Act, which would say that corporations with more than $1bn in gross revenues that do business in the state of California must annually and publicly disclose their greenhouse gas emissions.
Regulations give power to garment workers
According to Professor Wong, one of the most interesting developments is that some new regulations give power to workers and their representatives to use the regulations to take legal actions against their employers, posing a litigation risk for apparel businesses.
However, in general Wong thinks that transparency and due diligence regulations are only likely to make companies slightly more transparent about their supply chains.
For example, “few would tell they found forced labour in their supply chains because this is a criminal activity,” he notes. “Reporting due diligence activities being carried out is not the same as real changes made somewhere deep at the upstream supply chain level to improve human rights,” he adds.
Wong also believes that relationships between fashion buying companies and their direct suppliers will be affected by new transparency obligations: “To perform human rights due diligence, buying companies may need to go beyond asking their suppliers to self-report. When this happens, suppliers may feel buyers do not trust them. Suppliers will also feel the additional cost burden [of compliance] and ask for additional support or compensation,” he says.
Eversheds’ Detalle has seen evidence of buyer-supplier relationships changing in response to new legislation.
She concludes: “We see two opposing trends: on the one hand corporations are inclined to cut ties with suppliers with a negative due diligence track record (…); on the other hand, we see that corporations deepen the relationship and the interaction [with their suppliers].”
“Proposed” = an outline of the legislation is being consulted on/debated.
“Introduced” = the legislation is in its early stages i.e., a formal draft with further approvals still needed.
“Adopted” = a stage between introduced and enacted (made into law); the final approval may be required or may already be completed, but the legislation is not yet in place (i.e., it is yet to be enacted).
“Effective” = the legislation has been enacted; sanctions will be imposed if violations are made.
Table adapted and reprinted from “Implications of the latest Human Rights legislations relating to supply chains” with permission from the authors Professor Chee Yew Wong and Research Assistant, Ying Zhang with additions from LRQA’s Responsible Sourcing Regulation Map.
By Just Style
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