Now or never to prepare for EU due diligence

There are several steps fashion brands should be taking to prepare for EU due diligence rules. Credit: Shutterstock.

From June 2024 European member states will have two years to transpose the new corporate sustainability due diligence directive (CSDDD) rules into their national law. The European Commission explained the directive obliges firms to “identify and address adverse human rights and environmental impacts of their actions inside and outside Europe”.

The law has teeth as it insists member states should be able to fine companies for non-compliance, which could be punishing. In fact, the directive insists that large companies working in the EU will be liable for fines equal to 5% of their global net turnover if they breach the law.

The CSDDD builds on the December 2022 corporate sustainability reporting directive (CSRD) proposal that came into force in January 2023. But it is more than just a reporting standard, as it also obliges firms to map out their entire supply chain.

This could throw embarrassing light on fashion brands’ connection to workplace disasters. For example, after the 2013 Rana Plaza garment factory disaster in Bangladesh, where more than 1,100 people died, some brands did not even know their clothes were being made at the complex.  

From June 2027 the requirements will cover companies with more than 5,000 employees and a worldwide turnover of more than EUR1.5bn ($1.63bn); and from June 2029 cover EU companies and parent companies with more than 1,000 employees and a worldwide turnover higher than EUR450m. 

The directive will also apply to smaller clothing firms with franchising or licensing agreements with a turnover higher than EUR80m, if at least EUR22.5m was generated by royalties, stressed a European Parliament note.  

This is why fashion experts are advising even small companies to start preparing now, as they may supply goods to large companies covered by the legislation, now or in future.

Mauro Scalia, European apparel and textile industry confederation (Euratex) sustainable businesses director told Just Style: “Euratex keeps engaging for CSDDD and its sector-specific guidance, which should enable harmonisation, clear and common understanding of due diligence compliance, and, at the same time, keep competitiveness.

“It’s important today because due diligence legal provisions already apply with EU laws, national laws in some member states and at global level.”

Stefan Schmidt, technical textiles department manager at Frankfurt-based industrial association of finishing, fabrics, yarns and technical textiles (IVGT - Industrieverband Veredlung - Garne - Gewebe - Technische Textilien) said IVGT recommends members check with their current suppliers to ensure they comply with the new law.

“We are currently preparing some guidance documents, as the number of well-informed advisers is very limited,” he said.

Social and environmental campaigners are also working in this area. Alexander Kohnstamm, executive director of non-profit Fair Wear Foundation told Just Style the new legislation “is a very welcome change from the past, where brands had…very different systems and approaches and relied heavily on general factory audits.

“Due diligence, when done well, can be much more useful for the brand and impactful in its supply chain. And… it’s not just doable for big companies, we see SME brands doing great due diligence in our membership,” he said. Examples include Dutch chain store Zeeman ; Scandinavian fashion brand Filippa K; and global clothing label Suitsupply, headquartered in Amsterdam and New York. 

Garment brands should do “a few things to get ready”, said Kohnstamm: “First, they should invest in their own education: learning what due diligence is and how to do it in practice… This is why we offer the Human Rights Due Diligence (HRDD) Academy to brands that are not Fair Wear members – it’s a collection of the hands-on expertise we have developed over the past 25 years of working on due diligence in practice with our member brands and stakeholders.”

Vicky Lauer, HRDD Academy coordinator, added the 2024-launched academy “helps brands to navigate industry standards and most importantly become industry frontrunners in respecting and supporting human rights across their supply chains”.

Next on Kohnstamm’s action list is for brands to start talking about due diligence with their suppliers.

He said: “They need to invest in their relationship with their suppliers, making them much more equitable relationships, partnerships in fact, than is now often the case.”

This is important as fashion brands will need to rely much more on their suppliers, “to reduce human rights and environmental risks in their own production processes, but also to provide reliable information on the deeper tiers – which brands will need as well”, he explained.

Changing suppliers is not the way forward, he pointed out. Brands should in fact build stronger bonds – preferably with fewer suppliers than is often the case now.”

Brands also need to get their own sourcing and corporate sustainability and responsibility (CSR) management systems due diligence ready, he said. They may well use consultants to get there, which he recommended should be “multi-stakeholder initiatives” covering a range of value chain players and business associations specialised in CSR.  

In short, “the risks and dynamics of the apparel sector are completely different from those in other sectors. You need that sector expertise, especially in the first years when everyone is still trying to find out the best approaches,” he told Just Style.

“You need to ensure the people you work with really know the sector, and really understand due diligence. It’s not ‘a different way of auditing’ as some seem to think.”

Ingrid Elbertse, Fair Wear’s lobby and advocacy manager agreed, telling Just Style that monitoring should not be limited to audits at a supplier site as this can provide only a snapshot of what is happening. Other ways fashion companies can audit their practices include studying complaints received through a grievance mechanism.

“The most crucial thing is to engage with stakeholders and rights-holders in a meaningful way,” she said. And for franchising, the lead/parent company should start by educating their franchise or agreement partners on HRDD. She highlighted that discussions could be organised on what their codes of conduct and policies should be and making sure responsibilities are well defined.

Finally, she said: “After setting up policy and starting implementation, firms should organise regular company-wide update exchanges as well as provide training sessions for all their staff.”