Navigating global laws and regulations

Supply chain transparency, social compliance and the circular economy are top priorities for both the EU and national governments. For instance, the EU’s new Corporate Sustainability Reporting Directive (CSRD) will require all large European companies from 2023 onward to disclose how they manage social and environmental challenges.

When it comes to the circular economy, the EU is set to introduce new legal measures to increase circularity in textiles, including new directives concerning durability of textile products and a ‘right to repair’. To reduce global carbon emissions, the EU is currently considering a Carbon Border Adjustment Mechanism, also called a ‘carbon border tax’. This is effectively an import duty based on the amount of carbon that was emitted during production.

ESG is not a new topic on C-suite agendas, and the business case for action is well-established. Supply chain sourcing and manufacturing has long focused on human rights aspects — such as child labour and working conditions. Some large companies have closely monitored their suppliers for their carbon footprint and sustainability key performance indicators. Forward-thinking retailers have targeted energy savings tied to operating their physical stores to reduce their overall environmental impact, and they have improved transportation routes and leveraged hybrid vehicles for last-mile delivery. Consumer packaged goods companies have focused on reducing their packaging and their water usage.

More recently, the increase in regulatory action is adding greater urgency. The need to consider ESG more broadly within supply chains, with more change on the horizon in what companies will need to provide, not just in their operations but in their supply chains.

What’s more textile and apparel companies could be missing out on billions of dollars in net profit enhancements from a lack of supply chain traceability, according to a new report from financial think tank Planet Tracker’s titled Lifting the Rug. Planet Tracker has found that companies without traceability systems are missing out on a net profit enhancement of 3% to 7% – the equivalent of approximately US$3bn to US$6bn per year for a company earning US$80bn per annum.

With regulations and legislation growing, apparel retailers must navigate what is required to fulfil each piece of legislation and efficiently report on all the information required for compliance.

Digital scrutiny

New European rules will come into effect sometime in 2022, offering consumers protection for making online purchases. These rules consider that when shopping online, consumers increasingly make purchases outside of their own countries, and that more and more products and services have digital elements. The ‘legal guarantee’ will thus also apply to products with a digital element, such as services and content.

Mandatory human rights, environmental, and good governance due diligence

Last March the EU paved the way with its directive for due diligence and corporate accountability. Penalties will be served if fashion brands are found to cause harm by insufficient due diligence in their supply chains, for example ensuring no child labour, fair wages and the environment is protected.

End of greenwashing

Last October the UK’s Competition and Markets Authority (CMA) developed the Green Claims Code, which sets out six key points to check if environmental claims are genuinely green. Green claims (sometimes called ‘environmental claims’ or ‘eco-friendly claims’) are claims that show how a product, service, brand or business provides a benefit or is less harmful to the environment.

Many businesses use green claims to help market their products or services, but sometimes ‘greenwashing’ comes to the fore. In the US, the Garment Worker Protection Act (GWPA) was strengthened last October, ensuring that retailers cannot use layers of contracting to avoid liability. It also prohibits the use of paying garment workers by the “piece,” thereby eliminating a significant obstacle to workers being paid minimum wage and protecting their health and safety.

“No industry is rifer with employment violations than the apparel industry,” says the GWPA on its website. “Los Angeles has the highest concentration of garment industry workers in the country. Largely located south and east of downtown, some 2,000 manufacturers employ more than 40,000 people — mostly immigrant women — who spend 10 to 12 hours a day cutting, sewing and dyeing clothing — from designer jeans to “fast fashion” runway knockoffs.”

ESG and legislative compliance are directly aligned to a business’s finances. Apparel retailers need a cost-effective, efficient and flexible way of reporting into their own business operations, but also into their complex supply chains.

In order to report effectively, information required for ESG, and legislation needs to be combined and consolidated to reduce duplication and fatigue. Retailers require a full view of their suppliers, their practices and locations. Big data and the solutions used to capture, communicate and consolidate will be critical to success. Without this, retailers will be forced to manually check and consolidate their data across their supply chain and own business. This will likely increase duplication and be subject to human error.