Fashion Act to drive ESG reforms

February 15, 2022

January 2022 saw the first steps towards mandated ESG reforms in the global fashion industry. Before you panic about New York state’s Fashion Act, the reforms will demand much improved supply chain visibility and will be positive for forward-thinking brands that take sustainability seriously.

What is the Fashion Act? Get set for a new trend

If signed into law, the Fashion Sustainability and Social Accountability Act, or simply the “Fashion Act”, would require companies to publicly disclose detailed information on their environmental, social and governance (ESG) work and associated risks in their supply chain.

The new regulations will include, but not be limited to:

  • Mapping of 50% of the supply chain across all levels of production
  • Disclosure of ESG work and risks
  • Specific sustainability targets
  • Independent verification of whether targets have been met
  • Wages of supply chain workers should meet minimum requirements.

Once law, companies will have one year to comply with the new regulations before facing monetary penalties.

The legislation is being pushed by Maxine Bédat of the New Standard Institute who claims strong industry and NGO support and it is not yet known if companies have endorsed the legislation.

To research her new book, Unraveled, Bédat spent almost two years traveling to see how clothes are made and, in an op-ed for Vogue, tells of cotton farms in Texas with chemically-ravaged soil thanks to a fashion industry with “an insatiable desire for more”.

If passed, New York would be the first state in the US to enact sustainability regulations for the fashion industry. 

Am I in the spotlight?

A fashion company's supply chain is an integral part of its business and industry leaders must keep on top of any potential risks or exposure.

Not every brand will be exposed to the new law as it will only apply to those who make more than $100 million per year will be affected. This high threshold will help ensure that the legislation is focused on the fashion goliaths with the heaviest environmental and social impacts.

That said, if the Act becomes law, it will be an historic change for brands big and small and will transform how the global industry operates. Companies would also be required to publish a sustainability report, including the use of recycled material, and set targets to up their ESG game, such as how it plans to reduce greenhouse gas emissions.

Being a law, failure to comply could result in fines of up to 2 percent of annual revenue, depending on how well the company can defend itself in the event of any action brought against it. The state Attorney General would also be required to publish an annual report identifying companies failing to comply, which could result in reputation damage.

The Fashion Act’s silver lining – better transparency

In addition to the ESG reporting, the Fashion Act will also demand much greater supply chain mapping. Fashion companies will need to map at least 50 percent of their supply chain across all stages of production to identify areas of potential environmental impact.

This mapping would include everything from human rights violations to release of toxic chemicals into the environment.

The Fashion Act mandates do not mean your business will experience unnecessary burden. In addition to the goodwill better ESG commitments creates among fashion buyers, at a corporate level identifying risks in your supply chain and minimising them can lead to significant business improvements.

Better visibility and traceability across your supply chain means better intelligence and less disruption. Reach out to us to learn if your supply chain is healthy enough to thrive alongside emerging regulations like the Fashion Act.

Unsure how the Fashion Act will impact supply chains? Start by working towards transparency

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