#7 What does EU's adoption of CSDDD (Supply Chain Law) mean for fashion?

Welcome to Perspective, WFX’s monthly newsletter for fashion industry pros who love tech and innovation. This month, we’re going deep into CSDDD, a new regulation that recently got the green light in the European Union, and what that could mean for the global fashion industry. ?

The EU has formally adopted the Corporate Sustainability Due Diligence Directive (CSDDD), also called the Supply Chain Law. This gives member states up to two years to implement relevant regulations and administrative procedures. ?

CSDDD, which could come into force as early as 2027, requires companies to identify, prevent, mitigate, and account for adverse human rights and environmental impacts throughout their global supply chains, including their subsidiaries and indirect business partners. While sector-specific guidelines have not been issued yet, the regulation is expected to affect the textile and apparel sector in a major way. ?

So, what does this mean for fashion’s notoriously complex and often opaque supply chains? ?

??Increased Accountability Across the Supply Chain?

At the heart of the CSDDD is the requirement for companies to take responsibility for their entire supply chain, not just the final product. For fashion brands, this means thorough due diligence on suppliers, from raw material producers to garment manufacturers. Companies must now assess and mitigate risks associated with forced labor, child labor, environmental degradation, and other human rights violations.?

This is a significant shift from the previous approach, where companies often relied on self-regulation and voluntary compliance. With the CSDDD, non-compliance could result in significant fines, legal repercussions, and damage to brand reputation.?

??The Need for Total Supply Chain Visibility ?

Brands must now provide clear, accurate and verifiable data on every step of their supply chain. This includes disclosing information about all suppliers, down to Tier 3 and Tier 4, where most of the labor and environmental risks occur.?

To comply with this, fashion companies will need to invest in advanced traceability technologies, covering their chain of custody and Scope 3 carbon emissions as well. This level of transparency is not only required for regulatory compliance but will also build trust with increasingly conscious consumers. ?

??The Challenge of Implementation?

Implementing the CSDDD will not be without challenges. Fashion businesses, particularly with highly fragmented supply chains, may struggle with the financial and logistical demands of meeting these new regulations. However, the directive also offers an opportunity for innovation, as companies seek new ways to streamline operations, reduce waste, and create more resilient supply chains. ?

Collaboration will be key. Industry partnerships, sharing of best practices, and leveraging collective bargaining power can help ease the transition and ensure that even the smallest players in the industry can meet the directive's requirements. ?

TLDR (too long; didn’t read): Although watered down and limited in scope, the EU’s Supply Chain Law could present significant challenges for companies with manual supply chain management processes, but it also presents an opportunity to digitalize and streamline their processes whilst leading the charge in creating a more sustainable industry. With strategic planning, better supplier collaboration, investment in technology, and a commitment to transparency, these changes can be navigated with ease. ?

Need an expert perspective? Our digital transformation team is here to help - Book a 1:1 call . ?

Check out our sustainability team’s favorite reads on this topic!?

?? CSDDD, explained : This article explains what the directive entails, who it affects, and how businesses need to respond to its requirements. ?

?? The EU’s CSDDD struggle and its impact on apparel sector : Just-Style offers an in-depth analysis of the challenges the EU faces in implementing the CSDDD and the significant impact it will have on the global apparel industry. ?

?? What’s next for CSDDD? : Sourcemap discusses the future of CSDDD, focusing on what companies need to anticipate as the directive evolves and how they can prepare for upcoming changes. ?

?? How to prepare your business for sustainability regulations? : A practical guide to help businesses navigate the new sustainability regulations, including CSDDD, to ensure your company is ready to meet the new standards in fashion sustainability. ?

ICYMI: Our last issue covered “Traceability for Fashion is a Marathon, Not a Race ,” go catch up!?

The WFX team is in Bengaluru for Apparel Sourcing Week 2024, India’s largest sourcing expo for fashion businesses. Coming to the show? Meet us at Booth 09-10 at the Sheraton Grand Whitefield, Bengaluru. ?

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