Sustainability legislation – not just a European problem

Companies are battling with an ever-complex regulatory landscape when it comes to sustainability. Globally, we’ve seen a huge uptick in legislation related to the environmental and social impact of businesses, with the EU leading the way - but this doesn’t mean it’s only a European problem. The laws are largely extra-territorial, affecting companies in other territories because of the global nature of supply chains. With these laws comes an increase in responsibilities for businesses, along with a myriad of requirements, deadlines and even penalties - ?so how are businesses coping in what can feel like a period of regulatory overload?

What types of sustainability legislation are out there?

When discussing sustainability legislation we’re usually referring to legislation that requires businesses to better manage the impact they’re having – indirectly or directly - on people and planet. This ranges from legislation aiming to reduce corporate carbon emissions, to laws which require businesses to demonstrate how they are tackling forced labour and child labour in its operations and supply chains, such as the recently enacted Fighting Against Forced Labour and Child Labour in Supply Chains Act in Canada.

What do these laws ask of companies?

In general, it’s supply chain due diligence – mapping the supply chain, assessing and managing social and environmental risks, mitigation and prevention, and remediation. Some laws require businesses to report on their due diligence efforts publicly to increase transparency and drive improvement. Laws focus on a range of different topics, from deforestation to human rights. Others focus on the consumer and post-consumer side of the value chain – extended producer responsibility legislation on packaging, for example, ?and legislation to prevent greenwashing. The requirements on businesses vary greatly but those familiar with international standards will notice commonalities as many laws are based on the OECD ?Due Diligence Guidance for Responsible Business Conduct and the UN Guiding Principles on Business and Human Rights.

What’s the impact on fashion and apparel sector?

The fashion and apparel sector supply chains have become long, more complex and less transparent over the years. Creating garments, textiles and footwear are resource intensive processes and carry a significant environmental and human footprint. Other risks like home working and having a mostly female workforce carry unique challenges for the industry. There are also laws specific to the fashion value chain: the French Fast Fashion bill, if passed, would impose steep penalties on the sale of fast-fashion products based on their environmental impact; while the revised EU Waste Directive aims to tackle fashion’s waste problem by shifting the responsibility – and cost - of managing post-consumer textile waste to the producer.

Why are these laws affecting American businesses?

Sustainability legislation such as the EU’s recently agreed Corporate Sustainability Due Diligence Directive are extra-territorial – if you’re selling into the EU or operate in a member state you may be caught by the law. If you aren’t directly in scope of the law, you could still be impacted if your commercial customers are in scope as they may pass compliance requirements down the supply chain to you.

AAFA members are already grappling with United States sustainability laws such as California’s Transparency in Supply Chains Act and the Uyghur Forced Labor Prevention Act? – effectively a ban on products entering the United States which have been made in-part or wholly by forced labour in China’s Xinjiang region. The US Customs and Border Protection authority has identified cotton from Xinjiang as a priority for its investigations, causing disruption to the sector’s supply chain.

State-level sustainability legislation has been gaining pace in the United States. Several states now enforce EPR packaging laws. While the New York Fashion Sustainability and Social Accountability Act – or Fashion Act – would require environmental and social due diligence in fashion’s supply chains, if passed.

So, what can I do?

The sustainability legislation curve is far from plateauing. Businesses should be aware of this direction of travel and get a head start. ?The first step in compliance is understanding which laws you’re in scope of directly, or indirectly. Do your research on these laws and requirements and figure out if you’re in scope by working with your legal and compliance teams. The next step is to assess yourself against the requirements of the laws – are you meeting compliance requirements? What are the gaps and what do you need to have in place to meet legal requirements? This can be a daunting task but partners such as the AAFA are there to support you. External subject matter experts can also support you to understand your compliance requirements and help you fill any gaps through developing new policies and procedures or capacity building.

At Sedex Consulting we support businesses to overcome their supply chain and sustainability challenges through bespoke solutions and trusted expertise in responsible sourcing. Get in touch with our team of experts to learn more – [email protected].

Article prepared by AAFA Global Supply Chain & Trade Conference Sponsor, Sedex (May 14, 2024). Learn more at aafaglobal.org/SmartTrade24.