Responsible Sourcing: New Regulations Driving Sustainability Agenda

Lily   27 April, 2022

What is it?

In January 2022, a new bill was presented in New York that, if passed into law, would require the largest global fashion brands in New York to map their supply chains, disclose their environmental and social due diligence policies and set bindings targets to reduce their impacts.

The Fashion Sustainability and Social Accountability Act (Fashion Act) is a pioneering piece of legislation which has the potential to bring more transparency and accountability to the fashion industry. It would require fashion retailers to map 50% of their supply chain and report on the total volume of materials they produce. In so doing, it would shift responsibility away from the consumer (hitherto required to navigate a minefield of greenwashing) and place it squarely on the shoulders of the retailers themselves to candidly communicate their social and environmental impacts.

The law would be enforced by the Attorney General or the Attorney General's designated administrator. Any company found to be in violation of this law, would face fines of up to 2 percent of annual revenue and inclusion in a publicized list of noncompliant companies (View the bill here: https://www.nysenate.gov/legislation/bills/2021/A8352).

Why is it important?

If passed, this law will mark a watershed moment for the fashion industry. Up until now, the industry has existed in a regulatory vacuum with virtually no legally binding environmental standards (source: New Standard Institute). This new legislation will help to:

  • Reduce global GHG (greenhouse gas) emissions: The fashion industry is responsible for up to 8.6% of the global greenhouse gas footprint – more than the GHG emissions of France, Germany and the UK combined (source: New Standard Institute). Under this new legislation, companies would need to ensure that their emissions are aligned with the goals of the Paris Agreement.
  • Reduce waste: There is an estimated 92 million tonnes of textile waste produced by the fashion industry annually (source: BBC, 2020). In requiring companies to report the total volume of materials they produce; the legislation should encourage retailers to reflect on any inefficiencies in their production processes.
  • Improve labour standards: It is estimated that 93% of global fashion brands are not paying garment workers a living wage (source: Clean Clothes Campaign, 2020). The Fashion Act would hold companies accountable for reporting wages paid to suppliers and how these compare to local minimum and living wage standards (source: Bloomberg).

 How this legislation could positively impact your business

Critics of corporate sustainability argue that it is incompatible with profitability, yet there is growing recognition that sustainability can be a key driver of good financial performance. Having a sustainable business strategy in place means an organisation is better able to adapt to change, manage risks and seize opportunities, and thus more likely to survive the global economy’s changing needs. As a result, sustainable organisations could expect to enjoy faster growth and higher valuations than industry laggards. Since two thirds of an organisations environmental and social footprint lies with suppliers (source: McKinsey, 2021), supply chain management should form a key part of an organisations overall sustainability strategy.

Selecting sustainable suppliers can drive down organisational cost by up to 10%, owing to increased operational efficiency and reduced waste (source: McKinsey, 2021). Through mapping suppliers, companies can better understand their operational inputs (such as water, energy, natural and synthetic materials) and areas where they can reduce unnecessary purchasing of inputs and thereby waste.

Diversifying supply chains can also help ensure operational resilience. Over-reliance on a small number of suppliers, restricted to one geographical region, can increase the likelihood of supply chain delays related to environmental, social, and governance incidents.

Supply chain sustainability can safeguard against reputational damage and instil a culture of responsibility, which is both attractive to stakeholders and fruitful for business. Consumers are becoming more environmentally and socially conscious and may prioritise shopping at brands which can demonstrate good business ethics. Likewise, employees may actively seek out organisations with strong ESG credentials as evidence of positive work environments, high employee satisfaction and good productivity. Finally, sustainable companies are an attractive prospect for investors and business partners who share these values.

The Problem: Knowing where to begin

The complexity and depth of supply chains can make it difficult to know where to begin. To illustrate: it is estimated that the average car contains 30,000 thousand parts which can be supplied by 3,000 distinct firms (source: CATO institute). While global supply chains improve economic efficiency through establishing scale and specialization, they introduce new and unpredictable vulnerabilities. Organisations are now facing threats to their business from first, second, third and even fourth tier suppliers.

The interdependence of suppliers is compounded by the problem of information availability. Multinational corporations may not even know who their lower tier suppliers are, let alone their ESG credentials. And yet, it is often these lower-tier suppliers which pose the greatest threat to an organisation. They are the least equipped to handle sustainability requirements, owing to a lack of expertise and resources and they may be unaware of accepted social and environmental practices and regulations (Source: Harvard Business Review).

Faced with these challenges, how do you know where to begin?

This is where C2 comes in. We provide best-in-class risk intelligence to enable our clients to identify which suppliers have the biggest environmental and social impact, and therefore pose the greatest threat to their business. Our clients can then focus their limited resources on collaborating with supply partners to improve their business practices, reduce inefficiencies and improve their overall environmental, social and governance performance.

 

 

 

 

 

 

 

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