The rising importance of environmental, social and governance (“ESG”) in the fashion, beauty and luxury sectors is now a key for companies seeking to address ESG risks and opportunities. With the implementation of new ESG regulations and new proposals of ESG laws at both European and national levels, companies are facing increasing pressure to disclose not only the risks they face, but also the impacts they may cause in terms of climate change, human capital, and governance.
The European Union (“EU”) Commission’s goal for the textile sector is to create a greener, more competitive, and resilient fashion industry which respects social and environmental rules. Companies operating in these industries are therefore obliged to adapt to the new standards imposed by the latest EU regulations, which are directly applicable in all European Member States.
ESG Regulations Backdrop
Since last year, the European Commission adopted the Strategy for Sustainable and Circular Textiles (the “Sustainable Textile Strategy”) as part of the Green Deal, which aims to make Europe the first climate-neutral continent in the world by 2050, without harming economic growth or livelihoods. The Sustainable Textile Strategy includes key proposals such as design requirements that would ensure fashion items are more durable, easier to repair and recycle, and free of hazardous substances.
Additional important aspects are (i) mandatory minimums for recycled content; (ii) so-called digital product passports containing information on products sustainability; and (iii) stricter controls on greenwashing. Moreover, all companies listed on regulated markets in the EU must comply with the non-financial reporting requirements recently established by the Corporate Sustainability Reporting Directive.
This Directive obliges large companies and listed companies to publish regular reports on the social and environmental risks they face and on how their activities impact people and the environment.
Regulations Coming Soon
Sustainable fashion circularity will be based on eco-design. The European Commission intends to intervene in the way products are designed, promoting circular economy in order to avoid waste. Through the Proposal for a new Ecodesign Regulation for Sustainable Products, the Commission establishes a framework to set ecodesign requirements for specific product groups in order to improve their circularity and energy performance. It will enable the setting of information requirements for almost all categories of physical goods placed on the EU market. This means that this Regulation will impact all the fashion sector, including fast fashion which traditionally produces outside of Europe.
Almost all physical goods sold in Europe will have to meet requirements on: Product durability, reusability, upgradability and reparability; presence of substances that inhibit circularity; energy and resource efficiency; recycled content; remanufacturing and recycling; carbon and environmental footprints; and information requirements, including a Digital Product Passport.
The new Digital Product Passport will provide information on the environmental sustainability of products in markets, such as, inter alia, textiles, construction, industrial and electric vehicle batteries. It should help consumers and businesses make informed choices when purchasing products, facilitate repairs and recycling, and improve transparency on the life-cycle impacts of products on the environment. The product passport should also help public authorities to perform better checks and controls having an easier access to monitoring.
Another aspect of design that affects the environmental performance of textile products is the presence of chemicals that hinder the recycling of textile waste. The European Commission has developed the Safe and Sustainable-by-design Framework to minimize substances of concern in textile products. The key message conveyed by the framework is that, although the use of chemicals may be necessary in some industrial activities, their use should be minimized wherever possible and overall safety and sustainability should come first in these processes.
And the Green Claims Directive is paving the way for future litigation. For what concerns “greenwashing” (companies giving a false impression of their environmental impact), the European Commission proposal for a Directive on Green Claims aims to have claims reliable, comparable, and verifiable across the EU. To ensure consumers receive reliable, comparable and verifiable environmental information on products, the proposal includes:
– Clear criteria on how companies should prove their environmental claims and labels;
– Requirements for these claims and labels to be checked by an independent and accredited verifier; and
– New rules on governance of environmental labelling schemes to ensure they are solid, transparent and reliable.
The proposal targets explicit claims that: are made on a voluntary basis by businesses towards consumers; cover the environmental impacts, aspects or performance of a product or the trader itself; and are not currently covered by other EU rules.
The new Proposal for a Directive on Empowering Consumers for the Green Transition provides for better protection against unfair commercial practices and better information and envisages limiting the use of terms such as sustainable, green, and ecological only to products that have been verified through EU schemes such as the Eco Label or other officially recognized eco- labelling schemes in the Member States.
The European Commission also recommends the use of the Life Cycle Assessment, one of the most reliable, robust, scale-ready and transparent methodologies which measures and communicates the environmental performance of a product throughout its life cycle, based on scientifically valid and internationally agreed assessment methods. The legislation applicable to the fashion and beauty industry is vast and complicated. Several Member States already enacted special local law, which the EU is trying to harmonize.
Daniela Della Rosa is head of Curtis’ fashion, beauty and luxury group. Kaitlyn Devenyns is a member of the group. The material contained in this article does not constitute as legal advice. No legal decision should be based on its contents.