On January 7, New York State Senator Alessandra Biaggi (D) and Assemblywoman Anna R. Kelles (D) introduced the Fashion Sustainability Act into the New York State Legislature. If passed and signed into law, the Act would create significant reporting requirements related to environmental sustainability, social development (in particular worker rights), and ethical business (ESG) standards for retailers and manufacturers. In all, the legislation would include enforcement “teeth” in the form of monetary and reputational penalties for industry non-compliance.
The sponsors of the Fashion Sustainability Act hope to bring the legislation to a final vote in the late spring of 2022.
A coalition of state representatives and civil society organizations have stated their support for the Act, including prominent advocates for corporate ESG compliance such as the Natural Resources Defense Council and the New York City Environmental Justice Alliance. Fashion and sustainability non-profits such as the New Standard Institute have stated their support for the bill. The measure currently has nine co-sponsors in the Assembly and four co-sponsors in the Senate.
The Act applies to all fashion companies operating in New York State with at least $100 million in gross annual receipts, meaning it would cover nearly all large multinational fashion brands doing business in New York. Companies covered by the measure would be subject to reporting requirements regarding their:
- Supply chain mapping
- Supply chain liability disclosure and reduction targets
- Sustainability reports
Supply Chain Mapping
Companies would have twelve months to map out a minimum of 50% of their supply chain by volume. Mapping exercises must incorporate all tiers of production, including agriculture and farming inputs, producing raw materials, factory manufacturing, and shipping.
Supply Chain Liability Disclosure and Reduction Targets
Companies would need to conduct and disclose an assessment detailing the largest human rights and environmental impacts in their supply chains as it relates to worker wages, energy use, greenhouse gas emissions, and water and chemical management. The assessment must also contain specific reduction targets and estimated timelines for reducing adverse impacts.
Within eighteen months of the Act’s passage, companies would be required to produce a sustainability report that includes the following:
- An independently verified quantitative baseline of the company’s greenhouse gas emissions, water and chemical use, and reduction targets
- Independently-verifiable annual volumes of total material produced, and the amount of production displaced with recycled materials
- Median wages of workers of prioritized suppliers and how this compares with local minimum wage and living wages
- The company’s strategy for incentivizing better supplier performance with respect to workers’ rights.
- Companies would be required to make all plans, reports, disclosures, and figures required under the Act publically available on their websites
The New York Attorney General would be responsible for enforcement of the Act. Each year, the Attorney General would publish a list of companies that failed to comply with the Act. Additionally, the Attorney General may levy a fine of up to 2% of annual revenues of $450 million or more on companies found to be out of compliance. Revenue collected from fines would be directed to a community benefit fund established for environmental benefit projects. Finally, the bill empowers New York State citizens to bring a civil action for non-compliance.
Reactions to the Legislation
Since being introduced, most brands have yet to comment on the measure and its potential implications for their ESG due diligence efforts. In a recent joint statement, the Council of Fashion Designers of America (CDFA) and the American Apparel & Footwear Associate (AAFA) reaffirmed their commitment to sustainability efforts and meeting the 2030 and 2050 climate targets of the Paris Agreement. The organizations further commented that, “as industry organizations, we were not involved in the drafting of the bill, nor are we aware of any companies who were consulted. We are currently taking time to understand the bill and look forward to speaking with its authors to provide our input and share our perspectives.”
Despite brand silence, the bill has received endorsements from multiple industry insiders. Prominent fashion designers Stella McCartney and Mara Hoffman have publically endorsed the Act. Catarina Midby, the Head of Stockholm Fashion Week, told Forbes: “Transparency is key to sustainable change for our industry, but it shouldn’t be a voluntary action as it is now, which is why I strongly support the Fashion Act in New York.”
Others have suggested that the bill’s emphasis on transparency is not enough. Céline Semaan, founder of the Slow Factory Foundation, expressed concern that the bill might fall short on enforcement. Semaan told Vogue, “Mapping suppliers doesn’t necessarily get us any closer to stopping the destruction.” The legislation’s current language is not entirely clear on what constitutes “non-compliance” – primarily, whether or not a company must actually achieve its stated reduction targets in order to be in compliance with the law.
Meanwhile, Maxine Bédat, founder of the New Standard Institute and one of the architects of the Fashion Sustainability Act, has argued that the bill goes beyond enforcing transparency: “It’s not just about the reporting. It’s about the setting and meeting of these targets.” Bédat acknowledged that the bill is less than clear about this in some sections. She added that bill’s sponsors are “looking at amendments to further clarify that [elsewhere in the bill].”
The Act’s Implications for ESG Compliance
The Act is part of a growing international trend to make corporate ESG due diligence and disclosure mandatory.
In the United States, this includes legislation passed by the U.S. House of Representatives last year that would establish minimum thresholds for such due diligence and the type of information that companies should include in their disclosure reporting. Although that particular measure is not likely to pass in the Senate absence changes that would narrow the requirements, it signals that lawmakers are serious about setting standards in statute.
Other measures have made it into law and will have major ramifications for corporate human rights mitigation plans. In particular, President Biden in December signed into law the Uyghur Forced Labor Prevention Act. The new law aims to stop forced labor abuses in the Xinjiang region of China by presuming any and all imported goods with inputs from Xinjiang are made with forced labor and therefore should be denied entry into the United States. A wide range of companies will need to conduct due diligence on their supply chains to determine if their imported goods are materially linked to Xinjiang – though the Act will also lead to detailed guidance from agencies to help companies conduct specialized due diligence and better understand their potential risks.
In addition, the U.S. Securities and Exchange Commission has expressed its intent to develop a binding ESG disclosure reporting framework that could eventually be adopted by other federal agencies – which dovetails with key ESG priorities announced by the Biden Administration.
In Europe, the Netherlands has implemented regulations requiring due diligence to ensure company supply chains prevent child labor, while the E.U. Commission this year will begin implementing landmark regulations imposing a comprehensive ESG due diligence and disclosure standard that will become the leading governmental framework for responsible business practices.
Civil society groups – in particular labor rights and environmental sustainability organizations – and apparel companies will be closely watching the New York State Assembly to monitor the Fashion Sustainability Act’s progress over the coming months. Given New York’s immense commercial activity and outsized political influence, a new law in that state governing ESG standards could have significant sway over efforts to establish a federal ESG standard.