What’s Next for Fashion: The Proposed New York Fashion Sustainability Act
Fashion has always been an integral part of life for people living in New York. New York City in particular has always been a game-changer when it comes to the fashion industry. It made history by hosting the first fashion week in 1943.[1] New York Fashion Week has turned into one of the largest and most important events in the fashion industry, which takes place twice a year.[2]
New York is all set to make history once again with its recent introduction of the New York Fashion Sustainability and Social Accountability Act (the “Bill”). While sustainable fashion has long been discussed, the lack of standards made it difficult for brands in deciding how to handle a potentially sensitive topic.[3] If this bill is passed, it would be the first legislation of its kind in the country, effectively holding the biggest brands in fashion accountable for their role in climate change.[4] The bill would affect brands from the largest luxury multinationals, like LVMH, to fast-fashion e-sellers like Shein.[5]
Who’s Behind This Bill?
The Bill is sponsored by State Senator Alessandra Biaggi and Assemblywoman Anna R. Kelles, and is “backed by a powerful coalition of nonprofits focused on fashion and sustainability, including the New Standard Institute, the Natural Resources Defense Council and the New York City Environmental Justice Alliance, as well as the designer Stella McCartney.”[6]
Where Has it Reached in the Legislative Process?
The Bill was introduced by Senator Biaggi in the 2021-2022 session of the New York Senate on October 8, 2021.[7] After its introduction, it has been referred to the Consumer Protection Committee of the New York Assembly, where it is still pending.[8]
What the Bill Proposes
The Bill, if enacted, will amend the general business law in relation to environmental and social due diligence policies, disclosure, and state finance law in relation to establishing a community benefit fund.[9]
Key Amendments: Scope of the Bill
The New York General Business Law would be amended by adding a new section 399-mm.[10] The Bill would apply to every fashion manufacturer and fashion retail seller doing business in the state which has annual worldwide gross receipts exceeding $100 million.[11]
The Bill defines “fashion manufacturer” and “fashion retail seller” to give clarity on who is covered under the Bill. Fashion brands will have to consider the following two points to decide if they are a fashion manufacturer or fashion retail seller for the purposes of the Bill: whether they are a business entity which lists manufacturing or retail trade, respectively as its principal business activity in New York, as reported on entity’s business tax return, and whether they primarily manufacture or sell articles of wearing apparel or footwear.[12]
Key Amendments: Disclosure Requirements
In brief, the Bill requires every covered fashion manufacturer and fashion retail seller to disclose its environmental and social due diligence policies, processes, and outcomes, including significant real or potential adverse environmental and social impacts, and disclose targets for prevention and improvement.[13]
The minimum disclosures required under the Bill are:
Supply Chain Mapping: the Bill requires that fashion manufacturers and fashion retail sellers map (i.e. list and track) at least of 50% of their suppliers by volume across all tiers of production from raw materials to final products.[14] The Bill also demands that fashion companies, when mapping that 50%, make a good faith effort to focus on mapping the suppliers and associated supply chains relevant to prioritized risk (i.e. those posing the greatest social and environmental risks), they must then disclose the names of those prioritized, higher risk suppliers.[15]
Due Diligence: Fashion companies would be required to publish a social and environmental sustainability report that would include the relevant due diligence policies, processes, and activities conducted to identify, prevent, mitigate, and account for potential adverse impacts including their findings and outcomes.[16] This report should also include a link on the seller or manufacturer’s website to relevant policies on responsible business conduct.[17]
Impact: Fashion companies would also be required to disclose where in the supply chain they have the greatest negative environmental and social impacts.[18] This disclosure would include greenhouse gas reporting, quantitative baseline and reduction targets on energy and greenhouse gas emissions, and water and chemical management.[19] Under this type of disclosure, companies would also be required to disclose the annual volume of material produced, including a breakdown of the material types made, and the volume of production replaced by recycled materials.[20] On the labor side, companies will have to disclose the median wages of workers of prioritized suppliers in comparison to local minimum wage and living wages, as well as the company’s approach on encouraging better supplier performance on workers’ rights.[21]
Target: Lastly, the Bill requires fashion retail sellers and fashion manufacturers to disclose the targets they have set for impact reductions and for tracking due diligence implementation and results including possible estimated timelines and benchmarks for improvements.[22] And the Bill states that climate change targets should be set and met through science-based guidance.[23]
Key Amendments: Enforcement and Action Timeline
Timeline: The Bill requires the covered fashion companies post the supply chain, due diligence, and target disclosures on their website, with a clear and easily understood link to the required information on their homepage, within 12 months of enactment of the required policies, processes and outcomes.[24] The impact disclosures should be made within 18 months after enactment of their policies, processes and outcomes.[25] This means that fashion companies have 12 months to comply with all but impact disclosure requirements, and 18 months for impact disclosure under the Bill’s requirements after its enactment.[26]
Enforcement: The Bill gives power to the New York Attorney General, or designated administrator, to enforce the Bill’s requirements.[27] The attorney general may also fine non-compliant companies three months after sending the company a notice of non-compliance for up to two percent of annual revenues of $450 million or more.[28] The Attorney General or its representative would be responsible for annually publishing a compliance report, including a list of fashion retail seller and fashion manufacturer who are out of compliance.[29]
Right of Citizens: Citizens can commence a civil action against any person alleged to be in violation, they can compel the Attorney General to investigate compliance of any entity, or they can bring suit against the Attorney General or its designated administrator for failure to perform any act or duty under the act which is not discretionary.[30]
Key Amendments: Community Benefit Fund
The Bill also proposes amending the state finance law to add Section 97-ccc, which would establish a jointly held Community Benefit Fund among the state Comptroller, Commissioner of Taxation and Finance, and Commissioner of Environmental Conservation.[31] The non-compliance fines collected under the law by the Attorney General or its designated administrator would be deposited in this fund used for implementing environmental justice projects that benefit communities suffering disproportionately from the impacts of environmental pollution and climate change.[32]
Impact on the Fashion Industry
The Bill is definitely one of a kind. To put it in simple words, the Bill wants fashion retail sellers and fashion manufacturers to take responsibility for not just their actions, but also the actions of those associated with them, and make changes to improve the adverse impact the company has on the environment. The Bill, however, has both pros and cons.
On the one hand, the Bill can help the industry grow by improving conditions and brand trust with consumers. For years, there have been concerns about the deplorable conditions of workers at factories in the fashion industry.[33] Many manufacturers evade accountability for the conditions at garment factories by stating that they do not control overseas factories.[34] By not just limiting the Bill to the environmental impacts of companies, but also extending oversight it to ethical labor practices, the Bill could bring reform in the industry where labor practices have long been an issue. Manufacturers will have to take responsibility for problematic labor practices both at their company and in their supply chain. Another way the Bill could help brands is in building their brand image. The disclosure requirements will motivate brands to adopt robust policies and procedures that adhere to best practices in relation to sustainability as it could affect a brands image. Mike Smith, the chief operating officer of Stich Fix, asserts that “If you don’t have trust, you don’t win the customer over time.”[35] With increasing awareness of the fashion industry on carbon dioxide emissions[36], consumers have become much more active in scrutinizing the brands they buy from. Consumers want to support brands that are doing good in the world, with sixty-six percent of consumers willing to pay more for sustainable goods.[37] Another study found only one in five consumers trust brand sustainability claims.[38] All of these reasons show that transparency of supply chain, material sourcing, and labor practices administered under the proposed legal framework can be mechanisms for fashion companies to build trust with their customers.
On the other hand, the Bill also has its downfalls. By asking companies to map at least 50% by volume of their supply chain, the Bill gives a free reign to fashion companies to only map 50% and to select which suppliers they want to map. Its leads to a tricky situation where the mapped supply chain could show excellent results, but that result may not show the full picture as we are unaware of the unmapped portion of the supply chain. The Bill does talk about disclosure of the median wages of workers in comparison to local minimum wages and living wages, but the Bill does not mention how and who decides the minimum living wages. Another criticism of the Bill has been that it imposes penalties only for failure to report on impacts, goals, and due diligence, but it does not include any penalties for failures for harm caused by, contributed, or linked to a brand or retailer failing to meet the targets that brands and retailers set.[39] This could mean that brands and retailers, for example, could make a disclosure, set goals for climate change, waste reduction, and pay a livable wage, market it to consumers but never meet them, and still be in compliance.[40]
Disclosure for fashion companies like the Bill is not novel. Section 1502 of the Dodd-Frank Act requires publicly listed companies in the U.S. to disclose if tin, tungsten, tantalum, and gold (“3TG”) used in their products originated from the Democratic Republic of the Congo or any adjoining country, and if so report due diligence measures carried on their supply chain to ascertain whether those minerals were purchased from mines or smelters that support armed groups in those regions.[41] One of the conflict minerals, tin is commonly used for buckles, zippers, eyelets, handbags, and other products in the fashion industry.[42] For example, Nike is a publicly listed company and uses the 3TG in some of its athletic footwear, apparel, and equipment and is thus covered under the Dodd-Frank Act.[43] Since tin is one of the conflict minerals covered under the Dodd-Frank Act, publicly listed fashion companies which use tin have to comply with the supply chain requirements under section 1502 of the Dodd-Frank Act.[44] The New York Fashion Sustainability Act reads similar to supply chain requirements under the Dodd-Frank Act, but there are some differences to note.
A major difference between the two bills is to whom it applies; Dodd-Frank targets listed companies, which might cover some fashion companies, while the Bill covers fashion retail sellers and manufacturers who may not necessarily be listed companies. Secondly, compliance under Dodd-Frank requires tracking of the entire supply chain, while the Bill requires a minimum of 50%. Overall, Dodd-Frank and the Bill are completely different, but fashion companies covered under both could possibly use the report of supply chain mapping under Dodd-Frank for certain disclosure requirement under the Bill and save costs on double mapping.
Conclusion
As drafted, the Bill will have a broad impact, requiring compliance from nearly every major fashion company. As the Bill is still in its initial stages, it’s the right time for fashion retail sellers and manufacturers to evaluate the different areas of their business and consider if they would be able to accurately map their supply chain and conduct effective due diligence policies to make the requisite disclosures.[45] Fashion companies who have already been doing some work in these areas will have a smoother transition when complying with requirements under the Bill. However, it will be a challenge for other brands who have no foundation and will have to build from scratch the due diligence policies and other requirements. If the Bill is passed, it will be interesting to see how companies of different sizes deal with it. Because the Bill is first of its kind, the fashion industry and everyone around the globe has eyes on its developments, from lobbying efforts to its movement through the New York Senate and Assembly.
Footnotes
