The Fashion Act is ahead of the curve in the United States, but the push for disclosures of supply chain environmental and social impacts is well under way internationally. It has support from several notable non-profits as well as prominent industry names such as Stella McCartney.

The proposed New York Fashion Sustainability and Social Accountability Act (the Fashion Act) targets clothing and footwear companies that sell their products in New York and exceed $100 million in global revenue. The Fashion Act requires those companies to map their supply chains, disclose environmental and social impacts, and set targets to improve some of those impacts. The Fashion Act was introduced to the New York legislature in October 2021. A vote on the bill is expected in late spring 2022. It has support from several notable non-profits as well as prominent industry names such as Stella McCartney.

The Fashion Act May Be a Catalyst for Addressing Supply Chain Social and Environmental Impacts

The Fashion Act addresses a specific industry in a specific state, but it is part of the broader push for new laws and regulations addressing Environmental, Social, and Governance (ESG) issues. Over the past decade, there have been several laws aimed at tracking the social impacts of supply chains. For example, California passed the Transparency in Supply Chains Act in 2010 to address human trafficking and exploitation in supply chains. Now, we see a trend of addressing the supply chain as a whole by targeting both social and environmental impacts.

The Fashion Act is ahead of the curve in the Unites States, but the push for disclosures of supply chain environmental and social impacts is well under way internationally. For example, in June 2021, Germany enacted a law requiring large companies to identify and address human rights and environmental risks in their direct supply chains. Further, the EU adopted a proposal for a Directive on corporate sustainability due diligence that would require companies to identify, prevent, end, or mitigate social and environmental impacts, such as child labor, exploitation of workers, pollution, and biodiversity loss. We have also seen an uptick in enforcement and civil litigation related to supply chains. (See U.S. Department of Homeland Security Annual Human Trafficking Report and Federal Human Trafficking Civil Litigation Trends).

The Fashion Act may be one of the first laws in a nationwide push to implement broad ESG goals into the supply chain.

Proposed Requirements Under the Fashion Act

The Fashion Act requires companies to publicly disclose information related to environmental and social impacts on the company’s website within 12 months of its enactment. Noncompliance with the Fashion Act could result in fines up to 2 percent of global revenue. The Fashion Act also includes a citizen suit provision that would allow consumers to seek enforcement.

The disclosures must include (1) supply chain mapping; (2) a “social and environmental sustainability report;” (3) an “impact disclosure” showing the results of environmental and social risk mitigation measures; and (4) targets for mitigating environmental and social risks.

Supply chain mapping must include at least 50 percent of the company's supply chain by volume, from raw materials to final production.

The “social and environmental sustainability report” must include environmental and social impacts within the supply chain such as water and chemical management use, fair wages, and greenhouse gas emissions; a prioritization of the risks of those impacts; and actions taken to mitigate those risks.

The report must conform to the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard and international standards for labor reporting such as the United Nations Guiding Principles on Business and Human Rights.

The “impact disclosure” must include (1) baseline and reduction targets on energy and greenhouse gas scope three emissions, water, and chemical management; (2) the amount of material produced annually and how much of this is made up of recycled material; (3) the wages of workers and how this compares with local minimum and living wages; and (4) the company’s approach for incentivizing supplier performance on worker’s rights. The majority of the impact statement must be independently verified.

Lastly, companies must publish targets they have set for environmental and social impacts (including greenhouse gas emissions), meet those targets, and report their compliance with those targets on an annual basis.

The Environmental, Social, and Governance (ESG) Working Group at Ballard Spahr applies the experience of lawyers from across the firm to address the unique ESG issues and goals of our clients. This cross-disciplinary approach allows us to help our clients navigate a fast-changing ESG landscape, including:

• Enhanced disclosure requirements by regulators, proxy advisors, and trading platforms on certain ESG metrics;
• Increased litigation and reputational risk to business operations caused by corporate statements, spending, and policy;
• Divestment and investment trends in projects and entities based on their environmental and social impact;
• The evolution of fiduciary duties of directors, investment advisors, and lenders arising from ESG initiatives; and
• Creating and assessing diversity, equity, and inclusion goals in the workplace.