Dear Retail Clients and Friends,

This edition of Morgan Lewis Retail Did You Know? examines the pending New York Fashion Sustainability and Social Accountability Act (S7428/A8352), which, if passed by the state legislature, would be the first fashion sustainability law in the United States. Apparel and footwear companies that do business in New York State should consider the potential impact of the bill, which imposes broad-reaching disclosure requirements related to social and environmental sustainability.

BACKGROUND

The bill seeks to amend the New York General Business Law to require fashion manufacturers[1] and retail sellers[2] that do business in New York State and have annual worldwide gross receipts exceeding $100 million to disclose environmental and social due diligence policies, processes, and outcomes on their websites. “Due diligence,” as used in the bill, means the processes that companies carry out to identify, prevent, mitigate, and account for how they address actual and potential adverse impacts in their own operations, their supply chains, and other business relationships, as recommended in the Organisation for Economic Co-operation and Development (OECD) guidelines for multinational enterprises and due diligence guidance for responsible business conduct and the United Nations guiding principles on business and human rights.

The due diligence disclosures would include the following:

• Supply-chain mapping of at least 50% of suppliers by volume across all tiers of production.
• A social and environmental sustainability report, including links to the company’s policies on responsible business conduct, measures that the company has taken to implement responsible business conduct, areas of significant risk in the company’s business relationships, the adverse impacts of identified risks, the company’s prioritization criteria, actions taken to prevent or mitigate risks, measures to track implementation and results, and the company’s cooperation in any remediation.
• An impact disclosure on prioritized adverse environmental and social impacts, including reduction targets on energy and greenhouse gas emissions, annual volumes of material produced, median wages of prioritized supplier workers, and the company’s approach to incentivizing supplier performance on workers’ rights.
• Targets for impact reductions in areas such as climate change, including estimated timelines and benchmarks for improvement.

Companies subject to the law would have 12 months to comply with the supply-chain mapping and sustainability reporting requirements, and 18 months to comply with the impact disclosure requirements. Companies that fail to comply would be subject to penalties of up to 2% of their annual revenues, with the penalty amounts deposited in a newly established community benefit fund administered by the New York State Department of Environmental Conservation. The New York attorney general would also be required to publish an annual list of noncompliant companies.

WHAT’S NEXT?

The bill was introduced in the New York state legislature in October 2021 by Senator Alessandra Biaggi and Assembly Member Anna R. Kelles. It was referred to committee in January 2022. The bill’s sponsors have stated that they hope to bring it to a vote in late spring.

PRACTICAL IMPLICATIONS

The bill imposes additional disclosure requirements and accountability on the fashion industry related to ethical sourcing, worker rights, and environmental pollution. As drafted, it would have a broad impact, requiring compliance from nearly every major fashion brand.

Fashion manufacturers and retailers should review the different areas of their business that could potentially be implicated by the bill and consider whether they can accurately trace their supply chains and conduct effective risk assessments and remediation in order to make the requisite disclosures. That said, we expect that the bill will be subject to significant lobbying efforts and debate in the months to come.

[1] “Manufacturer” is defined in the bill as “a business entity which lists manufacturing as its principal business activity in the state of New York, as reported on the entity’s state business tax return, and primarily manufactures articles of wearing apparel or footwear.”

[2] “Seller” is defined in the bill as “a business entity which lists retail trade as its principal business activity in the state of New York, as reported on the entity’s state business tax return, and primarily sells articles of wearing apparel or footwear.”

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