Author: Bridget Thorpe
Reading Time: 4 minutes, 30 seconds
In Fall 2021, New York proposed the Fashion Sustainability and Social Accountability Act.
In a nutshell, if it passes, the Act would require fashion companies that make over $100 million in revenue to map out their supply chains better, enhance their environmental and supply chain disclosures, obtain third-party verifications, and meet impact targets.
There's a lot more to unpack in there—especially how it may influence smaller brands.
I was recently interviewed about my thoughts on the Act. Sharing below if you'd like to learn more, as well as SOL VAE's predictions for the fashion industry.
Here we go!
01 | Let's say the New York Fashion Sustainability and Social Accountability Act passes. How could it then be extended to smaller apparel and shoe companies in a way that fulfills transparency obligations but doesn't overextend a smaller brand's resources?
I think a voluntary transparency standard makes sense. The Act has the potential to bring a tremendous amount of value and needed evolution to the fashion industry, yet it will also require a fundamental change in how organizations conduct business. The amount of detail, time, money, and expertise it takes to gather appropriate disclosure information is significant. Those resources may not be accessible to smaller brands, and they may also not have the bargaining power to uncover needed disclosure details from some suppliers quite yet.
The B Corp movement comes to mind as somewhat of an analogy. Certified B Corp organizations are already voluntarily doing business with a higher degree of transparency, and they are gaining a competitive advantage because of it. The reporting requirements are rather accessible for smaller brands, too.
Beyond a third-party voluntary standard, I could also imagine a tiered approach where lower revenue levels have different requirements. However it materializes, the requirements will need to be adjusted so smaller brands can realistically comply.
02 | What do you think of the act's wording, that companies will need to disclose "significant real or potential adverse environmental and social impacts"? Wording like this seems to be common within transparency obligations, but I'm wondering if there is a lot of room for interpretation.
I think there is room for interpretation there, but that makes sense. When I hear this wording, my mind automatically goes to thoughts of GRI reporting standards.
For context, a few leading ESG reporting standards are GRI and SASB. GRI was one of the first go-to sustainability standards/frameworks for the world’s largest organizations. The focus of it is: how is this business impacting the world? SASB was created on the heels of GRI’s success, and the focus there is flipped: how is the changing world impacting this business?
A key component to each ESG reporting standard is materiality. Or, what is relevant and significant to the organization and/or its stakeholders. The foundation of any solid ESG program or disclosure activity will begin with a materiality assessment. It helps to focus efforts and determine which actions will have the most sizable impact.
The results from a materiality assessment are going to be very different for every organization. So, yes, transparency obligations may leave room for interpretation. But, I wouldn’t focus on the flexibility. Rather, what really matters is that organizations are disclosing what is material.
03 | Consequences of non-compliance are 2% of annual revenues of $450 million or more, which is at minimum $9 million. Do you think these consequences are adequate, or is there a risk of companies just considering this a cost of doing business when they can save on costs by outsourcing to developing countries?
From my understanding, it is 2% of gross annual revenues—not reduced by the cost of goods sold. It is going to depend on the organization, but I feel most CFOs will weigh the cost of compliance with the risk of non-compliance cutting into their margins.
The enforcement section of the Act is also interesting. As I read it, the Attorney General would also be required to publish a public report stating who is and who is not in compliance. So, there is a marketing element to consider there, too. No company is going to want to be published on a public non-compliance list. Especially as ESG initiatives become increasingly demanded by the consumer.
04 | Do you think transparency for 50% of the supply chain is enough? Why or why not?
I would love more than anything to have 100% transparency across the board. In honesty, 50% supply chain transparency feels like the right place to start. It’s important to consider this includes suppliers from all tiers of production—raw materials to the final product. So, for example, a progressive fashion brand may share where they source their fabric from. It may even publish this information on a transparency site, such as The Open Apparel Registry. But to be 100% transparent, it would also need to share sources for the fabrics raw components. The cotton farms, the nylon polymer labs, etc. It requires supplier collaboration to obtain that level of detail, as well as additional company resources.
As transparency becomes the norm, we may begin to see additional transparency at the supplier level. It would be in the competitive interest of the supplier to share this detail and make it easier for their customers to report on. Until that becomes more prevalent, 50% supply chain transparency sounds reasonable to shift the industry in a more sustainable direction and reevaluate as momentum builds.
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