Asia-Pacific

Will Regulation Improve Fast Fashion’s ESG Look?

Aditi Pai, ESG Analyst at American Century Investments, outlines the incoming rules aimed at keeping sustainability in season.

Fast fashion appeared on the scene in the late 1980s as a new segment of the fashion industry. The term refers to a business model that imitates high-fashion clothing designs and mass produces them at a low cost.

Fast fashion brands and the retailers that promote them (think Zara, H&M Group and Uniqlo, among others) allow consumers to purchase the newest styles seen on runways or worn by celebrities at highly affordable prices. Unfortunately, these ‘bargains’ are not as appealing as they may look in the store windows – we believe fast fashion has been justifiably criticised for its negative impact on workers and the environment.

Poor working conditions and low pay

The apparel industry is often associated with poor factory conditions, paying workers less than a living wage and child labour. Bangladesh has a particularly disturbing track record in the industry:

  • According to the International Labor Rights Forum, between 2006 and 2012, over 500 apparel workers died in factory fires in Bangladesh, including at least 117 workers in the 2012 Tazreen factory fire (where exits were locked).
  • In 2013, some 1,134 workers died in the Rana Plaza building collapse, and only one of eight factories in Bangladesh passed recent inspections under the Accord on Fire and Building Safety.[1]

The Bangladesh Accord, a voluntary agreement, led to some positive steps on the part of western fashion brands that produce garments in the country; however, it expired in May 2021 and has not been renewed. Many say that problems with working conditions, quality inspections, safety and a lack of fair pay continued even when the Accord was in effect.[2]

These problems are not restricted to developing countries. About two years ago, a US Department of Labor (DOL) investigation found that 85% of garment factories in Los Angeles violated federal minimum wage regulations, as the average worker received just US$5-6 per hour.[3] The investigation also found that contractors received only 73% of what they needed to pay workers the minimum wage.[4]

This led to the California Garment Worker Protection Act, known as SB62, which was signed into law in September 2021. Aimed at improving working conditions in the state, which is home to the US’s largest garment centre, the Act eliminates the piece-rate wage system (or ‘piece work’) that has long been used globally in the apparel manufacturing industry. This system, in which employers pay workers per item of work completed rather than an hourly or fixed wage, has been soundly criticised by garment workers and advocacy groups as it makes wage theft easy.[5]

Damaging environmental impacts

In addition to these harmful labour practices, fast fashion is environmentally destructive—it is a major contributor to pollution, waste, greenhouse gas production and excessive water consumption. The World Bank estimates the industry is responsible for nearly 20% of all industrial pollution annually.[6]

It also creates a considerable amount of waste – estimates show that more than half of fast-fashion clothing is discarded in less than a year.[7] Discarded clothing made of non-biodegradable fabrics can sit in landfills for up to 200 years.[8] Of the more than 100 billion items of clothing produced each year, nearly 20% are unsold – the leftovers are buried, shredded or burned.[9]

Manufacturing apparel is also resource and emissions intensive. Making a single pair of jeans produces as much greenhouse gas as driving a car over 80 miles.[10] It takes 2,700 litres of water to make one cotton shirt, enough to meet the average person’s drinking needs for 2.5 years.[11]

Regulatory actions and industry initiatives

The environmental harms caused by producing fast fashion are significant, and there has been growing pressure from lawmakers and consumers to improve the industry’s sustainability.

In a trailblazing move, New York lawmakers introduced the Fashion Sustainability and Social Accountability Act (S7428) in 2021. If the statute is enacted, New York will become the first US state to hold major fashion brands accountable for their environmental and social practices. The bill’s key provisions would require footwear and apparel companies doing business in New York that have global revenues of US$100 million or more to:

  • Document the source of every material, process and shipment involved in bringing goods to market for at least 50% of their suppliers by volume (known as ‘supply chain mapping’),
  • Identify adverse impacts from their greenhouse gas emissions and water and chemical use,
  • Set and achieve science-based targets to reduce carbon emissions and energy consumption across their supply chains,
  • Perform mandatory due diligence to help prevent labor abuses, and
  • Disclose the quantity and type of materials their suppliers produce, and the volume of recycled materials used annually.[12]

Failure to comply with the Act, if adopted, could result in penalties that may include injunctions, monetary damages, and civil performance of a statutory duty. In other words, companies that violate the Act’s requirements could be subjected to more than just a slap on the wrist.

The European Commission recently stated that the trend of wearing apparel for short periods and then throwing it away contributes to “unsustainable patterns of overproduction and overconsumption”. A newly proposed EU directive covers environmental concerns, working conditions and other issues within the fashion industry (and for other consumer goods as well). Under the proposed plan, garments sold in the EU would be evaluated on a sustainability scale that assesses their environmental impact and recyclability.[13]

The 27 EU members and the European Parliament will analyse the proposal before it can become law, and it is likely to face resistance and lobbying from industries that benefit from selling products with short lifespans.[14] Nonetheless, the pressure for regulation and disclosure is clear. For example, France has a law requiring garments and textiles to carry a ‘carbon label’ informing consumers of the environmental impact of these products.

In 2019, Germany’s Ministry for Economic Cooperation and Development introduced its ‘green button’ certification programme that requires clothing and textile companies to meet a minimum of 26 social and environmental standards to display the label[15]. The concept is popular with German consumers – 96% are in favour of the German government monitoring compliance with social and environmental standards through a government-run label.

In general, we believe regulators should establish more stringent labour and environmental standards for fashion industry suppliers. We also see an opportunity for fashion brands that support better working conditions and seek to meaningfully reduce waste to increase market share and customer loyalty.

Voluntary efforts to improve fashion’s sustainability

In addition to legislation designed to address the fashion industry’s ESG shortcomings, companies and consumers are getting involved. For example, the Sustainable Apparel Coalition has created an index for measuring the full life-cycle impact of clothing and footwear products. This information can be used to design garments that can be more easily reused or recycled.

The H&M Foundation, in collaboration with the Hong Kong Research Institute of Textiles and Apparel, created a garment-to-garment recycling machine that shreds old garments and converts them into new ones.[16] Entrepreneurial firms are developing new fibres and technologies that reduce the environmental effects of production and garment-making. Some companies are implementing circular business models by making their products easier to repair or reuse.

To support better conditions for garment workers, over 120 brands have committed to following the Fair Wear Foundation’s Code of Labour Practices, which forbids child labour and mandates safe and healthy working conditions. Participating companies must regularly audit their suppliers to ensure compliance with these standards. Among other things, brand representatives watch for signs that a factory is subcontracting. For example, if its output exceeds what its own workers could produce, it may be using subcontractors, which would raise questions about adherence to the standards.[17]

We believe all fashion retailers – not just fast fashion – should make their supply chains transparent so that consumers can make informed choices when buying all types of apparel. The software company EVRYTHNG and packaging maker Avery Dennison have launched an effort to tag clothing so that consumers can trace an item’s production process along a supply chain.[18]

Regulations are spreading in the fashion industry to address sustainability concerns that are garnering more attention and alarming consumers. These regulations are intended to hold fast-fashion brands accountable for their environmental and social impacts. Publicising these issues will bring additional pressure to the industry as consumers become more aware of these problems and express their values by changing their shopping habits.

 

[1] Dana Thomas, “The High Price of Fast Fashion,” Wall Street Journal, August 29, 2019.

[2] https://www.thefashionlaw.com/is-the-tide-changing-for-the-fashion-industry-regulations-environment-in-the-u-s/.

[3] Syama Meagher, “The Not-So-Hidden Ethical Cost of Fast Fashion: Sneaky Sweatshops in Our Own Backyard,” Forbes, February 5, 2020.

[4] “Drop That Sweatshop Pledge,” Garment Worker Center.org, accessed April 15, 2022.

[5] https://www.thefashionlaw.com/is-the-tide-changing-for-the-fashion-industry-regulations-environment-in-the-u-s/.

[6] Thomas, “The High Price.”

[7] Ellen McArthur Foundation, “A New Textiles Economy: Redesigning Fashion’s Future,” accessed April 15, 2022.

[8] Thomas, “The High Price.”

[9] Thomas, “The High Price.”

[10] Reichart and Drew, “By the Numbers.”

[11] Reichart and Drew, “By the Numbers.”

[12] Anushka Challawala, et al., “Sustainable Fashion: New York Considers First Fashion Sustainability Law,” Barclays Research, 2022; and https://www.vogue.com/article/new-york-fashion-bill-sustainability-social-justice

[13] https://www.dw.com/en/eu-proposes-new-rules-to-tackle-fast-fashion/a-61308009

[14] https://www.dw.com/en/eu-proposes-new-rules-to-tackle-fast-fashion/a-61308009

[15] Melissa Gamble, “Is the Tide Changing for the Fashion Industry When It Comes to Regulations?” The Fashion Law, January 4, 2022.

[16] Adele Peters, “Bring your old clothes and this in-store recycling machine will turn them into something new,” Fast Company, May 4, 2021.

[17] Moulds, “Child labor.”

[18] Nathalie Remy, Eveline Spearman, and Steven Swartz, “Style that’s sustainable: A new fast-fashion formula,” McKinsey & Co., October 2016.

 

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