Major fashion brands are increasingly making efforts to capitalise on growing ESG consciousness by consumers. At the same time however, brands are also aware of activity by regulators and campaigners that seeks to hold businesses accountable for "greenwashing" and human rights risks present in their value chain. In response to these pressures, we are now beginning to see certain brands coming up with new strategies to navigate these divergent pathways.

We have previously highlighted (in a briefing on the direction of ESG litigation in the UK) that businesses need to manage carefully their ESG-related risk in light of novel attempts to extend the tort of negligence. In this article we take an in-depth look at the fashion sector, which is potentially particularly susceptible (legally, commercially and reputationally) to these novel tortious claims and to increased attention from regulators in relation to ESG compliance.

Accountability

Brands have stepped up efforts to ensure visibility throughout the full lifecycle of their products.

In December 2022, Spanish retailer Mango launched "Sustainable Vision 2030" as part of a concerted effort to improve transparency and traceability in its value chain. As part of this initiative, Mango will phase out its sustainable fashion line, "Committed", which had previously been criticised by industry commentators for taking an overly narrow "materials-first" view of sustainability, rather than addressing the fashion industry's wider ESG impact. Instead, products in the range will feature a QR code directing consumers to information on the composition, design and production location of each garment, rather than making a blanket statement about the "sustainability" of the entire label. In addition, Mango has taken the notable step of publishing lists of its Tier 1, Tier 2 and Tier 3 factories with the aim of promoting the welfare of workers across the value chain.

This more bespoke approach, along with a stricter ESG reporting system, helps to fulfil obligations under the updated EU Directive on Corporate Sustainability Reporting ("CSRD" – for more, see our briefing) but is also said to be designed to get ahead of other "anticipated" legislative requirements.

Mango is not the only retailer to be grappling with these issues. Zara has indicated on its website that it is "working at all stages" of its value chain to move towards a circular economy, while higher-end brands like Reformation have announced that they will track the carbon and water footprint of their products to tell customers exactly what impact each garment has on the environment. Self-described "sustainable" brand Baukjen has even developed its own "Sustainability Index Metric", scoring each of its products against seven different impact concerns.

The sheer number of major brands focusing on ESG strategy reflects consumers' increasing awareness of ESG issues and desire to hold brands to account. At the same time, the diversity of approaches underlines the perceived need for each business to identify and tackle its own particular value chain risks (including through tailored due diligence and robust audit rights), rather than taking a "one size fits all" approach.

Responsibility

Brands are increasingly seeking to address perceived human rights abuses in their value chains, while mitigating the unintended consequences of ceasing to work with tainted suppliers.

In September last year, following the publication of a report by the Ethical Trade Initiative ("ETI"), several retailers announced that they would be exiting Myanmar. The ETI report highlighted "an almost total absence of infrastructure to promote and support human rights" in Myanmar following a military coup in February 2021. Garment brands and retailers sourcing from Myanmar were urged by the ETI to reassess their presence in the country.

Primark, which paused its relationships with suppliers in Myanmar immediately after the coup, had resumed sourcing from the country in May 2021. However, following the release of the ETI report last autumn, Primark announced that it would be working "towards a responsible exit" from its suppliers in Myanmar, informed by the UN's Guiding Principles on Business and Human Rights.

Primark's exit had been facilitated by a doubling in size of its local ethical trade team based on the ground in Myanmar, which enabled Primark to "visit the approved supplier factories we work with more regularly, giving us greater visibility to working conditions and allowing us to engage with the workers and stakeholders more frequently".

In March 2023, a further challenge for Primark was thrown up by the abrupt closure of two former suppliers, leading to the displacement of around 2,200 local workers. Primark moved swiftly to engage with the affected staff and confirmed that it was working closely with the suppliers to ensure "responsibilities to the workers [the factories] employed are being upheld, including the payment of all wages and compensation owed to them".

Primark's intervention suggests a consciousness as to the potential extension of brand responsibility across the supply and value of chains of major fashion businesses, in an attempt to limit secondary human rights impacts.

Regulatory scrutiny

Regulators are taking a hard look at "sustainability" labels in the fashion sector, forcing brands either to back up or to abandon their claims to sustainability.

In the UK, the CMA is particularly concerned with the way in which products are being marketed to customers as environmentally friendly without any independent oversight. An investigation into such marketing strategies was recently announced, which will focus on ASOS's "Responsible edit", Boohoo's "Ready for the Future" range and Asda's "George for Good" line.

The CMA's investigation will examine both the criteria used by retailers for their assessments of eco-friendliness and the thresholds which must be satisfied in order for products to qualify. For example, the CMA has noted that some lines being marketed as "eco-friendly" contain as little as 20% recycled fabric, calling into question both the quality of the assessment and the validity of the corresponding environmental claims. The CMA has previously said that it takes a dim view of businesses who use jargon to blind consumers with science.

More broadly, the EU has announced a proposed new Directive on green claims. The proposal aims to protect consumers from greenwashing by making green claims reliable, comparable and verifiable across the EU. The directive will introduce clear criteria on how companies should prove their environmental claims, and requirements for claims and labels to be independently verified.

Allegations of greenwashing are far from being unique to the fashion sector – Shell and HSBC (among many others) have been censured by the Advertising Standards Authority in recent months for statements made regarding their green initiatives and contribution to carbon dioxide and greenhouse gas emissions. However, the CMA's sectoral focus on the fashion industry in its investigation sounds a warning note which the industry would be well advised to take seriously - not least given the reputational implications of, and the close interest which consumers are likely to take in, the findings of the investigation.

Accreditations

Fashion brands have sought to promote their sustainable status by manufacturing garments using accredited materials, including certified organic standards.

The use of accreditations is an obvious way to appeal to eco-conscious consumers in a crowded marketplace, giving buyers confidence that products comply with objective standards while promoting the green credentials of the retailer.

Accreditations are available for a bewildering variety of attributes – the Global Organic Textile Standard ("GOTS"), for example, sets far-reaching requirements for ecological and labour conditions, while the Organic Content Standard, "OCS" verifies that a final product contains organically grown raw materials. However, this gives rise to a risk that the differences between standards could be confusing to consumers. Brands need to be careful not to overstate the significance of any accreditations which they have received or to exaggerate the ESG credentials of an accredited product – doing either of these could attract allegations of greenwashing.

Accreditations are usually awarded through third party certification bodies, such as social auditors. As discussed in our recent briefing, a claim against Tesco and a social auditor, Intertek, relating to alleged forced labour practices at a garment factory in Thailand, has raised questions about the extent to which a business seeking to act responsibly could open itself up to actions under novel value chain liability concepts.

In order to obtain and retain worthwhile accreditations, businesses will likely need to provide hard evidence that they are living up to the relevant standards. Rather than backing away from claims to social responsibility, the better way forward (both for major brands and for the nascent social audit industry) would be to use contractual tools such as codes of conduct and audit rights to impose standards and then ensure participants in the value chain are sticking to them.

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