Greenwashing and the fashion industry
The global nature and complexity of fashion industry supply chains, together with the typically high-profile and consumer-facing nature of many brands, means that those operating in the fashion industry are particularly exposed to the risks of greenwashing. Companies must satisfy an increasingly demanding regulatory environment whilst responding to consumer appetite for sustainable products, which in itself is unpredictable. Smaller brands – which may have limited leverage or visibility over suppliers – are likely to face particular compliance difficulties.
The diverse nature of the fashion industry means that businesses may face a range of ESG risks. For example, a significant risk may arise when sourcing from and manufacturing in low-cost offshore jurisdictions, often associated with child labour, forced labour, poor health and safety practices, bribery, and corruption. Other risks may arise in connection with the sustainability of raw materials, or in the use of potentially problematic synthetic materials such as PFAS ("per- and polyfluoroalkyl substances", commonly known as "forever chemicals", which are widely used in fashion products to assist waterproofing, breathability and durability).
The current economic environment may compound those risks. As mounting cost-of-living pressures have increased in many countries, some commentators have concluded that consumers are increasingly less willing to pay a premium for "green" products, despite their best intentions.1 That in turn may provide an economic incentive for brands to make claims designed to attract sustainability-conscious consumers without incurring the cost to support them.
Regulatory frameworks
The regulatory landscape for fashion businesses has grown significantly more complex in the last decade. Businesses operating across the UK and EU must navigate an expanding matrix of due diligence, reporting and transparency obligations (including the EU Ecodesign for Sustainable Products Regulation and human rights frameworks (like the UK Modern Slavery Act)).
In the EU, the Corporate Sustainability Reporting Directive ("CSRD") and the forthcoming Corporate Sustainability Due Diligence Directive ("CS3D") impose substantial obligations, with CS3D carrying fines of up to 3% of global annual turnover for non-compliance. Germany's Supply Chain Act imposes fines of up to 2% of global turnover. France's Duty of Vigilance Law goes further still, permitting civil liability claims against companies that fail to prevent supply chain abuses – a power already deployed against brands including cosmetics company Yves Rocher. The UK has implemented Sustainability Disclosure Requirements and plans to introduce its own sustainability reporting standards.
On chemical regulation, PFAS in the UK are governed by UK REACH, overseen by the Health and Safety Executive. UK REACH is widely regarded as less stringent than its EU equivalent, but regulatory tightening is expected as the evidence base on PFAS toxicity grows. (We examined the legislation governing products that contain PFAS in a previous article.2)
Compliance with international frameworks – including the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises – is no longer merely best practice, but mandatory. These standards increasingly underpin binding legal obligations and will be scrutinised in the event of litigation or regulatory investigation.
Litigation and Regulatory Enforcement
Litigation is increasingly used as a tool for investors, activists and regulators to hold fashion businesses accountable for misleading ESG disclosures.
