Why Big Brands Are Pushing Back Against Sustainability Regulations

For the past two years, I have been working with the New Standard Institute to secure passage of the New York Fashion Act. The Act represents the first thorough attempt to regulate the fashion industry in the United States requiring that brands selling in New York state perform due diligence, report on their impacts and reduce carbon emissions in keeping with planetary boundaries. As part of the process, I have engaged with scores of industry participants including brands, suppliers, trade associations, unions and activists.

The conversations have been constructive. One proposal has, however, led to surprising consternation. With few exceptions (which include progressive brands such as Patagonia, Reformation, Cotopaxi, and Eileen Fisher), big fashion brands and trade associations have bemoaned the “impracticality” of the Act’s mandated disclosure of their supply chains. This disclosure is needed to engender transparency and to link output to impacts.

Notwithstanding advances in technologies including blockchain, smart sensors, isotope identification and supply chain mapping software, many industry participants maintain that it is “next to impossible” to know which suppliers are growing their cotton, tanning their leather and dying their fabrics. After all, they explain, raw inputs are typically blended with many others en route to market, brands do not always nominate upstream suppliers, factories often subcontract without approval and demands for faster product introductions outpace brands’ ability to collect data.

Said differently, financial outcomes supersede efforts to assure supply chain transparency.

In the endless drive to expand gross margins and increase revenue, fashion brand executives continue to press supply chains to speed up product introduction and drive costs down. This leads to transience, opacity and complexity which is often accompanied by a reluctance to invest in voluntary disclosure. After all, why invest in traceability for a fast changing, upstream supply chain when reporting is voluntary and consumers do not demand or understand this information. According to Fashion Revolution, only 12 percent of the biggest 250 fashion brands publish a list of their raw material suppliers.

It Wasn’t Always This Way

Fifty years ago, many brands were manufactures and production was more geographically concentrated, making it easier to track. For example, at Timberland (where I served for 15 years, seven as COO), the original factory was located in New England, the same region as the company’s leather suppliers and footwear equipment manufacturers. Timberland’s tagline “More Quality Than You May Ever Need” was premised on the trained expertise of its own production workers. Traceability was straightforward.

However, a shift towards trade liberalisation precipitated a ramp up of outsourcing from the ‘90s onwards. The result: most fashion brands’ manufacturing assets suddenly became liabilities, burdened by higher operating and labour costs when compared to Asian alternatives. Outsourcing led the locus of competition to shift from an emphasis on quality and innovation to a focus on flexibility and low cost.

Brand Upside, Societal Downside

Shifting production to ever cheaper locales has enabled the fashion industry to keep prices low, helping to fuel its rapid growth over the last 30 years. It has also allowed fashion companies to benefit from regulatory arbitrage — because environmental and labour regulations and enforcement in Asian sourcing hubs have often been laxer than those in the US and Europe. This has led to worsening unit for unit environmental impact of fashion production.

While outsourcing to multi-tier supply chains has benefited big brands and acquisitive consumers, it has led to far reaching social and planetary damage. Fashion is one of the world’s most environmentally damaging industries, with impacts spanning chemical, land and water usage, as well as carbon emissions. Trends are not positive. Predictions estimate that plastic polyester fibre production will increase by 47 percent in the next decade while carbon emissions from fashion are on track to grow by 30 percent.

Other Paths

The structure and impacts of the fashion industry are not immutable or preordained. They are choices. Indeed, some brands are choosing to move in the opposite direction to the wider industry pattern by localising and verticalising production. As but one example, entrepreneur and creative director Brunello Cuccinelli took a joint-minority stake in a cashmere yarn producer last May. At the time, he noted, “I’m not worried about who’s going to buy the product, but I’m worried about who’s going to produce the product.” All the brand’s products are made in Italy.

This approach is not exclusively the domain of luxury labels. For example, Welsh brand Huit Denim produces all its jeans in its own factory in Cardigan, a town that used to host to Britain’s largest denim factory (which closed in 2002). According to co-founder David Hieatt, “Our grandmasters are craftsmen and women. Having a factory in the town where we live allows us to be transparent, responsive and assures superior quality.”

While neither Brunello Cuccinelli nor Huit Demin share detailed mapping of their supply chains, implementation of regulation that mandates such disclosure would be straightforward for both companies. Other industry participants including Another Tomorrow and a partnership between Levi’s and Artistic Milliners are demonstrating that transparency is possible. So is VF Corporation which has mapped and shared the complete multi-tiered journey for one hundred of its highest volume products.

What Next?

Why do traceability and disclosure matter?

Firstly, absent robust traceability, brands will soon no longer be able to make green claims. Last week, by a vote of 593 to 21, the European Parliament voted to adopt a new anti-greenwashing law banning the use of generic product claims including “environmentally friendly” or “climate neutral.” This law was a response to industry abuse. According to a European Commission study, more than half green claims by companies in the EU were vague or misleading, and forty percent were completely unsubstantiated.

In addition, to maintain its social license to operate, the fashion industry will have to address and minimise its negative externalities: the harmful social and environmental side effects of doing business. Today, the fashion industry does not pay for externalities including labour abuses, pollution and carbon emissions — these costs are borne by society. However, legislation including the Uyghur Forced Labor Prevention Act (UFLPA) is being adopted to force brands to limit their negative impacts.

Disclosure alone, will not address all the industry’s negative externalities. Nor will it be simple. Fashion supply chains have become astonishingly complex.

Disclosure is, however, a first step. According to McKinsey, 79 percent of fashion executives consider “the lack of access to standards to assess sustainability performance as the greatest hurdle to improving” customer perception of sustainability. It follows, then, that fashion brands who want to message authentic sustainability ought to support legislated standards to require reporting on the lineage and contents of production.

So doing is a necessary precursor to getting brands to internalise externalities. The industry’s current inability or unwillingness to do so is a choice — one borne out of a desire to optimise for financial outcomes, not reduce social or environmental harmful impacts.

Kenneth P. Pucker is a professor of practice at the Tufts Fletcher School. He worked at Timberland for 15 years and served as chief operating officer from 2000 to 2007.