EU Directives Impacting the 2023 ESG Fashion Agenda
It’s no secret, the global community is scrambling to take the necessary steps in combating the looming environmental crisis. Homes are sorting their trash, corporations are offsetting carbon emissions, and the fashion industry is embracing the concept of a circular economy. Similarly, EU Directives are placing legislative pressure on industries that play a key role in the environmental issues we are facing today. As a key player – the 2023 ESG fashion agenda is set to make some serious waves.
EU directives have come a long way in ratifying the legal tools to enforce industry-wide change in the last year. The journey has been vast, so much so that it’s left many of us confused and insecure about where to start within our businesses. To ensure compliance and help your brand embrace the circular business models that will get you there, we have summarized the directives shaping the ESG agenda and identified their impact on your brand.
What is ESG in fashion?
The data collected to report on ESG activities detail the environmental, social & governance criteria that a company should uphold:
Environmental – Environmental standards consider how well a company performs concerning waste management, resource depletion & pollution. Successful environmental considerations in practice could include publishing a sustainability report, using renewable energy sources, and limiting harmful chemicals.
Social – The social aspect of ESG deals with how a company manages its relationships with employees, suppliers and customers through its supply chain. In effect, this could mean operating ethical supply chains, ensuring safe working conditions, supporting diversity and paying fair wages.
Governance – This includes factors such as shareholder rights, board diversity and decision-making. High governance standards support transparency and avoid conflicts of interest.
The list of upcoming new EU regulations, along with their changes and amendments is long and diverse! Time is ticking and there’s work to be done. Understanding and knowing how to prepare for the four directives listed below will be key to your brand’s success, and ability to continue to do business in the (not so far) future.
The EU Directives on ESG impacting the fashion & apparel industry
- CSRD: In June of 2022, we covered the EU Due Diligence Regulations and their impact on your supply chain in an attempt to demystify the European Commission’s activities on sustainability legislation. The CSDD has since then been overshadowed by the CSRD – Corporate Sustainability Reporting Directive. The important difference between the two worth noting is that the CSRD directive includes small and medium-sized enterprises within its scope, whereas the CSDD did not. That means a lot more businesses need to pay attention to their operations than was previously decided – not an easy task for a lean brand with little to no resources to combat the data harvesting, alignment and reporting needed. Furthermore, in addition to publishing information regarding environmental and social matters under the new CSRD, companies will have to adhere to more detailed reporting which will be subjected to audits. According to the mandatory EU sustainability reporting standards, companies have to digitally ‘tag’ the reported information according to a digital categorization system. The goal is for sustainability information to be incorporated into the European Single Access Point.
- EPR: The Extended Producer Responsibility focuses on the problem of industry waste. It is a policy through which brands will bear a substantial degree of responsibility in physical or financial form, for the environmental impacts of every item that they produce. It aims to encourage design thinking, taking the complete life-cycle of a garment and accessories into account, and preventing waste at the source. It should support producers in designing environmentally conscious products and being rewarded for limiting waste and incorporating recycling strategies.
- ESPR: ESPR stands for Eco-design for Sustainable Products Regulation and focuses on circularity, and use of resources. This guideline lays the groundwork for establishing eco-design requirements for specific product categories. The goal is to significantly improve the products’ circularity, energy performance and sustainability. Producers will need to meet demands related to the durability, recyclability, reusability, upgradability and reparability, as well as the recycled content of their products. Life-cycle assessment should be used to determine the energy efficiency and resource use, as well as the carbon and environmental footprint of goods. Furthermore, producers are required to identify substances of concern, such as harmful chemicals in their products that could limit their circularity. To increase transparency for consumers and the whole industry, a Digital Product Passport will be introduced for all items. This passport aims to facilitate being able to make conscious decisions as a consumer and also acts as an informative tool for the transition to a circular economy as a whole.
- Textile Labeling Regulation: Regulation (EU) No 1007/2011 covers the requirements for the labeling of products made up of at least 80% textile fibers and intended for sale. It requires that each product’s label needs to explain the composition of the fabric, be clearly legible and have separate information on the textile composition and instructions like product care. This is not new, but merely an update to legislation that has been in place for over ten years, to address outdated aspects such as potential new rules on clothes sizing and the regulation of material names like “vegan leather” (that didn’t exist previously). It will also incorporate new options for digital labeling.
Why Data is king in the world of fashion & apparel
The data used to report on a company’s ESG standards is essential for analyzing whether practices comply with existing and upcoming directives. But most importantly – to succeed in better business practice for the greater good of us all.
Fashion data ranges from information on the product and supplier facilities, all the way to the demand of company revenue. While reporting data on environmental emissions and working conditions during production is necessary for compliance with the CSRD, the ability to have a transparent view of their data can be a struggle and many brands employ the use of cloud-based technology to solve that issue. EPR data will include information on the type of fabric that was used. Data on the recyclability and reusability of a product will be necessary for ESPR, whereas textile components and care instructions are information feeding into the textile labeling regulation.
Top 3 impacts new EU Legislations & Directives will have on your brand?
The upcoming changes in EU legislation seem abstract at first glance, so you may be wondering what this means for your brand. Here are the top three impacts on fashion companies:
- Firstly, you and your producers will need to take responsibility for every single product you create, which means having a legal obligation to consider the afterlife of your items. To move towards a more circular economy, the EU wants to hold producers accountable for what they place on the market.
- Brands need to get acquainted with the digital product passport and what it will require from their business. This part of new ESG directives that falls under the ESPR will require detailed information about every component and method of production per product, to inform the consumer of optimum recyclability. The digital product passport will thus demand that you have a clear overview of all the data around each of your products.
- Lastly, the fashion industry must rethink its approach to design. In the future, the focus will be on products that are versatile, long-living, sustainable, reusable & recyclable; in other words, products that fulfill the ESG criteria. Both upcoming regulations and the rise of the conscious consumer are calling for new design concepts.
New directives shaping the ESG agenda are coming into force by the end of this year or at most, 2025. As a brand, you should familiarize how this will impact your business. Your greatest weapon for surviving upcoming regulations and implementing better ESG practices is to collect and structure your data. This way, you can determine whether your business is complying with the current and upcoming directives, and where there is work to be done. If you’re still unsure about what data you should be collecting, download our 25min webinar on how to Protect your Supply Chain for the Future featuring an exclusive interview with Anne Blirup of Sustaina Company, and learn how to set up the most important data points for your CSRD reporting.