Increasing Agility: ESG Regulators Catch Up to Fast Fashion

 

In the early 1990s, Zara laid out a mission to get clothing from the design stage to store shelves in just 15 days–and the novel concept was hailed as revolutionary. Now, some 30 years later, we are finally grasping the full scope of the harm of fast fashion.

Fast fashion has a big ESG problem, and it’s finally making waves in the regulatory world. As ESG continues to proliferate as a core value and risk management benchmark, regulators are closing in on multiple industries. Fast fashion, however, has seen a uniquely compressed timeline for ESG enforcement, and it’s worth a deeper look to consider the implications for all industries moving forward.

Explaining fast fashion

The term “fast fashion” refers to the lightning-quick design, production, sale and marketing of clothes to offer consumers dirt-cheap prices and an immense variety of styles plucked straight from the runway. Like it or not, we’re all part of fast fashion’s orbit. Anyone who’s scooped up a cheap shirt off store shelves or online in the past several years has participated in the phenomenon.

The ESG implications

It takes immense resources and hard labor to create the clothes we wear. The fashion industry was responsible for a full 10 percent of global carbon emissions in 2019 alone, putting it on par with the entire European Union. We also know that 85 percent of textiles end up in landfills each year. Here are some other critical environmental impacts of the industry.

  • Water: One shirt takes about 700 gallons of water to produce, and a pair of jeans takes 2,000. Textile dyeing is also the second-worst water polluter, contaminating local waterways.
  • Microplastics: The synthetic fibres used in fast fashion, such as acrylic, nylon and polyester, take hundreds of years to biodegrade. Additionally, more than a third of all microplastics in our oceans comes from washing our synthetic fabrics.
  • Emissions: Turning plastic fibres into fabrics takes a significant amount of petroleum and the process releases toxic compounds into the air. Additionally, carbon emission from worldwide distribution and transport throughout the supply chain is staggering.

Not only does fast fashion consume an immense amount of energy, release thousands of tons of carbon and contaminate ecosystems, but it’s also an industry rife with human rights abuses. Child labor, rights violations, low pay and subhuman working conditions are all social issues that have surfaced repeatedly among the top industry players, and it’s often these issues that spur consumers to demand accountability.

The psychological drive behind consumer ESG demands

One of the unique factors that have driven the rapid adoption of ESG goals and standards for the fashion industry is that people have a unique connection to their wardrobes. Those who prefer fashion to mere functionality often view their clothing as self-expression; a way to help broadcast who they are as a person. So finding out your favourite affordable brand is contaminating the planet and exploiting fellow humans is more of an emotional blow than with other types of products.

With the rise of ESG, consumers are more invested in knowing where their clothes are coming from, how they’re made and by whom. As far back as 2012, H&M was accused of egregious labor rights violations in Uzbekistan, Bangladesh and Cambodia, including child labor and injurious manufacturing practices. The company has also faced multiple accusations of paying poverty wages to its retail workers throughout the years, and in 2021 was heavily boycotted along with Nike in China over their forced labor in cotton-picking–one of the most high-risk materials for workers to harvest. Even in 2022, accusations of poor worker treatment persist in regard to payment, contracts and conditions. Likewise, Zara is facing heavy scrutiny for forced labor in Brazil and Xinjiang, China.

The issue of Uyghur forced labor is so prevalent that it spurred the drafting and signing of the Uyghur Forced Labor Prevention Act (UFLPA). Signed on December 23rd, 2021, the Act prohibits imports of any product made with forced labor in Xinjiang.

Many pledges, questionable progress

Because the emotionally-charged nature of ESG failures in fashion spurs consumers to boycotts more rapidly than other industries, fast fashion companies have been forced to quickly turn around a variety of pledges to create less waste and treat workers better. There have been several laudable initiatives, such as:

  • Levi’s Water< Fewer jeans, made using up to 96 percent less water waste through 20 innovative techniques.
  • The Gap for Good program, helps educate garment workers with skills, knowledge and resilience for a better quality of life.

However, there have also been some questionable ESG marketing tactics that are landing fast fashion companies in the crosshairs of regulators.

H&M has swept industry headlines following an investigation into its sustainability claims, forcing the company to remove the incredibly vague terms “Conscious” and “Conscious Choice” from its labels and provide donations to sustainable causes. In July, the U.K. Competition and Markets Authority (CMA) launched an investigation into three fast fashion companies marketing their products as environmentally friendly–and it may take up to two years to complete. One of the three companies is Boohoo, which has recently named Kourtney Kardashian Barker–noted for her frequent use of private jets–as a “sustainability ambassador”. This is just one example of marketing tactics that don’t line up with the ethics of ESG.

Mounting regulatory action

Regulators are moving with unprecedented swiftness to rein in the damage from fast fashion, and here are just a few of the proposed requirements the industry will have to accommodate in the coming years.

With regulators closing in quickly, fast fashion is scrambling to quantify and codify its approach to ESG. Although the rapid response to ESG failures in the industry is partially catalyzed by the hammer of consumer sentiment, it’s also an indicator that regulators are becoming savvier about ESG overall. All industries that rely on international supply chains should take the example of fast fashion as a warning that it’s time to invest in real transparency and supply chain governance to defend against increasingly agile regulators in the years to come.

 

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