Against the backdrop of increased government scrutiny of fashion supply chains, including recent Congressional inquiries and US Customs and Border Protection detentions of cotton products and apparel, New York lawmakers reintroduced a nearly verbatim 2023 version of the 2022 Fashion Sustainability and Social Accountability Act that had stalled in the last session.

Background: Fashion Sustainability and Social Accountability Act Fundamentals

The Act aims to hold fashion retail sellers and manufacturers accountable for their social and environmental impacts through broad supply chain due diligence and public reporting requirements.

The fashion industry recognizes the need for ethical sourcing. However, given the Act’s extensive supply chain due diligence requirements in an industry with deep and opaque supply chains, many in the fashion industry were relieved when the 2022 version of the Act did not move forward due to lack of support. Given New York’s significant role in the fashion industry, passage of the Act would fundamentally alter how the fashion industry operates not only in New York, but globally.

What Could the Act Mean For You?

As detailed in a previous alert, the Act has four key elements: (1) supply chain mapping, (2) due diligence, (3) adverse impact disclosures, and (4) targeted impact reduction.

Supply Chain Mapping

Under the Act, apparel and footwear retailers that operate in New York with a global revenue of at least $100 million would be required to map their supply chains and subsequently address and remediate the supply chain issues. Fashion companies must use a risk-based approach to trace and map 50% of their suppliers by volume across all tiers of the supply chain. This exercise will be challenging for fashion companies, many of which traditionally did not have relationships with suppliers beyond the second tier. The Uyghur Forced Labor Prevention Act (UFLPA) and other supply chain related legislation and initiatives are already compelling fashion companies to engage suppliers for more supply chain transparency and to seek traceability solutions, such as artificial intelligence technologies. However, this process takes time and significant capital investment.

Due Diligence

The Act demands a comprehensive due diligence program under which brands would be required to identify, cease, prevent, mitigate, account for, and remediate actual and potential adverse impacts to human rights and the environment in their own operations and supply chain. Importantly, the remediation requirement makes this Act far more stringent than those of California’s Transparency in Supply Chains Act, which mandates robust supply chain disclosures. Further, companies would be required by the Act to submit due diligence reports to the attorney general listing the mean wages of all workers in the supply chain and how those wages compare with local minimum and living wages, the percentage of unionized factories, the hours worked weekly by month, and the hours and frequency of overtime by firm and country. This would require fashion companies to go far beyond the traditional supplier relationship to obtain supplier labor records and documentation.

Fashion Remediation Fund

The Act calls for a fashion remediation fund to be controlled by the state’s comptroller, commissioner of taxation and finance, commissioner of environmental conservation, and the commissioner of labor. This fund will consist of monies tendered by fashion sellers found non-compliant under the Act and required to pay fines to the attorney general up to 2% of their annual revenues. The 2% fine is significant in an industry that often operates on single figure margins.

Adverse Impact Disclosures

If passed, the Act will require brands to identify, prioritize, and assess the significant potential and actual adverse impacts resulting from risks that stem from their business activities and supply chain relationships. The adverse impacts must be included in due diligence reports.

Targeting Impact Reduction

The Act would require fashion companies to establish short-term and long-term quantitative baseline and reduction targets on greenhouse gas emissions. These targets would need to be included in the due diligence reports, along with a disclosure regarding whether the targets were met. Fashion sellers that are not in compliance with their targets would have 18 months to remedy their emissions.

Takeaways

As mentioned in our prior alert, this legislation is part of a broader trend of increased scrutiny and regulation in the fashion and retail industry. If passed, the Act could have significant repercussions for brands particularly in the way of supply chain monitoring and due diligence requirements, having the potential to change the landscape of the industry and fashion company supply chain responsibilities. Regardless of whether the Act is passed, in light of this trend, companies should review their supply chain diligence programs.