Decoding the EU's Ambitious Plan for Fashion Sustainability
Laws across the European continent are being put in place to ensure that companies (especially within retail and fashion) are held to the highest standards.
This is part 2 in a series called Global Fashion Governance where I explore the laws and policies shaping the fashion industry. Click Here to read part 1. Please note that I am not a lawyer and this is not meant to be taken as legal advice.
In 2023, the European Parliament passed a comprehensive set of laws and regulations called the Corporate Sustainability Due Diligence Directive (aka CS3D.) This comprehensive directive states that companies based in, or those that do business in, EU member countries can be held to a high standard to manage 1) how companies treat employees and vendors and 2) lessening their negative impact on the environment. Plenty of clothing companies are unfortunately not strangers to human rights violations, including brands like Foot Locker, Nike, and LVMH, but the recent string of investigations is more proof that leading policymakers needed to take note and take action a long time ago.
These laws apply to companies with 1000+ employees and net worldwide turnover (i.e. top line revenue) of €150m or more. There are definitely ways that companies can get around these thresholds so I anticipate that we’ll see several iterations of these regulations as they go into practice. Furthermore, the “Due Diligence” part of the CS3D is framed as such because it’s the companies themselves that will need to conduct thorough investigations into their own workforce and supply chains to ensure compliance. At the time of this publication, 20 countries have approved them within their respective countries leaving just Austria, Malta, and Portugal to get their act together.
Human Rights
CS3D is incredibly verbose overall, and makes sure to include protections for people. “Examples of human rights topics that may come up within the scope of the Directive include privacy, working conditions, child labor, forced labor, human trafficking, freedom of association, and discrimination.1” Going through each and every aspect is too cumbersome for this discussion, so let’s stick with one very important point: child labor. UNICEF has been very involved in the planning and influencing of various parts of this initiative from the start. It is their belief that this will encourage businesses to not play passive or active parts in the mistreatment of children. They have listed out the specific ways this can and should manifest. At a high level:
Children’s rights and the UN Convention on the Rights of the Children form the legal basis of the due diligence obligation
EU Member States need to take steps to facilitate children’s access to justice
Children need to have their views considered as part of companies’ sustainability due diligence
Children can submit complaints for adverse impacts on their rights
Companies will have to integrate children’s rights in their sustainability due diligence
Addressing the root cause of adverse impacts on children’s rights is a key to a fair and sustainable global economic system2
Environmental Impact
While the United States seems to flounder every four years on how it perceives climate change based on who the president is, the EU is very clear on its stances around the environment and the negative impact businesses place on it. The environmental laws within the CS3D are in full alignment with the Paris Agreement:
“The prohibitions and obligations in the Annex pertain to, among other things, environmental degradation; biological diversity and endangered species; the manufacture, import, export, use and treatment of mercury; the production and use of persistent organic pollutants; unlawful handling, collecting, storage and disposal of waste; the import or export of hazardous chemicals; the production and consumption of specific substances that deplete the ozone layer; exporting and importing hazardous waste; wetlands; and pollution from ships and of the marine environment.”
However in a similar vein as the US, the EU is also going after what they call persistent organic pollutants (POPs). These are chemicals that European scientists have studied and confirmed these chemicals have negative effects on people and wildlife and linger in the environment for an extended period of time - usually years. There is a healthy overlap between POP and the PFAS that we discuss in the states, but the two aren’t an exact match.
Fines and Sanctions
One of the most daunting aspects of this decree is how much companies can get fined. Instead of having a flat fee brands would have to pay if caught breaking this exhaustive list of regulations, they could be forced to pay 5% or more of their yearly revenue. There are also explicit clauses that protect whistleblowers which will hopefully encourage more people to come forward and report further wrongdoing.3
Two weeks ago, the European Parliament voted to delay the full CS3D implementation. It will still happen, but companies now have until 2028 to reach full compliance, along with a few other stipulations like simplifying how many data points need to be disclosed and streamlining the verbiage so everyone is on the same page. Regardless of how executives at many brands feel, this change is coming. Given how many companies around the world who operate in, or have part of their supply chain in an EU member state, these laws will have dramatic effects on the fashion industry moving forward. On average, I do expect this due diligence will increase costs overall (be it for using higher quality vendors or putting people and processes in place to execute the diligence itself), so it will be up to organizations to streamline operations to find savings, less they decide to pass yet another cost onto the customer.
EU Corporate Sustainability Due Diligence Directive Effective Date Set – A Deep-dive and Baker’s Dozen of Take-aways for U.S.-based Multinationals - Ropes & Gray Law Firm
The EU corporate sustainability due diligence directive: How to implement it for children’s rights - UNICEF
Corporate sustainability due diligence: penalties and enforcement under the CS3D - Pinsent Masons Law Firm