US states taking ESG legislation into their own hands

In the coming months, members of the New York State legislature appear poised to pass The Fashion Sustainability and Social Accountability Act. The bill, currently making its way through the State Assembly, would require any company with more than US$100 million in annual revenue that does business in the State of New York to disclose its supply chain sustainability risks and its plans to mitigate them. “The Fashion Act,” as it is also known, does this by requiring companies to identify their business’ most critical climate and human rights impacts, and therefore the areas in which they have the most leverage to inspire positive change. If passed, the bill also would require all large, global fashion and apparel companies to map at least half of their supply chains by volume and disclose supplier names, significant tasks considering the sprawling complexity of the industry’s global sourcing and production scene.

The Fashion Act is part of a global legislative trend mandating increased transparency in supply chains and risk-based approaches by companies atop those chains to prevent abuses at the supplier level. These laws help companies proactively assess and mitigate their own social and environmental risks on a level playing field, and they help investors, academics, labor and environmental rights advocates, and regulatory officials better understand which companies are performing highly—and which companies are lagging.

The UK, France, and Australia already have enacted cross-industry laws focusing on labor rights, and the European Union is set – albeit after a long delay – to pass its own rule, which would apply to all member states of the bloc. In the United States, with Congress gridlocked and prospects for significant bipartisan action grim, State-level policies have become a primary avenue for innovate legislation. Indeed, State laws often become national laws if they prove effective and popular.

The Fashion Act follows on the heels of recently enacted state laws meant to protect social and environmental rights. California’s SB62, which went into effect on January 1st of this year, requires employers in the garment industry to pay workers an hourly minimum wage rather than a “piece-rate,” an industry practice that ties wages to output rather than time worked. In 2021, Maine and Oregon passed “Extended Producer Responsibility” laws requiring manufacturing companies to foot the cost of disposing of materials they produce that cannot be recycled. California also passed a law banning companies from using the famous “recycling” arrows for products that are technically recyclable but which for practical purposes will end up in a landfill. And at least nine states have now passed organics laws requiring that food scraps be diverted from landfills.

The proposed requirements set out in legislation like the Fashion Act are part of a forward-looking, risk-based approach to supply chain management and sustainability. These supply chain laws are sending a message that basic reporting is no longer enough. In today’s world successful companies must have procurement practices and policies in place that account for social and environmental risks and promote sustainability and human rights through transparency and remediation.

With the pace of such legislation increasing at an unprecedented rate, it can be difficult for companies to understand increasingly complex regulatory landscapes. LRQA (formerly ELEVATE LTD) works with hundreds of corporate clients on supply chain compliance and best practices and helps customers around the world understand and operationalize their responsibilities under new laws like the Fashion Act.

LRQA (formery ELEVATE LTD) offers a variety of solutions for companies looking to establish or improve upon responsible sourcing and risk management. Together, these offerings help companies embed responsible business conduct into their DNA.

1. We work with companies across the world to enable ESG supply chain management. Through supply chain analysis and prioritization, we guide companies on ways to maximize the positive impact they have on suppliers in their procurement networks, to work with suppliers to incentivize change, and to implement on-the-ground interventions to address prevalent social or environmental risks. We also support companies in developing and implementing human rights due diligence and sustainability frameworks.
2. LRQA (formerly ELEVATE LTD)’s proprietary supply chain intelligence platform EiQ helps companies identify and evaluate supply chain risks, prioritize supplier auditing based on country and product category risks, and track and monitor supplier and site performance. Through EiQ, companies can track and monitor specific suppliers’ performance on individual metrics – such as median wage per factory – and can use this information in their regulatory, legal, and voluntary disclosures and in remediation activities.
3. We help our clients complete due diligence disclosures on social and environmental sustainability and human rights. Standard business reporting frameworks and metrics often are insufficient to fulfil disclosure requirements mandated by new laws. LRQA (formerly ELEVATE LTD) has created a methodology for data-driven sustainability progress reporting that can be used to fulfill key legislative requirements, meet expectations of rating and ranking agencies and benchmark standards, and align with international frameworks and standards such as the Due Diligence Guidance for Responsible Business Conduct of the Organisation for Economic Co-Operation and Development’s (OECD) and the UN’s Guiding Principles on Business and Human Rights.

For more information on the NY Fashion Act or how LRQA (formerly ELEVATE LTD) can help your company navigate the ESG world and promote human and environmental rights in supply chains, please contact us.