In January, members of the New York General Assembly introduced the Fashion Sustainability and Social Accountability Act (“Fashion Act”), which creates environmental and social governance reporting requirements for multinational fashion retail sellers and manufacturers. The law will apply to global companies with more than $100 million in revenue that are doing business in New York. If passed, New York will be the first state in the country to address the impact of the fashion industry on climate change.
Due diligence requirements
As currently written, companies will be required to undergo extensive social due diligence and comply with numerous reporting requirements. First, companies must map a minimum of 50 percent of their supply chain, from the origination source for raw materials to the factories that create the garments. Then, they would need to identify where in this chain the largest social and environmental impact is made and outline concrete steps to reduce that impact. The Fashion Act also requires companies to disclose their material production volumes.
When reporting, companies must disclose everything from greenhouse gas emissions, energy, water, and plastic use, chemical management, to fair wages. Greenhouse gas emissions reporting would be required to conform to universal environmental accounting standards set forth by the Greenhouse Gas Protocol Corporate Standard and the GHG Protocol Scope 3 Standard. Social due diligence protocol must align with the United Nations guiding principles for business and human rights. Disclosures pursuant to the Fashion Act must also be posted on the companies’ websites with an easily accessible link.
If the bill passes, companies would be given 12 months to comply with the mapping directive, and 18 months to make the required disclosures. Violation of the law would subject companies to a fine of up to 2 percent of their annual revenues. Money generated from fines would go to a new environmental justice-focused community fund administered by the Department of Environmental Conservation.
The Fashion Sustainability Act is currently under committee review in the New York State Assembly, and sponsors aim to bring it to a vote in late spring 2022.
This legislation, if passed, will bring all multinational fashion companies under one standard for reporting ESG efforts and will impose extensive compliance obligations. Companies may need help navigating these new due diligence requirements.
If you have questions regarding what this legislation could mean for your company, please contact Meryl Bernstein or Hadley Dreibelbis.
Authored by Meryl Bernstein and Hadley Dreibelbis.