ESG Compliance in Sustainable Fashion

The Importance of ESG Compliance in Sustainable Fashion

• ESG (Environmental, Social, Governance) are the non-financial dimensions of corporate performance, including good governance, environmental sustainability, and social responsibility.
• ESG compliance is important for risk prevention, including direct and indirect non-compliant behaviors, and for addressing non-financial risks that have become financial risks, such as climate risks and reputational risks.
• ESG compliance is also a legal obligation, with criminal liabilities of legal persons and the potential impact of corporate scandals beyond reputation.
• ESG compliance provides opportunities for visible corporate ethics, social legitimacy, improved stakeholder relationships, and enhanced corporate reputation.
• Compliance with ESG regulations and self-regulations in the fashion industry has increased in intensity and volume, including good corporate governance, human rights in supply chains, diversity and non-discrimination in the workplace, environmental management systems, and sustainability reporting.
• Greenwashing, or misleading claims of sustainability, is a concern in the fashion industry, with more than half of examined claims lacking sufficient information, and 42% potentially false or deceptive.
• Soft law, such as self-regulations at sectoral and corporate levels and international principles and frameworks, impacts sustainable fashion, while hard law, such as European directives, provides legally binding and judicially controlled norms.
• The 2022 proposal for a Directive on corporate sustainability due diligence aims to increase regulation for business and human rights, with Member States responsible for supervision and potential fines for non-compliance, and the opportunity for victims to take legal action.
• The non-financial reporting directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD) provide increased regulation for non-financial (ESG) performance reporting.
• The 2018 revision of the Waste Framework Directive includes an obligation on Member States to collect textiles separately by 1 January 2025, increasing regulation for circularity in the fashion industry.
• ESG compliance is important for sustainable fashion to address non-financial risks, provide opportunities for ethical and socially responsible business practices, and comply with increasing regulations and self-regulations.
• Sustainable fashion requires a holistic approach to ESG compliance, including good governance, environmental sustainability, and social responsibility, to address the environmental and social impacts of the fashion industry and promote a circular economy.