Niche sustainable business models will soon become the new way of doing business

Niche sustainable business models will soon become the new way of doing business

The past few years have been transformational for the apparel sector in terms of changing expectations on human rights and sustainability. But this is just the beginning, according to Anna Triponel, who looks at the story so far and the new chapter starting in 2021.

Even if we set to the side the disruptions caused by Covid-19 in just the last 12 months, it is safe to say that those working within apparel companies have seen significant change to their industry over the past few years. With the shifting regulatory landscape, increasing transparency about what's actually happening on the assembly line, the growing investor and consumer push for sustainability, and the proliferation of civil society rankings, there has been much to contend with in the areas of business, human rights and the environment.

But hold your hats, because the real change has just started: the next five years will be even more transformational for the sector. The good news is that, contrary to how we might be feeling about the uncertainties delivered by the Covid-19 pandemic, we know where this is going, and we also know what we can do to manage it.

So, what has happened, and what do we need to do next?

In this two-part series, I'll share anonymised insights I've garnered from many leading apparel companies I've had the privilege of working with over the last ten years, since my work on the UN Guiding Principles on Business and Human Rights. In Part 1, I'll delve into the story so far in human rights and sustainability and the new chapter starting in 2021. And in Part 2, I'll look at how apparel companies can best prepare and hope to inspire others on their journey.

The story so far

Transparency of supply chains
Apparel companies are expected to know which suppliers are providing them with materials and goods, and to be open about provenance. Driven in part by initiatives such as the 2016 Transparency Pledge, apparel and textile businesses have become more vocal on the subject of supply chains. In addition to listing first tier, and even at times second tier, suppliers on their websites, this has extended at times to employing tools and databases – such as the Open Apparel Registry – to enhance transparency and map facilities worldwide. At the same time, deeper layers of the supply chain are usually still opaque, especially in places where sub-contracting and use of homeworkers is common. As an aside, apparel companies report that their supply chain mapping work benefitted them during Covid-19, because of how it helped make potential pain points and supply chain disruption visible.

Ranking of companies
In parallel, we have seen apparel companies ranked and evaluated for what they say, and how they are seen to respond to human rights and environmental concerns. Ranking of the sector is in fashion, as demonstrated by the Fashion Transparency Index, which ranks 250 of the world's largest fashion brands and retailers based on their disclosures; KnowTheChain's Apparel and Footwear Benchmark, which ranks 43 companies based on their efforts to address the risk of forced labor in supply chains; and the Corporate Human Rights Benchmark, which ranks 30 of the largest apparel companies based on their implementation of the UN Guiding Principles. And in response to the spotlight on how supply chain workers are impacted by Covid-19 related reduction in orders, the Business & Human Rights Resource Centre's (BHRRC) recent dashboard provides information on how 275 of the largest global fashion and textile companies are viewed as protecting garment workers' rights in their supply chains – based on information collected over the last 18 years.

Transparency of modern slavery efforts with suppliers
In parallel, expectations of business captured in soft law endorsed at international levels (in the form of the UN Guiding Principles on Business and Human Rights) have paved the way for workforce transparency laws. The UK Modern Slavery Act of 2015, the Australian Commonwealth Modern Slavery Act of 2018, and the California Transparency in Supply Chains Act of 2010 all sought to acknowledge that around the world, considerable numbers of workers are caught in jobs that they want to leave but are unable to, for various reasons – be that a threat of harm or hardship, or because they've paid a high recruitment fee locking them into lengthy repayment schedules.

While these modern slavery acts provide guidance on what is expected, following the soft law expectations, they focus on enhancing disclosure by companies of what they are doing to tackle modern slavery – both in their operations and with their suppliers. These laws put the onus on investors, consumers and civil society to drive change, based on company disclosure, rather than seeking to compel companies to take specific actions. That is starting to change.

Modern slavery expectations with teeth
Following a 2015 revision to the 1930 US Tariff Act, the US Customs and Border Protection can now stop goods from being imported into the US that are suspected to be the result of forced labour. This is a legal move that can pave the way for potentially significant disruption to apparel companies' businesses. Last month, the US announced that no cotton goods can be imported into the US from Xinjiang, or from other countries that contain cotton from Xinjiang, because of the likelihood that they are produced using the forced labour of Uyghurs, a predominantly Muslim group subjected to mass internment in China.

And – although not akin to stopping goods at borders – we are slowly, but surely, seeing disclosure-related laws become stronger too. The Home Office for instance has committed to strengthen the UK's Modern Slavery Act, by in particular compelling disclosure of certain areas, alongside the creation of a Government-run reporting service which will publish all company statements.

Broader human rights laws
In 2017, France became the first country to create a new duty by law in this area: large French companies are now requested to identify and prevent adverse human rights and environmental impacts. This extends to activities of their subcontractors and suppliers with whom they have an established commercial relationship. We have started to see lawsuits being initiated – including against XPO Logistics, a transportation and contract logistics company that manages supply chains, including those of apparel companies.

Environmental expectations
And from the environmental perspective, the expectations on the industry from the 2015 Paris Agreement – combined with growing awareness of the impact of the apparel sector, has brought enhanced emphasis on the fashion industry's business models. A recent report by the European Environment Agency found that textile production was the fifth worst industry for greenhouse gas emissions, the fourth worst for use of primary raw materials and water, and the second worse when it came to land use.

Waste less, recycle more became the buzzwords of the European Commission for the textile industry, identified as a key sector in its industrial strategy for a transition to a circular economy. The commission's plan emphasises the drive to new business models focused on sorting, reusing and recycling of textiles, allowing consumers to choose sustainable textiles, and making clothes last longer. The fashion industry is already moving to meet this new demand, with a raft of new commitments and products to contribute to a circular economy.

2021: The next chapter in human rights and sustainability

The next phase for the textile and apparel industry will be an accentuation and amplification of what we have been seeing to date.

A new mandatory due diligence regime
2021 may very well be remembered as the year when soft law related to company responsibility became hard law. Ten years on from when the UN Guiding Principles became soft law, by virtue of their endorsement by the UN Human Rights Council, the European Commission will seek to regulate company conduct in the areas of human rights and the environment. The European Commission is consulting on what this law will look like, but if the European Parliament's Committee on Legal Affairs proposed text is anything to go on, the corporate due diligence and corporate accountability directive will be ambitious.

Once transposed into national law by EU Member States, EU apparel companies, as well as possibly those selling their goods into the internal market, could see themselves required to conduct due diligence on human rights, the environment (including climate change) and governance risks in their operations and supply chains. They may also be subject to specific requirements, such as engaging stakeholders and trade unions, creating grievance mechanisms, providing remedy, and ensuring boards and senior managers have the necessary responsibility and expertise. Make no mistake: the ramifications of such a law will be global, both because of its potential application to any apparel company looking to sell to EU customers, as well as its influence on the direction of travel for laws elsewhere.

We are also likely to see some movement beyond the borders of the EU. With the Biden Administration's creation of new, high-level positions on climate change, inequality, gender and more – not to mention the re-accession of the US to the Paris Agreement and some early commitments on strengthening the green economy and promoting US manufacturing – global apparel companies should also be keeping an ear to the ground on potential new regulations and policy initiatives.

New business models
This new due diligence regime, which covers both environmental and human rights risks, will also serve to reinforce changes brought on by the European Green Deal. Over time, we will start to see what were previously viewed as niche sustainable business models become the new way of doing business. Business models that reduce waste and recycle fibres and materials; that rely on circular models of production; and that are premised on reusable, durable and repairable clothes will start to become the name of the game. 

Click here to read Part 2, which looks at how apparel companies can best prepare for this new chapter.

About the author: Anna Triponel has spent her career connecting the dots between business and human rights, helping equip companies, lawyers and investors with the culture, skills and processes needed to place people at the heart of how business gets done. A (non-practicing) lawyer previously qualified in New York, England and Wales and France, and the founder of a boutique business and human rights advisory services firm, she has been working to break down silos within companies and investors to equip them to play a role in building a resilient, inclusive and net zero carbon future through their business.