Is Your Fashion Brand "Sustainable"?
Sustainable or ethical sourcing requires fashion companies not only to assess the environmental impact of the production of their goods, but also the treatment of workers in their supply chain and to take action against any human rights issues such as forced labor and child labor. To do so, fashion companies are exploring innovative solutions including blockchain, digital IDs, and third-party supply chain certifications. For example, it has been reported that in October, Chloé became the first luxury fashion brand to achieve B Corp. certification, considered the highest standard certification a company may receive for sustainability and ethical sourcing. Prince Charles has launched a digital ID Certificate that traces a garment through the supply chain. The goal of each of these alternative solutions is the same- to demystify the supply chain for fashion companies. Fashion companies are seeking avenues that provide transparency from raw material to finished goods so that environmental advertising claims are substantiated and to ensure that goods are not produced with forced labor.
Considerations Regarding "Sustainable" Labeling for ESG Compliance
Greenwashing, or marketing claims that overstate the environmental benefits of a product to make it appear more environmentally friendly, has become more common within the fashion industry. Greenwashing can occur when companies claim that products are "sustainable," "green," or "eco-conscious," without adequate substantiation and/or without clearly disclosing the specific environmental benefit associated with the product.
The FTC issued the first set of "Green Guides" in 1992 to provide businesses with guidance to avoid making deceptive environmental claims and to protect consumers. The Green Guides apply to marketers, manufacturers, auditors, wholesale and retail sellers, and are of particular significance to the fashion industry. The FTC enforces the Green Guides, and may initiate an enforcement action against a company for environmental claims that are unfair or deceptive. A summary of some of the Green Guide claims that are most pertinent to the fashion industry include:
- General Environmental Claims: Marketers should not make broad, unqualified general environmental benefit claims like "green" or "eco-friendly" that are difficult to substantiate. General claims should be qualified with specific, clear, and prominent environmental benefits.
- Recycled Content: Marketers should make recycled content claims only for materials that have been recovered or diverted from the waste stream during the manufacturing process or after consumer use. The percentage of recycled content should be specified.
- Made with Renewable Materials: Unqualified claims about renewable material may imply that a product is recyclable, made with recycled content, or biodegradable. Marketers should qualify renewable materials claims unless an item is made entirely with renewable materials.
The FTC announced that it intends to revise the Green Guides in 2022. While the FTC has not yet indicated any specific focus areas for the revisions, the agency may revisit some of the categories of claims it considered but declined to cover in the 2012 revision, such as "sustainable," "organic," or "natural." Fashion companies will need to evaluate supply chains in order to ensure that their ESG claims are in compliance with the FTC Green Guides.
Considerations Regarding Forced Labor for ESG Compliance
Over the past year, CBP has escalated its enforcement against forced labor. CBP has issued withhold release orders (WRO's) that may cover finished garments or raw materials used in the production of fashion products. These products are banned from importation into the US unless the importer can prove that the goods were not produced with forced labor or subject to the WRO:
- November 30, 2020: WRO covering cotton and cotton products manufactured by Xinjiang Production and Construction Corporation and its subordinates.
- January 13, 2021: A more comprehensive WRO covering the cotton and downstream products manufactured in the Xinjiang Uyghur Autonomous Region ("XUAR"), China.
The WRO's targeting cotton and cotton products alone have reportedly resulted in over 1,000 detentions at the border valued in the hundreds of millions of dollars. Apparel products have been detained even though the finished garments were not manufactured in the XUAR region or even in China, and have been detained even if the garments contain a minuscule percentage of XUAR cotton. In the event that CBP detains a company/importer's garments, the importer may either export their products (19 CFR § 12.44) or contest the detention.
To contest the detention, the importer must, within three months of detention, submit a certificate of origin signed by the foreign seller or owner of the article, and a statement by the ultimate consignee of the merchandise showing that it made every reasonable effort to determine the source of the merchandise and every component thereof. Additionally, CBP requires the importer to submit comprehensive procedural and transactional information/documentation for the entire supply chain of the finished garments that were detained. It may not be sufficient to prove that the product came from a country/region/vendor that is not listed on the WRO. Each stage of production and the source of each raw material must also be documented fully.
What Can Fashion Companies Do to Support "Sustainable" Marketing Claims
Our team regularly assists fashion companies to proactively take steps to substantiate claims of sustainability from both an environmental and ethical employment perspective:
- Evaluate and map supply chains from raw materials to finished goods;
- Review and assess substantiation for sustainability and environmental advertising claims;
- Establish an internal policy relating to the prohibition of forced labor;
- Develop sustainability and forced labor vendor policies and draft POs and contract language;
- Explore Tracing Technologies;
- Conduct on-site vendor audits.
Smart In Your World
Arent Fox’s Fashion & Retail and Forced Labor groups will continue to monitor this issue. If you have any questions, please contact Angela M. Santos, Christine E. Hintze, or the Arent Fox professional who usually handles your matters.