Economic Undertakings

a general overview of the EU framework on environmental, social and governance criteria in the fashion industry

Brussels – More and more fashion companies are announcing programs with ambitious objectives (some more than others) in connection with environmental, social and governance criteria. Recently, ASOS launched its Fashion with Integrity (FWI) 2030 program, committing to achieve net zero across the entire value chain by 2030. In addition, consumer demand is not lagging behind, urging fashion companies to change the way they run their businesses and minimize the environment. while keeping track of human rights and labor practices throughout the production and supply chain.

This series of contributions aims to provide an overview of the most pressing ESG issues and challenges in the fashion industry. This contribution will provide a general overview of the EU ESG framework and initiatives. Next, we will discuss the impact of the ESG framework in practice, the rules governing green and awake washing, the collaboration between companies to achieve sustainability goals, and the new set of regulations governing product labeling in the industry. fashion industry.

As textiles are the fourth most requested category for the use of primary raw materials and water, after food, housing and transport, and the fifth for GHG emissions, a conscious and effective ESG policy is needed. therefore a priority for many fashion companies and is increasingly important to shareholders, investors and customers. In addition, legislators are not left out and many recent initiatives, especially at EU level, will have an impact on sustainable business development policies. The EU has set itself the ambitious target of reducing its emissions by at least 55% by 2030 and achieving climate neutrality by 2050. A host of recent EU initiatives have been taken in this area, in particular the EU action plan for financing sustainable growth (March 2018), the Green Deal (December 2019), the Proposal for a European climate law (March 2019), the Circular Economy Action Plan (March 2020), the Farm to Fork Strategy (May 2020), the Climate Pact (December 2020)) and the EU Sustainability Disclosure Regulation (March 2021). In April 2021, the European Commission presented its new Sustainable Finance package, intended to help improve the financing of sustainable activities in the European Union. And more recently, the Fit for 55 pack was launched on July 14, 2021. This set of proposals aims to make EU policies on climate, energy, regional planning, transport and taxation capable of reducing net greenhouse gas emissions by at least 55%. by 2030, compared to 1990 levels. ## 1. The EU legislative framework in general While the concept of ‘ESG’ is now widely understood, some confusion remains as to the factors environmental, social and governance issues that should be taken into account in the EU’s sustainability goal, and which legislative instruments should regulate the different aspects of ESG. Additionally, a lack of transparency, accountability and comparability makes it difficult for investors to fully understand the financial risks resulting from the various sustainability-related crises we face, and to proactively seek investment opportunities to resolve environmental and social issues. The 2019 Communication on the European Green Deal is the EU’s response to our current climate and environmental challenges. This Communication proposes a series of measures and legislative instruments aimed at transforming the EU by 2050 into a modern, resource efficient and competitive economy, without net greenhouse gas emissions, and where the economic growth is decoupled from the use of resources. It also aims to protect, conserve and improve the EU’s natural capital and to protect the health and well-being of citizens from environmental risks and impacts. The Green Deal seeks to achieve a socially just transition to a sustainable economic system by providing a mechanism and a fund for a just transition, focusing on the regions, sectors and citizens most threatened by this transition. In July this year, the European Commission adopted a set of proposals to adapt EU policies on climate, energy, land use planning, transport and taxation to a reduction in net emissions greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. In addition to a proposal for an extensive emissions trading system, a effort-sharing regulation, a regulation on land use, forestry and agriculture, the dossier also contains proposals for directives on renewable energies and energy efficiency. By 2030, the European Commission has set a target of producing 40% of the EU’s energy from renewable sources. As significant investments are needed to meet the climate and energy goals that have already been set for 2030, public and private finance will need to be explored and facilitated. Therefore, as one of the first steps in the strategy towards sustainable growth, the European Commission has revised the Directive on Non-Financial Reporting (2014/95 / EU, see below for more details). Disclosure of non-financial information should help measure, monitor and manage the performance of companies and their impact on society. In turn, this should allow investors to direct financial and capital flows towards green, social and broadly sustainable investments. To further encourage ESG commitments, investments and sustainable growth, the European legislator has developed a common language and definition of what is considered “sustainable” in the EU Taxonomy Regulation (2020/852). This regulation, which established a framework to facilitate sustainable investment, will be amended, updated and supplemented over the coming months and years. Currently, it establishes a classification system for ecologically sustainable activities in relation only to the objectives of climate change mitigation and adaptation to climate change. In the near future, the regulation will be amended to cover other objectives as well – relating to pollution prevention, the transition to a circular economy, the sustainable use and protection of water, and the protection and restoration biodiversity and ecosystems. Finally, on April 21, 2021, the European Commission announced its Sustainable Finance Package, which aims to provide the legal foundation and framework to create a sustainable EU financial ecosystem. The emphasis is on increased transparency and the provision of tools enabling investors to identify sustainable investment opportunities. Such opportunities have a key role to play in channeling private investments (in addition to public funding) for a successful transition to a climate neutral, climate resilient and equitable economy. ## 2. The EU strategy for textiles As part of the EU Green Deal, the European Commission has introduced one of the means which will be particularly relevant in the context of the fashion industry. The action plan for the circular economy (published on March 11, 2020) seeks to change the landscape from a linear industry towards a circular economy. With a focus on resource-intensive sectors (including textiles), the Circular Economy Action Plan includes a “sustainable products” policy to support the circular design of all products based on a methodology and common principles, as well as a “right to redress”, and measures to empower consumers to make informed decisions and play an active role in the ecological transition. By prioritizing the reduction and reuse of materials before recycling them, and by encouraging new business models with innovative products / services, the Circular Economy Action Plan aims to prevent placing on the market of products harmful to the environment. More specifically, the development of ecodesign measures will be encouraged to ensure that textile products are suitable for circularity. To reduce waste and avoid the loss of value of materials, the circular economy action plan aims to ensure the use of secondary raw materials and allow consumers to choose sustainable textiles and have easy access to services. reuse and repair. As a second point of action, the European Commission encourages companies to move away from the fast fashion business model and find other ways to offer textile and fashion products, including by offering incentives and support to product-as-a-service models. On the waste side too, Member States will be obliged to put in place a system to achieve high levels of separate collection of textile waste. By 2025, the production of waste in the textile industry should be minimized as much as possible. Sorting, reuse and recycling of textile products will be key to achieving these goals, along with regulatory measures and extended producer responsibility. Finally, it is important to note that the European Commission has just concluded its cycle of public consultation on the development of a European strategy for textiles at the end of the summer vacation period. Over the next two months, the EU is expected to publish the strategy paper to shift to a climate neutral circular economy where products are designed to be more sustainable, reusable, repairable, recyclable and energy efficient. ## 3. Member State initiatives In addition to the European Commission, several EU Member States have also launched initiatives pending the global regulatory framework. Last year, France was the first country to pass a law banning the destruction of unsold non-food stocks, such as clothing, shoes, cosmetics, books or consumer electronics (Law no. ° 2020-105 of February 10, 2020). Manufacturers, distributors and stores with such unsold products in stock will be required to donate or recycle such products instead of incinerating them or throwing them into landfills. In addition, the law extends the incentives for manufacturers to design their products to be more easily recyclable. ## 4. What to expect in the ESG series With such a general overview in mind, we will continue this ESG series with an overview of the rules on green- or wokewashing (and two instruments which are expected soon, namely the directive on strengthening the role of consumers in the green transition as well as the regulation on the justification of green claims), the risks for companies of not complying with the new ESG principles as well as the rules of collaboration between companies to achieve sustainability efficiencies and labeling obligations in the fashion industry. Written by Blanche Devos and Judith Bussé, lawyers of [Crowell & Moring LLP]( is an international law firm with a fashion law practice representing clients in Europe, the United States and around the world. Crowell & Moring assists clients in the fashion industry on a variety of legal matters in the areas of regulation, intellectual property, licensing and antitrust law.

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