Washing out the stains: The new regulatory environment

As of 01 January 2023, both France and Germany ushered in new policies impacting fashion and textile firms aimed at curbing misleading labelling practices, bolstering environmental standards, and encouraging transparency along an opaque globalised supply chain. In France, sustainability claims on clothing labels and advertisements, which have been widely criticised and chalked up to “greenwashing,” are now subject to significant fines. Firms operating in France may be charged as much as 80 percent of the advertising expenses associated with a given claim. In Germany, every aspect of a firm’s supply chain – from the labour it takes to make a product, to any waste or pollution that results therefrom – will be the firm’s responsibility to manage. This regulation, too, stipulates potential financial penalty – as much as two percent of an offending firm’s annual revenue.

Additional regulation is on the horizon in other EU member countries. As soon as July, the Netherlands will introduce measures to ensure that large firms will be responsible for products from cradle to grave. Often referred to as Extended Producer Responsibility – and already enforced in France and Switzerland – firms will be required to cover the cost of disposing and recycling unused products. With these steps, Europe has entered a radically new era of consumer regulation. The shift marks a sea-change for an industry that has evolved largely unregulated, and which has begun to experience elevated levels of scrutiny, and even legal action, for questionable marketing practices. 

Impactful and Unregulated

Fashion and textiles play a significant role in the European economy. Estimates from Statista forecast annual market revenues for 2023 at more than $484 billion. One 2021 estimate — published by the Dutch Center for the Promotion of Imports — found that, in 2020, European consumers purchased nearly 23.7 billion units of clothing. As part of the European manufacturing industry, the Commission estimates that the sector is composed of some 160,000 businesses and 1.5 million jobs. 

The impact of the European market extends globally. According to consulting group Brand Finance, twenty-eight of the fifty most valuable apparel brands are European firms, including the luxury conglomerate Louis Vuitton Moet Hennessy (LVMH) in France, and Inditex, the parent company of fast fashion staple Zara, in Spain. In 2021, LVMH  was the most valuable firm in Europe — in any sector — with a market capitalisation of $319.4 billion.

But as compared with other industries, the fashion and textile sector has enjoyed relative leniency, with little formal regulation impacting firm operations. This lack of regulation exists despite a reputation for polluting and environmental harm, due to a combination of freshwater consumption, petroleum product use, and the rapid transportation of goods. The Commission estimates that textiles rank fifth as among the most greenhouse gas emitting sectors. Waste is also a significant issue. The average European citizen disposes of more than 11kg of textiles every year. In France alone, between 10 and 20 thousand new textile products are destroyed annually. Globally, less than 1% of all textiles are recycled. 

The sector’s shortcomings do not stop at environmental harm. Poor labour practices – often a result of outsourcing – has enabled the production of very low-cost garments and a very complex supply chain. For textile and garment workers, this has involved notoriously unsafe working conditions. In recent memory, disasters such as the 2013 factory collapse at Rana Plaza in Bangladesh resulted in the deaths of more than one thousand individuals. 

A Broader Shift

The changes implemented throughout 2023 in various member states are undoubtedly nestled within changes throughout the Union to introduce a model Circular Economy. But while the broader EU policy framework lays important groundwork for reducing waste and promoting a more sustainable approach to the economy, some critics have noted that labour and social concerns are noticeably lacking among policy priorities. Others might argue that with such Commission initiatives as the aim to eliminate “fast fashion” by 2030 – and in relation, stipulate durability and recyclability as necessary design elements in all consumer goods – working conditions may incrementally improve as market dynamics shift. 

What is clear is that all firms will need to adjust their operations and adopt more sustainable practices, reducing waste and eliminating false and unsubstantiated claims from marketing campaigns. Among the many criticisms of such claims is that brand’s are able to place a premium on products perceived to be “green” or environmentally friendly, as with Swedish fast fashion giant H&M’s “conscious choice” labels – for which the firm is now being sued. The Commission has made the regulation of misleading practices a key initiative of the Circular Economy action plan. Ultimately, the crackdown is intended to promote clearer, science-based, and verifiable environmental reporting as a part of the Green Deal framework, but also to protect consumers. 

Transparency remains central to the new wave of consumer-focused regulation. Firms may view legislation as an opportunity to demonstrate commitment to sustainability and to develop new, environmentally friendly products and practices. But it also poses a fresh challenge to current textile and fashion operations, requiring significant changes and investments to comply with the new requirements. With scrutiny of firm claims and consumer demand for environmentally friendly products increasing, accountability beyond self-imposed measures will be central to the Circular Economy’s successful implementation.