2024 is a make-or-break year for fashion supply chains, as stakeholders upstream and down scramble to comply with a spate of incoming sustainable fashion legislation from the European Union.
There are at least 16 pieces of EU legislation, either pending or passed, that will impact fashion supply chains. The first will come into effect this year, following a rush to confirm and clarify proposals ahead of the European Parliament elections that took place over the weekend. Other deadlines stretch to 2030, with many more pegged for a phased implementation in the years between. The deadline for most SMEs (small and medium-sized enterprises) to comply — and therefore the majority of fashion businesses — is 2026, which experts agree is going to be a stretch.
Who is responsible for driving this transition — and bearing the cost of compliance — is proving a provocative question.
“Nobody knows exactly what the legislations are or what we need to do to become compliant. Brands are not offering any training or support, let alone a transition plan. They are in the twilight zone,” says Ekin Uluışık, sustainability manager at Yavuzçehre Tekstil, a Tier 1 finished-garment manufacturer in Türkiye. Many suppliers don’t have a mechanism to raise their concerns with brand partners, because those limited lines of communication are blocked by the discussion of costs and purchasing practices. “Brands have other concerns and priorities, and suppliers are stuck in short-term thinking because our margins are so small. Most of the EU legislation comes into force in 2025 or 2026, but we are more worried about how we will survive until then,” says Uluışık.
The potential costs associated with compliance include hiring staff to gather and manage the data necessary for digital product passports, as well as implementing new machinery to improve energy efficiency and lower carbon emissions. The challenge is getting brands to recognise these costs and incentivise suppliers to make the required investments. “Suppliers won’t do it if the value of those investments isn’t recognised,” says Nemanthie Kooragamage, director of group sustainable business at Sri Lankan clothing manufacturer MAS Holdings. She estimates that ensuring a production plant is compliant would add 10 per cent to the construction costs.
The cost of compliance with new legislation depends on the size and profitability of the company in question, how far from compliance it currently is, and the local laws and infrastructure in its home country. While the general consensus is that EU legislation is a step in the right direction for sustainability, these context-specific concerns cannot be ignored, says Sandra Gonza, senior sustainability strategist at Quantis. For example, in Indonesia, many suppliers are reliant on the country’s electrical grid system, making it difficult to meet the emissions reduction targets set by brands and legislators because renewable energy is not readily available, according to Vinit Jain, VP of design and product development at Jakarta-based woven apparel producer Busana Apparel Group.
“Fashion is built on diverse global supply chains, which makes applying legislation quite difficult, especially where producing countries face geopolitical turmoil or increased risks from climate change,” says Gonza. “Some might not have access to clean energy, for example, while others might lack a stable online infrastructure.”
Industry-led initiatives need to scale up, quickly
A handful of industry initiatives have been launched to support suppliers in becoming compliant. At COP28, Global Fashion Agenda announced a partnership with Copenhagen Infrastructure Partners, H&M Group and Bestseller to develop an off-shore wind project in Bangladesh, which hopes to increase the availability of renewable energy in the garment-manufacturing hub.
Elsewhere, the Apparel Impact Institute — backed by H&M Group, PVH and Lululemon, among others — is building a $250 million climate fund to subsidise suppliers’ investments in decarbonisation solutions. Euratex, meanwhile, says it is trying to arrange investment support so that its members can adopt the digitalisation, upskilling and machinery improvements necessary. This is especially important for suppliers that work with multiple brands, who in turn work with multiple suppliers and may not have the sort of long-term partnerships that could lead to shared investments, Vantyghem says.
Those with means have been trying to go it alone. In October, Turkish company Sanko — owner of Isko Denim — launched a business in line with the impending legislation around ecodesign. Re&Up, its textile-to-textile recycling startup, hopes to fill the gap for minimum recycled content requirements, with a target of recycling over a million tonnes of textile waste annually by 2030. “People seem to forget that if brands need to sell products compliant with EU regulations, they need supply chains ready to supply compliant products,” says Marco Lucietti, director of strategic projects at Sanko.
Yet industry initiatives need to scale up across companies and geographies — and quickly — if they are to help suppliers comply before penalties are imposed.
“We have been able to cover most of the costs ourselves, and onboard partners sharing our vision, but many suppliers are not financially strong enough to do this,” says Lucietti. “If we want to build a compliant industry, the costs need to be shared across the value chain.”
Redressing the power imbalance in supply chains
Historically, fashion brands have squeezed suppliers in a race to the bottom, leaving them with ever-tighter margins to address systemic issues such as poverty wages, dangerous working conditions and unsustainable practices. The wave of new EU legislation could provide a perfect opportunity to redress this power imbalance, experts say, but they question whether brands will engage.
“We hope that this legislation will rebalance the relationship between those who produce — regardless of whether they are in Italy or Bangladesh — and those who sell,” says Euratex’s Vantyghem. “The prime target for legislation is brands, with a fairly high risk of penalties and prosecutions, but the question is how they will transfer that pressure onto their supply chains. I hope they will work collaboratively instead of imposing an additional burden on suppliers, without recognising the additional costs that brings.”
Some pieces of legislation have accountability baked in, although their efficacy depends on enforcement. Aruna Kashyap, associate director of corporate accountability at Human Rights Watch, points to the Corporate Sustainability Due Diligence Directive (CSDDD), which includes a safeguard against brands “othering” the burden of compliance, and — at least in theory — stops brands from cutting ties with non-compliant suppliers. “If a brand is pushing the burden onto suppliers without adjusting their business practices, regulators can scrutinise that,” she explains. “This is the first time suppliers have had a legal avenue to engage big brands. Brands have a legal obligation to speak to suppliers and help mitigate their risks.”
To maximise the impact of this, she continues, regulators must learn from the mistakes of previous policies. The green claims directive, for instance, started strong but has been hit by reports of regulators lacking the resources to investigate and penalise firms.
For many, the route to better relations between brands and suppliers starts with purchasing practices — if brands commit to paying more for compliant products, and adjust their lead times to account for the additional burden of reporting, and sharing the responsibility for improvements, more suppliers could make positive changes. “If everyone took some of the responsibility to drive collective change, the transition might not be so painful,” says Sophie Lane of Soko Kenya, a slow and small-scale clothing manufacturer aiming to improve ethics in supply chains. “Even if brands won’t pay higher prices, they could extend lead times to reduce the pressure on suppliers, or support them with training and resources. They could help suppliers apply for affordable loans and grants, just engage as if it’s a collaboration rather than a top-down transaction.”
A lesson in managing supply chain transformations
One of the suppliers Gonza works with is currently transitioning from Microsoft Excel to a digital system. She says the process has been met with harsh resistance from factory managers, because there is a perception that it will increase workloads and there is also no additional funding for training. “Brands can’t just assume that they can go into suppliers with no previous relationship or trust and make these changes, and everyone will be happy to oblige. Transition management is not simple,” she explains.
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