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February 14, 2022

The Fashion Industry Meets Human Rights Due Diligence: New York's Proposed "Fashion Sustainability and Social Accountability Act"

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Key Takeaways

  • In January 2022, the New York State Senate introduced a bill that seeks to impose significant human rights and environmental due diligence and disclosure obligations on fashion retail sellers and manufacturers operating in the state of New York.

In January 2022, the New York State Senate introduced a bill that seeks to impose significant human rights and environmental due diligence and disclosure obligations on fashion retail sellers and manufacturers operating in the state of New York.  As we reported previously, 2021 saw a number of international and regional legislative efforts to impose human rights due diligence and disclosure obligations on multinational employers. If passed into law, the "Fashion Sustainability and Social Accountability Act" A8352/S7428 (the "Bill") would be the first such law to target the fashion industry, affecting "pretty much every large multinational fashion name, ranging from the very highest end … to … fast-fashion giants …."1 

There are mixed reports on whether and when the Bill will pass, but it appears to enjoy backing by a broad coalition of nonprofits focused on fashion and sustainability, as well as some prominent names in the industry.  Currently, a vote on the Bill is expected in late spring 2022.   

If Passed, to Which Companies Would This Bill Apply?

The Bill would apply to every fashion retail seller and fashion manufacturer doing business in New York State with annual worldwide gross receipts that exceed $100 million dollars.2

What Would the Bill Require Companies to Do?

At first blush, the Bill would impose only disclosure obligations on companies in the model of the California Transparency in Supply Chains Act, which requires only disclosure of a company's human rights due diligence process, and does not require due diligence itself.  As described in detail below, however, the items to be disclosed are so detailed and prescriptive that, in effect, they may amount to due diligence obligations. This potential confusion may be debated and clarified as the Bill passes through the legislative process.

Each covered company would have to disclose its environmental and social due diligence policies, processes, and outcomes, including significant real or potential adverse environmental and social impacts, as well as targets for prevention and improvement. Within 12 months of the introduction of such policies, processes and outcomes, this disclosure would have to be posted on the company's homepage website, via a clear and easily understood link. If a company does not have a website, it would need to provide written disclosure within 30 days of receiving a written request from a consumer.

The required disclosures include, "at a minimum":

  • Supply chain mapping;
  • Social and environmental sustainability report;
  • Impact disclosure on prioritized adverse environmental and social impacts within 18 months after enactment of the policies, processes and outcomes; and,
  • The targets for impact reductions and tracking due diligence implementation and results, including, where possible, estimated timelines and benchmarks for improvement.

The first three disclosure requirements, which the Bill elaborates in particularly prescriptive detail, are described further below:

Supply chain mapping

The Bill appears to require companies to use good-faith efforts and a risk-based approach to map their suppliers across all tiers of production, from raw material to final production. Companies would need to map "a minimum of" 50% of suppliers by volume. In this mapping effort, companies would focus on suppliers and supply chains with "prioritized risk"—i.e., those posing the greatest social and environmental risks.  Companies would even be expected to name these prioritized risk suppliers in their disclosures.  

Social and environmental sustainability report (the "Report")

The Report would have to include "externally relevant information" on due diligence policies, processes and activities conducted to identify, prevent, mitigate, and account for potential adverse impacts, including the findings and outcomes of those activities.  In particular, and in line with the UN Guiding Principles on Business and Human RightsOECD Guidelines, and ILO Declaration on Fundamental Principles and Rights at Work, the Report would include:

  • A link on the company's website with relevant policies on responsible business conduct;
  • Information on measures taken to embed responsible business conduct into policies and management systems;
  • The company's identified areas of significant risks in its global operations (including in supply chains);
  • The significant adverse impacts of the risks identified;
  • The criteria for prioritizing risks;
  • The actions taken to prevent or mitigate those risks (e.g., corrective action plans (to be cited where available, including estimated timelines, targets and benchmarks for improvement, and their outcomes));
  • Measures to track implementation of those actions and results; and,
  • Any remediation efforts.

Impact disclosure on prioritized adverse environmental and social impacts

Within 18 months after the enactment of the policies, processes and outcomes described above, companies would have to provide impact disclosure on prioritized adverse environmental and social impacts (the "Impact Disclosure"). The Impact Disclosure would include a number of environmental-related disclosures, such as greenhouse gas reporting, and disclosure on the annual volumes of material produced. In terms of social impacts, companies would have to disclose the following information respecting workers:

  • The median wages of workers of prioritized suppliers and how this compares with local minimum wage and living wages; and,
  • The company's approach for incentivizing supplier performance on workers' rights; key performance indicators or performance incentives used; and a description of the incentives used to reward suppliers and encourage good performance (for example, contract renewals, price premiums, or the offer of longer-term contracts).

What are the Consequences for Non-Compliance?

The New York State attorney general (or designated administrator) (the "AG") would be empowered to enforce the requirements of the Bill, and could bring civil proceedings for an injunction, monetary damages, or civil performance of a statutory duty in seeking redress for non-compliance. Critically, companies that were to receive a notice of non-compliance from the AG, yet remained non-compliant after a three-month period, could be fined up to 2% of annual revenues of USD$450 million dollars or more.3  The AG would also be required to publish annually a list of the companies that are non-compliant.

In addition to the AG's actions, the Bill would also create a private right of action for citizens to bring civil suits against "any person" violating the Bill's requirements, and to compel the AG to investigate company compliance.  This provision would appear to open the door for labor unions and other activist groups to place pressure directly on companies for perceived non-compliance. 

When Would the Bill Come into Force?

The Bill is currently in consumer protection committees in the NY State Assembly and Senate. It is not known if or when it will become law, or how it will be amended as it moves through the legislative process.  

Conclusion

The Bill adds to the clear trend towards the global development of legislation addressing corporate human rights due diligence and disclosure obligations, on which we have reported extensively.4  This Bill is remarkable in that it is one of the first legislative attempts to focus on such obligations in a specific industry—i.e., fashion.  Indeed, other industries where human rights risks are high may see governmental attempts to impose similar regulations. 

As this Bill makes its way through the New York State legislative process, multinational employers should take stock of their global operations, and identify areas in those operations where there is a high risk of human rights violations, including forced labor and other modern slavery practices. Where such risks are identified, those employers should take appropriate action to address those risks and implement procedures to ensure that new and existing relationships remain free of such activities.  Because this due diligence process can be complex, it is recommended that employers engage the services of experienced counsel.

 

1 Vanessa Friedman, New York Could Make History With a Fashion Sustainability Act, N.Y. Times (Jan. 7, 2022).

2 "Gross receipts" is defined as the gross amounts realized, otherwise known as the sum of money and the fair market value of other property or services received, on the sale or exchange of property, the performance of services, or the use of property or capital, including rents, royalties, interest, and dividends, in a transaction that produces business income, in which the income, gain, or loss is recognized, or would be recognized if the transaction were in the United States, under the Internal Revenue Code, as applicable. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold. "Gross receipts" specifically excludes certain forms of income, including, but not limited to, the repayment, maturity or redemption of the principal of a loan, bond, mutual fund, certificate of deposit, or similar marketable instrument; tax refunds and other tax benefit recoveries; damages and other amounts received as the result of litigation; and others.

3 Monies collected from these fines would be deposited into a community development fund to be spent on the implementation of one or more environmental benefit projects that benefit "environmental justice communities."

4 See, e.g., Lavanga Wijekoon, Kate Bresner, Michael Congiu, and Stefan Marculewicz, Europe and Canada Seek to Mandate Human Rights Due Diligence and Transparency Obligations on Companies and Their Global Partners, Littler Insight (Oct. 28, 2021); Lavanga Wijekoon, Olivia Florio Roberts, Michael G. Congiu, and Stefan Marculewicz, U.S. Enacts Law Barring Products Made With Forced Labor in China, Littler Insight (Jan. 3, 2022).

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