The importance of ESG in the fashion industry

Environmental, Social and Governance (“ESG”) issues have increasingly been at the forefront of the luxury fashion sector in recent years due to the rise in regulation in this area more generally. Historically, the fashion and beauty industries are known for having a focus on exclusivity, creativity, craftsmanship, and heritage, but many fear that environmental and sustainability issues are taking away from these key values.

Nevertheless, they are important social issues as the fashion industry has a major impact on the environment and human rights. The fashion and luxury sector now have to adhere to many legal requirements and compliance standards whilst maintaining profitability and the name they have built for their brand.

A number of challenges and respective liability risks come with ever-changing legislation, as well as a need to balance the pressure to keep up with competitors in order to maintain reputation with consumers.

Why is ESG in fashion so important?

According to the European Environment Agency (“EEA”) over 14m tonnes of microplastics have accumulated on the ocean floor, and the amount is increasing each year. These are causing harm to ecosystems, animals and people. In 2020 alone, textile consumption in Europe had on average the fourth highest impact on the environment and climate change from a global lifecycle perspective. Caring for the environment is a key feature of a business’s ESG strategy as it has an impact on the “bottom line”.

What should fashion brands do?

Relatively new EU legislation aims to address these adverse environmental and social impacts to reduce waste and subsequent harm to the environment. It has been suggested that implementation of a circular business model is a key strategy to move toward more sustainable production and consumption of textiles.

We would, therefore, recommend the consideration and implementation of such a strategy. Many luxury brands are now optimising what has been promoted by the EEA as the ‘four pathways’ to achieve this particular model. These pathways include:

• Longevity and durability
• Optimised resource use
• Collection and reuse
• Recycling and material use.

Greenwashing

Greenwashing is a relatively common practice where companies adopt behaviour or activities to make people believe that they are doing more to protect the environment than they really are.

The World Wildlife Fund recommend checking that a company purporting to have “green” credentials has supporting evidence to back up their claims ensuring that this evidence has been verified by a reputable source.

Greenwashing has become especially prevalent in the consumer goods industry, with various brands competing to appear the most environmentally-friendly in order to appeal to consumers. In the UK, the Competition and Markets Authority (“CMA”) published a Green Claims Code to ensure businesses do not fall foul of consumer protection law.

In accordance with this, businesses can make environmental claims about their products and services provided that they are not misleading consumers with these claims. This protects consumers from being significantly influenced by misleading or incomplete information as well as ensuring that other businesses are not subject to unfair competition.

The purpose of such guidance is to help businesses understand and comply with existing consumer protection laws when making environmental claims.

The Green Claims Code includes key principles that must be followed when making environmental claims and states that they must:

• · Be truthful and accurate
• · Be clear and unambiguous
• · Not hide important information of relevance
• · Ensure that comparisons to other branding must be fair and meaningful
• · Consider the full life cycle of the product or service
• · Be substantiated or evidenced fully.

Many brands have been investigated by various authorities and other bodies interested in environmental issues associated with the fashion industry. In 2021, “Changing Markets Foundation” compiled a report which alleged that a leading high street retailer was guilty of making misleading claims in relation to the sustainability of its fashion items.

The foundation suggested that as many as 96% of the brand’s sustainability claims were false and breaking guidelines according to the UK CMA guidelines. This far exceeds the sector average where 59% of high street fashion brands had been found to have made misleading claims.

These statistics emphasise that it is time for brands to reflect and update or they risk being made an example of and severely damaging their reputation in the process. The Advertising Standards Agency (“ASA”) also has strict guidelines which must be adhered to and have the ability to ban adverts if they fall foul of these.

The Digital Markets, Competition and Consumers Act 2024

In April 2025, the aspects of Digital Markets, Competition and Consumers Act 2024 (“DMCCA”) in relation to consumer law enforcement and unfair commercial practices, will come into effect, and the CMA will be able to enforce consumer law directly rather than having to go through the courts.

Following the introduction of this Act, fines of either 10% of the company’s global turnover, or £300,000 – whichever is higher – could be issued.

The Act also allows the CMA to take action against and impose fines on directors, managers, and other persons who control a business if they consented or conspired in the breach of consumer protection law.

The CMA recently launched an investigation into a British PLC multinational consumer packaged goods company, finding that they made green claims which may be ‘unclear’, and fail to specify whether these claims relate to the packaging or the product itself.

The CMA have a wide range of powers in terms of the action they can take, which can massively impact the day-to-day running of the company. For example, they can secure undertakings that the company will commit to changing the way they operate, they can take them to court or they can choose to take no further action.

This means that brands need to be alert to what might happen if they do not adhere to the rules and regulations monitored by the CMA, or risk damaging their reputation. Smaller companies could see an impact on the future of their business.

Luxury brands have been recommended to adapt to ESG changes by taking on board the following:

• Improving their transparency
• Adopting a climate transition plan
• Verifying any green claims
• Embracing innovation
• Aligning functions on ESG compliance
• Educating stake holders.

To keep ahead of the curve, big luxury brands will be embedding sustainability into their operations, and adapting to new ESG changes readily to ensure compliance.

By following the ESG guidance and avoiding marketing practices such as greenwashing, businesses can prevent the risk of legal action along with protecting their reputation as established luxury brands.

Sustainability practices are not just passing trends, they are constantly evolving, and it is essential that policies are implemented and adapted as time moves forward. This will not only future-proof your brand, but also ensure that your businesses is put on the map when it comes to sustainable practices, driving the consumer to invest.