ESG specialist lawyer and Cowell Clarke director Emma Peters says fast fashion retailers operating in Australia are fielding a major challenge ahead.
The introduction of mandatory climate data from next year will be yet another nail in the coffin for fast fashion as the real cost of cheap, disposable clothing is increasingly revealed.
Despite almost endless bad publicity, so called fast fashion - quick, cheaply produced clothes capitalizing on current trends and often viewed as disposal - has been a surprisingly resilient staple of fashion retailing in Australia.
In fact, it has been growing.
According to IBIS World, ‘fast fashion’ has experienced an average of 2.7% growth in Australia between 2018 and 2023 and in 2023 alone this growth was reported to be 9.5% with a market cap of $2.8 billion.
The category has led to 200,000 tonnes of clothing going to landfill each year. Per person, this means each Australian buys around 56 new items each year, and the average cost of those items is $13.
However, the writing may be on-the-wall for fast fashion.
The introduction of mandatory climate reporting for large businesses –- which passed Parliament last month and will roll out from next year - will expose the real cost of this style of fashion for the first time and may dramatically change how it is perceived by both retailers and consumers. Reporting entities will be required to produce annual climate statements.
Over the next few years most entities with a turnover of over $50 million are expected to report the data and - like the existing Modern Slavery reporting - each reporting entity is expected to include data from supply chains.
A particularly challenging aspect of the new climate reporting requirements will be addressing Scope 3 emissions.
So, what exactly are Scope 3 emissions? They cover all the indirect emissions that happen in a company’s value chain, from the production of raw materials to the transportation of goods and even the disposal of products. Under the new Australian legislation, companies will need to report these emissions, shedding light on the environmental impact of their entire supply chain.
This level of transparency is expected to hit the fast fashion industry hard. The production of cheap, disposable clothing often involves significant pollution and waste, from toxic dyes to microplastics in waterways. By mandating the disclosure of Scope 3 emissions, the Australian government is holding companies accountable for the full environmental cost of their products.
In practical terms, the climate reporting requirements could result in the types of materials used in many fast fashions – polyester and acrylic – attracting higher ‘climate risk’ scores compared to more expensive and longer lasting materials such as organic cotton. Scope 3 emissions data will also encompass the ‘lifetime’ environmental impact of products, which will consider factors such as useful lifespan, the potential for recycling and disposal.
For many retailers, these new requirements will be a tough pill to swallow. Fast fashion brands, in particular, rely on complex, global supply chains that are difficult to monitor and control. The need to report on Scope 3 emissions will force these companies to scrutinize their suppliers and production processes more closely, potentially leading to increased costs and operational changes.
Retailers that fail to adapt may find themselves at a disadvantage. Consumers are becoming increasingly aware of the environmental impact of their purchases, and companies that can demonstrate a commitment to sustainability are likely to gain a competitive edge. On the other hand, those that continue to rely on polluting manufacturers and unsustainable practices may struggle to retain customers.
Several Australian retailers are already feeling the heat and will need to overhaul their supply chains to meet the new reporting standards. These companies have historically relied on fast fashion models, but the new legislation will necessitate a shift towards more sustainable practices.
Looking abroad, several international fashion retailers have already begun to pivot away from fast fashion in response to similar reporting requirements. For example, Zara has pledged to use 100% sustainable fabrics by 2025 and has implemented measures to reduce its carbon footprint. These highlights the potential for significant change within the fashion industry. As Australian retailers face similar pressures, they too may need to adopt more sustainable practices to remain competitive.
Moreover, the increased scrutiny on supply chains may drive innovation in the fashion industry. Companies will need to find new ways to reduce their environmental impact, from developing sustainable materials to improving recycling and waste management practices. This could lead to the emergence of new business models and technologies that prioritize sustainability over short-term profits.
Fashion, in particular fast fashion, is also known as one of the top five contributors to modern slavery. The Modern Slavery Act, introduced in 2018, has had a significant impact on the fast fashion industry by requiring companies to report on how they are preventing and addressing modern slavery risks in their operations and supply chains. This legislation has brought to light the often-hidden exploitation within the fashion industry, where workers in low-wage countries face poor working conditions, forced labour, and other forms of modern slavery. The Act compels companies to take responsibility for the ethical implications of their supply chains, leading to increased scrutiny and pressure to improve labour practices.
The Modern Slavery Act forced many fashion brands to reevaluate their supply chains and implement more stringent oversight to ensure compliance. This shift not only improved working conditions for many garment workers, but also increased operational costs for companies that had previously benefited from cheap labour. As a result, some fast fashion brands began to explore more sustainable and ethical production methods to align with the new legal requirements and consumer expectations. Notwithstanding this, with modern slavery rates rising across the world, we still have a long way to go.
The combined impact of the Modern Slavery Act and the new climate reporting requirements underscores a broader trend towards greater corporate accountability and transparency. Companies are increasingly expected to not only minimize their environmental footprint but also ensure that their business practices do not contribute to human rights abuses. This dual focus on environmental and social responsibility is reshaping the fashion industry, encouraging brands to adopt more sustainable and ethical practices.