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Fashion Industry’s Greenwashing Crisis and the Push for ESG

Introduction

With countries worldwide implementing robust Environmental, Social, and Governance (“ESG”) compliance requirements and placing caps on carbon emissions, sustainability has evolved from a regulatory obligation to a business necessity. Today besides regulatory bodies, even investors and customers expect companies to prioritize sustainability especially in industries with high environmental impacts, such as fashion.

As the need for sustainability grows, so does the risk of greenwashing. Greenwashing occurs when companies exaggerate or misrepresent their environmental impact to appear more sustainable than they are. This has become particularly prevalent in the fashion industry, where brands use sustainability as a marketing tool to craft emotionally engaging narratives. Such misleading claims can lead to damaged reputations, loss of consumer trust, regulatory actions, and litigation. Fashion industry professionals, from luxury designers to fast fashion retailers, should be conscious about this growing trend, as it has entered the core of their business practices.

The Rise in Greenwashing

In 2021, the Changing Markets Foundation found that 60% of sustainability claims made by major fashion brands were deceptive or misleading. According to the Climate Justice Coalition, greenwashing lawsuits against fashion brands increased by 80% in 2022. A 2024 report from Global Litigation News highlights that class actions targeting greenwashing claims have increased in number and complexity, focusing on broader sustainability representations and long-term climate commitments.

With the rise of greenwashing and fashion being one of the most polluting sectors, responsible for 20% of global clean water pollution and 8-10% of carbon emissions as per a European Union (“EU”) report, fashion companies face increasing scrutiny over their ESG performance from regulators and consumer groups.

The Fashion Industry’s Carbon Footprint

Below is a list of world’s largest publicly listed fashion companies by market capitalization (as of September 2024), along with their reported carbon emissions data:

RankCompany NameTotal CO2 Emissions in Metric Tons
(Scope 1 + Scope 2 + Scope 3)
Reporting Period
1LVHM6,857,1832022
2Hermes6,65,7992023- 2024
3Inditex16,857,8472023- 2024
4TJX Companies1,229,4692022- 2023
5Dior769,2542023- 2024
6Nike18,222,0292021- 2022
7Fast Retailing6,195,7702021- 2022
8Cintas1,869,6932023- 2024
9Ross Stores29,8322022- 2023
10Adidas6,059,0472023- 2024
It is important to note that Scope 3 emissions are considered to be difficult to measure, which makes it possible for companies to present underreported numbers in their sustainability reports. This issue becomes particularly apparent when organizations scrutinizing these reports notice quick progress in a brand’s carbon emissions reduction within a brief period, but the evidence supporting the data is limited. Such actions could potentially attract greenwashing complaints.

A 2024 report by Stand.earth, titled Clean Energy Closeup, analysed eleven of the most influential fashion brands globally. The report found that only three out of eleven brands provided information on the use of renewable energy in their supply chains, and none sufficiently demonstrated ethical purchasing practices for a just transition. Alarmingly, nine out of eleven brands lacked public targets for increasing renewable electricity in their supply chains and showed little progress toward decarbonization. Lululemon, one of the brands included in the report, is currently under investigation by the ‘Competition Bureau Canada’ for greenwashing, following a complaint by Stand.earth.

Regulatory Responses

The EU is working on an update of existing rules regarding commercial practices and consumer protection to ban greenwashing. Additionally, in September 2024, the UK’s Competition and Markets Authority (“CMA”) issued a compliance guide to ensure that businesses stay on the right side of the law while making environmental claims. The CMA also sent letters to seventeen prominent fashion brands, urging them to reassess their business practices in light of the ‘Green Claims Code,’ which was first introduced in 2021.

In countries such as France, Singapore, Canada, and China, various legal mechanisms indirectly regulate greenwashing. Regulators in these nations have repeatedly issued guidelines emphasizing the applicability of such laws to greenwashing practices. Similarly, India has established its own regulations, including the ‘Guidelines for Advertisements Making Environmental/Green Claims’ issued by the Advertising Standards Council of India (“ASCI”) and the ‘Draft Guidelines for Prevention and Regulation of Greenwashing’ issued by the Central Consumer Protection Authority (“CCPA”).

How Brands Can Steer Clear of Greenwashing?

Following are key considerations brands could keep in mind when marketing their sustainability efforts:

  • Clear and Accurate Communication: When marketing sustainability efforts, the claims must be specific, clear, and substantiated. Vague statements like “eco-friendly” or “green” can mislead consumers, especially if they are not backed by evidence. In fact, the UK’s ‘Green Claims Code’ advises against using links or QR codes for further details, urging brands to explain claims directly in the same space or refrain from making them if the space is insufficient.
  • Third-Party Certifications: As self-declared claims can often lead to accusations of greenwashing, brands should collaborate with certification bodies to provide consumers with confidence that their sustainability practices have been objectively evaluated. Some of the globally recognized sustainable fashion certifications include the Global Organic Textile Standard (“GOTS”), OEKO-TEX Standard 100, and Global Recycled Standard (“GRS”).
  • Sustainability Reporting: Publishing sustainability reports not only fulfils a compliance requirement but also enables stakeholders to track a brand’s ESG progress. However, transparency and clarity in the data presented are very important, as reports that are clear and backed by reliable data are more likely to be recognized by organizations conducting scrutiny, enhancing the brand’s credibility. For example, Stand.earth’s 2024 report highlighted several brands that provided detailed information about their supply chain’s energy and electricity usage, which positively impacted their reputation. When the data supporting a brand’s progress is vague or insufficient, the value of sustainability reporting diminishes, and brands miss the opportunity to highlight meaningful improvements.
  • Lifecycle Assessments of Products: Conducting a lifecycle assessment is a valuable tool for understanding the full environmental impact of products, from production to disposal. This data serves as concrete evidence for brands when making sustainability claims and enables them to understand the areas for improvement. One effective strategy for brands to enhance the lifecycle of their products is to focus on decarbonizing their packaging. While changes in the manufacturing process may be limited, brands can still make a significant impact by opting for ethical packaging alternatives instead of plastic. This shift can help reduce the overall carbon emissions associated with their products throughout their lifecycle.
  • Consumer Involvement: Brands can enhance consumer engagement in sustainability by implementing recycling programs that allow customers to return used products for discounts or incentives. A notable example is California’s recent legislation, signed in September 2024, which introduces the nation’s first mandatory textile take-back requirement. This law mandates apparel companies to accept unwanted clothing, aiming to reduce the millions of tons that typically end up in landfills, promote upcycling and recycling, and address the environmental impacts of fast fashion.
  • Social Impact: According to the Asia Floor Wage Alliance (“AFWA”), despite the global garment industry’s promises to reduce poverty and uplift women’s status, it often results in rock-bottom wages, extreme working hours, and unsafe, sometimes violent conditions as brands strive to meet pressures felt throughout the supply chain. Brands must ensure that their employees are treated fairly, compensated appropriately, and provided with safe working conditions as ignoring the social aspect can adversely affect a company’s overall ESG score.
  • Sustainable Supply Chain: Building sustainable supply chain partnerships is crucial to ensure that sustainable practices are integrated throughout the entire process, right from raw material sourcing to product delivery. Brands should implement a supply chain sustainability policy and conduct regular audits and evaluations to ensure that the standards set by the policy are consistently maintained across the supply chain.
  • Legal Compliance: As sustainability regulations continue to evolve, it is essential for brands to stay updated on relevant legal requirements and of the legal implications surrounding their environmental claims. Regulatory penalties for non-compliance can be severe, and the damage to stakeholder trust even more significant. To avoid such legal risks and to also gain a competitive advantage in the marketplace, brands should ensure that their marketing strategies are aligned with the updated laws and rules.

 

For any further insights on addressing greenwashing risks and aligning your sustainability efforts with ESG compliance, feel free to connect with, Sangeeta Jhunjhunwala, Partner, at sangeeta.jhunjhunwala@khaitanlegal.com, Sanjeev Singhal, Senior Consultant, at sanjeev.singhal@khaitanlegal.com, or Purva Gandhi, Associate, at purva.gandhi@khaitanlegal.com

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