The ABCs of ESG Policy: Due Diligence

Twenty years ago, the concept of sustainability was embraced by a fraction of consumer goods businesses; they typically sold niche products with “eco-friendly” labels that could only be found in specialty stores. Since then, sustainability has grown into a mainstream concern for businesses. From electric vehicles to puffy jackets, consumers are more frequently seeking products designed with sustainability in mind, and to meet this demand, global brands are feeling the push to improve. Yet, until recently, no single set of standards require brands to measure and communicate their environmental and social impact.

Soon, even the most forward-looking brands will face rigorous sustainability expectations, as new environmental, social, and corporate governance (ESG) and product transparency regulations pass into law. To stay ahead of the curve and meet these regulations, it’s time for your business to start preparing.

In this three-part series, we’ll discuss some of the most influential policies being developed in the EU and US, how they’re shaping global market expectations, and implications for consumer goods brands and manufacturers. To kick off the series, we’re examining new due diligence regulations that will require businesses to understand their upstream and downstream value chain impacts – from manufacturing facilities all the way to delivery methods and product disposal.

Which Supply Chain Due Diligence Policies to Watch

Recently, the European Commission released a draft of the Directive on Corporate Sustainability Due Diligence (CSRD). By 2025/2026, mid- to large-sized companies that operate in the EU will be required to establish mandatory due diligence on human rights and environmental risks across their full value chain. While CSRD applies to a relatively small set of companies for now – companies with over 500 employees and that exceed EUR 150 million in net turnover worldwide, and LLC’s operating in high impact sectors with over 250 employees and a net turnover of EUR 40 million worldwide – the legislation is slated to impact small and medium enterprises by 2026, and many additional US companies that generate revenue in the EU will also be required to comply.

At the country level, starting in 2025, France will require the apparel industry to include a carbon label on garments, scoring items from A to E based on environmental impact. The ranks will be determined based on a variety of environmental factors that are still being debated, though expected to take into account a product’s water use, carbon footprint, end of use, and more. This comes after France introduced a Planet-score on food sold at grocery stores and retailers – a testament to the country’s dedication to increasing product transparency for consumers across industries.

Meanwhile, the Fashion Sustainability and Social Accountability Act, or New York Fashion Act proposed in early January, would require all fashion companies that sell their products in New York and generate over $100M in revenues to map the social and environmental impact of at least 50% of their supply chains. Businesses would have to publicly disclose environmental impacts including carbon emissions and water and chemical use.