[#1 Traceability of supply chains] From a response to regulatory pressures to a performance management tool

Sapin II Law¹, AGEC Law², Climate and Resilience Law³, French Law⁴  and European Directive on Duty of Vigilance⁵… at the French and European level, regulation is accelerating and tightening in favor of a more holistic consideration of environmental, social and ethical responsibilities by economic actors. These new legislations, which at first glance may seem to have a wide range of applications, have one thing in common they require companies to better analyze and report on the impacts of their activities. The sphere of responsibility of corporations is expanding and with this movement emerges a need for actors to better assess and understand their value chains.

Supply chain traceability is therefore a priority for marketers, as it allows them to meet the regulatory requirements of CSR risk management and consumer information.

Duty of Vigilance: a first injunction to respond to ESG risks in companies’ supply chains

The French Duty of Vigilance Act⁴ (2017) pioneered the expansion of the corporate scope of responsibility at the European level. It shifts responsibility for environmental, human rights and safety and security impacts from the hands of subcontractors to those of principals. Many French companies, including Carrefour, Danone, Engie, LVMH, Kering, Hermès and Decathlon, have published their vigilance plans to date. Since then, there has been a proliferation of national regulation on the duty of care for companies that provide services, with varying scopes of application: in the United States in 2018 (Business Supply Chain Transparency on Trafficking and Slavery Act), in the Netherlands in 2019 (Dutch Child Labor Due Diligence Law), in Germany in 2021 (Act on Corporate Due Diligence Obligations in Supply Chains)...

More recently, in February 2022, the European Commission presented a draft directive on the duty of vigilance⁵. Among the notable changes compared to the French law, the draft European directive is more ambitious in its scope of application (threshold of 500 employees or 250 employees for certain sectors, including textiles, compared to 5 000 for the French law) and provides for the monitoring of measures by national authorities. The directive will have to be transposed into national law by the Member States within two years of its adoption by the European Parliament (by 2023).

Traceability allows companies to identify the interdependencies likely to generate risks in terms of human rights, biodiversity, greenhouse gas (GHG) emissions within their supply chains by collecting information from suppliers and subcontractors of different levels. Solutions will then have to be deployed in order to remediate the identified risks.

If risk mitigation measures are to be implemented conjointly with suppliers and subcontractors, traceability will need to become a key component of companies' risk management systems.

Laws on consumer information go further, requiring brands to provide evidence for their claims

Article 13 of the AGEC law, which requires improved communication towards consumers regarding the environmental qualities and characteristics of products at the time of purchase, is integrated into the Environmental Code (Article L541-9-1) and responds to the growing demand for transparency on the demand side. The legislation is aimed at producers of "waste generating" products (electrical and electronic equipment, furniture, textile products, packaging, construction products and materials, toys, vehicles, etc.). The draft decree on consumer information should be published in April 2022 following a public consultation by the French government in 2021 and a notification procedure to the European Commission in early 2022. Strongly contested due to its difficulty in terms of implementation, the bill will soon require companies to communicate information such as the rate of incorporation of recycled material, the presence of hazardous substances (in accordance with the requirements of the European REACH regulation) or the geographical origin of some of the processing stages for the textile sector.

Environmental labelling, initiated by ADEME in 2011 and encouraged by the AGEC Law (Article 15) and the Climate and Resilience Law (Article 2), will lead to the obligation for priority sectors (to be designated by decree during 2022) to display the environmental footprint of marketed products over their entire life cycle. At the same time, the European initiative on the justification of ecological claims requires companies to provide evidence for their environmental claims using standardized methods for quantifying the environmental impact of products (PEF: Product Environmental Footprint).

Consumer information requires a detailed comprehension of the production stages: material, component, product, product batch. Traceability makes it possible to track eligible assets by collecting information on their transformation processes, from raw material to production. It brings visibility to supplier practices (transformation processes, certifications, transport...) and allows for better control of the impact of products. Traceability also constitutes a first step towards and the next obligation of environmental display.

The textile sector, a priority for the implementation of traceability approaches

The fashion industry (clothing and footwear) has been under scrutiny for the last ten years due to the the heavy environmental and social impacts of its activities, especially upstream of its value chain. The complexity and fragmentation of its supply chains make it one of the sectors most affected by new regulation.

Today however, few brands in the sector have visibility over their supply chains beyond the first tier of suppliers (garment manufacturers or intermediaries).
Ameliorating the traceability of the fashion industry's supply chains is a priority for marketers.

Fashion consumers, increasingly informed and aware of environmental and social issues, are demanding more transparency from brands. In Europe, 75% of consumers believe that fashion retailers should take responsibility for their supply chains and environmental impacts, and 56% say they feel discouraged to buy from a brand that does not provide information on the topic⁶.
At the same time, the use of greenwashing practices has undermined consumer confidence in brand commitments.
To be sure, some brands are already placing transparency at the heart of their traceability approach: Tex, Carrefour's textile brand, provides information regarding the emplacement at which each production stage occurs for certain ranges of baby clothes and household linen made from organically grown cotton via a QR code affixed to the products.
The textile sector is one of the priority industries for the deployment of environmental labelling to enable consumers to make informed choices. After two initial experimentation phases, conducted since 2011 to establish a common methodology, the third phase is underway until May 2022. Environmental display will then be made mandatory for the sector. The Okaïdi and Decathlon brands have actively participated in the experimental phases and more than 60% of Decathlon's textile and footwear products now have an environmental rating.

¹ Law No. 2016-1691 of December 9, 2016 on transparency, the fight against corruption and the modernization of economic life
² Law No. 2020-105 of February 10, 2020 on the fight against waste and the circular economy
³ Law n°2021-1104 of August 22, 2021 on combating climate change and strengthening resilience to its effects
⁴ Law n°2017-399 of March 27, 2017 on the duty of care of parent companies and ordering companies
⁵ Directive of The European Parliament and of The Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937
⁶ Sustainable Fashion Survey, Ipsos, Changing Markets et Clean Clothes Campaign, 2018