New Sustainability Reporting Standards for the Clothing and Textile Industry

The international clothing and textile sector will have to comply with the first global sustainability reporting standards, which will become mandatory in many countries worldwide from January 1st, 2024.

This will involve all European Union (EU) countries, the United Kingdom, Canada, South Africa, and Australia.

After being approved by the International Sustainability Standards Board (ISSB) in February, the new global sustainability reporting standards will be published by June. 

These sustainability reporting standards measure how companies protect themselves from environmental risks (especially climate-related risks) and other sustainability issues, such as avoiding the use of forced or low-cost labor.

Investors and market operators require transparent, comparable, and credible information to make choices in line with a more sustainable economic approach.

This is important to avoid financing companies that engage in greenwashing practices instead of committing to real environmental, social, and governance issues.

The International Financial Reporting Standards

The first two International Sustainability Standards Board are:

These two standards detail how clothing and textile companies can report on how they are affected by climate change and how they are preparing to address these issues, which can impact their profits.

Their goal is to help global investors better assess the long-term value of listed companies, with sustainability reports issued alongside standard financial reports. 

The ISSB President Emmanuel Faber said “the standards will help to achieve this goal with a new reporting language that reformulates cultures, organizations, and business processes.

Fighting climate change and demonstrating good environmental practice against potential greenwashing claims.

The final draft of S2 on climate disclosures has a special appendix that explains how clothing brands and manufacturers should specifically address this issue.

It instructs clothing brands and manufacturers to report the “percentage of third-party certified raw materials according to an environmental and/or social sustainability standard,” declaring the percentage covered by each standard.

The number of their suppliers who transact directly with them must also be declared: “first-tier suppliers,” such as finished product manufacturers, cutting and sewing facilities, and “second-tier suppliers,” such as “producers, processing facilities, and raw material extraction suppliers (e.g., mills, dyehouses and wash plants, various manufacturers, tanneries, embroiderers, screen printers, farms and/or slaughterhouses).”

Key objective of the standards: identify companies that are truly on a path to sustainable profits.

Through these standards, it is shown how a company responds in an uncertain world:

“The ability of companies to manage potential material shortages, supply chain disruptions, price volatility, and reputational risks is made more difficult by sourcing materials from geographically diverse regions through supply chains that often lack transparency.

The ineffective management of this issue can lead to reduced margins, limited revenue growth, and/or higher capital costs.”

Companies that are preparing to or are currently drafting their financial statements should use existing voluntary frameworks and guidelines for sustainability reporting in the period leading up to the issuance of the ISSB standards.

As stated by ISSB, efforts made now for sustainability reporting issues will set the stage for a much more sustainable future for the industry.

How other states are catching up

The United Kingdom, Singapore, Japan, and others have already stated that they could base their sustainability standards on the ISSB guidelines.

The EU is considering the possibility of adding further reporting requirements such as declaring information about their environmental and climate impact, as well as how climate and environment impact their profits: its mandatory detailed standards should be published by June 2023, with recent drafts reflecting the ISSB standard structures.

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