The ABCs of ESG Policy: Part 2, Disclosure

As demand spikes for more sustainable products, the apparel and footwear industry has been quick to share about its commitments – “green” statements are popping up anywhere from packaging to investor reports. Up until now, what a business can claim has been relatively unregulated. However, new policies are changing how brands can communicate about sustainability, and businesses will have to move away from using vague terms like “eco-friendly” to imply improved impact. 

In part two of our Environmental Social Governance (ESG) policy blog series, we’re exploring disclosure policies that will begin shaping how businesses can frame their sustainability practices to investors and customers. Soon, there will be a more streamlined, clear set of laws to help businesses clearly communicate with stakeholders. Your business must soon have the data to prove your sustainability progress.

Supply Chain Disclosure Policies to Know

New disclosure policies are emerging across the globe. Here’s a breakdown of upcoming changes in several major markets. 

 The US Securities and Exchange Commission is expected to require most public US companies to include specific ESG disclosure as part of their public filings. While the exact disclosures haven’t yet been released, public companies will likely be required to report quantitative metrics on greenhouse gas emissions, financial impacts of climate change, and progress towards climate-related goals. 

The European Commission proposed a package of regulations that would create a common approach for how its 27 countries create and label products, with the Ecodesign for Sustainable Products Regulation (ESPR) at its cornerstone. On top of setting standards for how products are made, ESPR would also create a framework for how businesses share product sustainability information – energy use, recycled content, and a repairability score are all metrics that businesses may be required to disclose. Businesses can expect the criteria from ESPR to roll into the popular trust mark and widely adopted EU Ecolabel, streamlining how businesses report impact across frameworks. 

Canada isn’t far behind either. By 2024, federally regulated entities including the country’s banks and insurance companies will have to report on their climate impact based on a framework set by the Task Force on Climate-related Financial Disclosures (TCFD). While the requirement doesn’t directly impact consumer goods businesses, banks and insurance companies will have to collect and assess information on the climate risks and emissions of their clients, which will, by design, “reach a broad spectrum of the Canadian economy.”

Similarly in New Zealand, banks, insurers and investment managers will soon be required to report the impacts of climate change on their business. Stakeholders will have to explain how they would manage climate-related risks and opportunities, based on regulations set by the External Reporting Board. 

No matter where your organization does business, these far-reaching policies will require your business to disclose impact in numbers that are recognized across reporting regimes. It’s important to find tools that will help you calculate and share social and environmental impact data that fits into these new molds.

How to Prepare for Disclosure Policies

Legislation can affect your business in multiple ways – whether governments directly require you to share data, or if you’re someone else’s supply chain partner. Start future-proofing by setting up a framework to collect and report your own impact data. Because the policy landscape is likely to continue evolving, and new countries may create slightly altered versions of how businesses will have to disclose product impact, your company will need data that can plug into multiple different regulatory frameworks.

Over 30,000 manufacturing facilities use Higg assessments to report their environmental and social impact data every year, and send them to hundreds of brands and retailers across the globe. If your business doesn’t already track impact, it’s likely that a manufacturer in your network is already familiar with Higg assessments like the Facility Environmental Module (FEM) or the Facility Social & Labor Module (FSLM), and could share historic data with your brand to jumpstart your data collection. If your business uses a product lifecycle management (PLM) software such as Centric, DeSL, or PTC, our API helps bring Higg impact data into your existing PLM, so you can preserve your workflows. 

While collecting impact across your suppliers will help you view a large portion of the puzzle, your business may also benefit from collecting granular data at the product level, and reduce impact before a product is ever made. Product designers and sustainability analysts are using the Product Design Tools – comprising the Product Module (PM) and Materials Sustainability Index (MSI) – to calculate garments’ impact in areas including water, chemical use, and carbon emissions. Developed using the EU’s drafted Product Environmental Footprint Category Rules (PEFCR) as a point of reference, the Product Module not only helps brands prepare for impact disclosure, but also EU due diligence regulations – they automatically measure performance across five Product Environmental Footprint (PEF) categories. Teams can understand the tradeoffs of using certain treatments or fabrics, and make adjustments to create the most sustainable product possible. Businesses like cycling apparel brand Pearl iZumi are already using Product Design Tool data to more transparently disclose impact such as associated carbon emissions. 

Your business should start the shift to a data collection platform that streamlines how you manage impact – from providing granular product-level detail, all the way to a bird’s-eye view of value chain impact, including your manufacturers’ facilities, where arguably the majority of environmental impact occurs. Higg is here to help build impact strategies that not only help businesses prepare for ESG regulations, but most importantly, manage impact and accelerate progress. Stay tuned for Part 3 of our blog series, Improvement. Read Part 1 of the series, Due Diligence, here.

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