5 FAQ on the New York Fashion Act

The proposed New York Fashion Act would mandate accountability for every fashion retail seller and fashion manufacturer doing business in New York to a defined set of environmental and social standards. Accountability methods include disclosing environmental and social due diligence policies, processes, findings, and plans for prevention and improvement.

Every fashion retail seller and fashion manufacturer doing business in the state that has annual worldwide gross receipts that exceed $100 million must provide disclosures in line with the requirements of this act.

A “fashion retail seller” is a business entity that lists retail trade as its principal business activity in the state of New York, as reported on the entity’s state business tax return, and that primarily sells articles of apparel or footwear.

A “fashion manufacturer” is defined as a business entity that lists manufacturing as its principal business activity in the state of New York, as reported on the entity’s state business tax return, and that primarily manufactures articles of apparel or footwear.

In its current form, the proposed New York Fashion Act has extensive environmental and social reporting requirements. In-scope businesses will need to undertake a variety of due diligence efforts including, but not limited to:

• Supply chain mapping, specifically requiring a minimum percentage of suppliers by volume to be mapped
• An impact and due diligence disclosure, including a social and environmental sustainability report with explanations on company policies, processes, risk mitigation, and findings
• Disclosure on adverse environmental and social impacts, including greenhouse gas reporting, chemical management, median wage of workers, annual volume and type of material produced, and more
• Targets set for impact reductions, tracking due diligence implementation results, and plans to report on the results

Though some details may change, companies should be prepared to perform due diligence and report findings within a year after the act becomes law.

New York’s Attorney General will lead enforcement, and a report listing compliant versus noncompliant reporting companies might be included. If found noncompliant, companies will have a three-month period to correct noncompliance after notification from the Attorney General.

If a company is not compliant within three months, it could cost up to 2% of financial revenue of $450 million or more, which would be deposited into the community benefit fund and used to financially support environmental initiatives.

Global supply chain compliance has become increasingly complex, and it can be a challenge to navigate all applicable regulations and reporting requirements in addition to managing customer and investor expectations.

Planning for compliance with the New York Fashion Act and similar policies should be part of a company’s ESG program. Due diligence regulations are constantly emerging, changing, and becoming more stringent – proven by the recent release of the Uyghur Forced Labor Prevention and the German Supply Chain Act, both of which require some level of supply chain mapping. Luckily, many emerging due diligence requirements at least partially align with one another.

It is important for organizations to mature their ESG programs to be able to respond proactively to new requirements rather than reactively to state, federal, or global legislation and requirements as they become law. Though some aspects of environmental and human rights due diligence reporting are currently voluntary, the importance of a comprehensive ESG strategy that encompasses reporting and other ESG issues is growing more prescient.

Combining voluntary due diligence with a company’s existing product and supply chain compliance programs – such as chemical compliance, California Proposition 65, conflict minerals, anti-human trafficking, and sustainability reporting – creates a robust responsible sourcing program that helps companies prepare for mandatory compliance.

Though the New York Fashion Act and similar upcoming bills are not yet law, it is vital for companies to expand on existing responsible sourcing efforts and implement new efforts as needed to avoid falling into noncompliance.