“According to EU rules, companies must provide truthful information to consumers and must refrain from deceiving them in order to influence their choices. EU rules on unfair commercial practices allow national enforcement authorities to curb a wide range of unfair commercial practices.” So reads part of the article published at the end of February on the European Commission’s website about Zalando’s commitment, following a dialogue with the European Commission itself, to remove misleading sustainability labels and icons appearing next to products offered on its platform. Indications that could mislead consumers about the environmental characteristics of products. Instead, Zalando will provide clear information about the environmental benefits of products, such as the percentage of recycled materials used.
This is just a case study to introduce the topic of this article which would like to make the shoe and bag production chain aware of the important changes coming up on the sustainability front: the Green Deal promoted by the European Union is in full implementation and companies need to be increasingly aware of this so as to organise themselves adequately to comply with the demands coming from their customers, on pain of a loss of competitiveness that could put them out of the market.
STATE OF THE ART OF EUROPEAN REGULATIONS
European regulations are pushing companies towards environmentally friendly design, reporting and monitoring of supply chains in order to provide reliable and measurable information.
After the entry into force of the Zero Deforestation Supply Chains Regulation (approved in 2023), CSRD and Green Claims, the European Parliament passed two more measures on 24 April: the Ecodesign Regulation and the CSDDD Directive. The Zero Deforestation Supply Chain Regulation and the Corporate Sustainability Due Diligence Directive (CSDDD) require companies to have greater control over their supply chain. The most recent CSDDD requires large companies (1,000 employees and 450 million revenue and above) to check that practices that harm the environment, workers and local communities do not occur along their supply chains.
The Green Claims and CSRD directives, on the other hand, are about communicating the level of sustainability of products and the impact of fashion companies. They aim to reduce greenwashing practices by substituting reliable or measurable information for ‘green’ and ‘sustainable’ claims and consolidate sustainability reporting obligations.
The approved Ecodesign Regulation (ESPR) will oblige companies, by 31 December 2030, to design products to be circular and durable, to equip them with a digital passport tracking their production steps and to provide consumers with information on how to maintain or repair the product. Finally, it will prohibit the destruction of unsold products.
All these regulations envisage a cultural change in a broad sense for companies: measuring the real impact of products based on scientific data.
THE DIFFICULT PROCESS OF THE CSDDD STANDARD
Examining the complicated process that led to the approval of the CSDD standard allows us to highlight the pros and cons of the legislative framework from the outset.
The directive, which was approved at second reading in Strasbourg on 24 April, had a complex process that led to a significant reduction in its scope of application.
“Thanks to pressure from the Italian Confindustria (Confederation of Italian Industry) and the German equivalent, at the urging of Confindustria Moda together with national trade associations, the EU was asked to revise the rule that initially would have involved all large and medium-sized companies in our sector”, says Giovanna Ceolini, President of Assocalzaturifici. “The revision of the rule in terms of timing and implementation has avoided a devastating impact on the entire fashion production chain”.
Specifies Martina Schiuma, Impact Manager at The ID Factory: “Italy has opposed these laws not so much on the merits, which everyone considers to be correct, but because the costs of compliance for a company that has never structured processes aimed at due diligence dynamics are not measurable. Because the investments it implies do not only concern the auditing of suppliers, but the company structure itself, at the level of management systems, which is often inadequate. The issue becomes more complicated if we consider that, to date, the management systems used by companies are many, and not shared along the supply chain. It is in this specific context that The ID Factory and Ympact were born, two SaaS solutions structured for the collection of extended supply chain data and the return of this data within the management systems currently in use in each company”.
A regulation approved following many compromises that particularly concerned the company size of application. Although the rule, rewritten with respect to December 2023, reduces the companies involved by almost 50%, in reality the implications on smaller companies remain and will be very real, even if to date little perceived.
ALL COMPANIES ARE AFFECTED
Right now, according to Ceolini, the real issue is not to ask which companies actually fall within the scope of the rule, but what will be the impact of the rule on the many companies, large and small, that work for the most prominent brands. “There is still very little awareness in the industry of how much these regulations will affect all the companies in the supply chain, which will be obliged to provide data on their production activities”, says Ceolini.
Francesca Rulli, CEO and Founder of Process Factory and 4sustainability®, also agrees, explaining her point of view by broadening the picture: “Europe is the first continent aiming for Net Zero by 2050, so it pays very strong attention to the issue of reducing environmental impact.
Simplifying, the Green Deal’s regulatory complex covers 3 areas:
– ECO-DESIGN: which pushes organisations to design the product differently right from its conception;
– SUPPLY CHAIN: which broadens the due diligence on the supply chain to assess the environmental and social risks and impacts of the production system;
– PRODUCT: which leads to the management of data on the product and its production method through the Digital Product Passport to give transparency to the consumer and the logic of extended responsibility or circularity”.
According to Rulli, this strategic framework can only lead to all companies having to map, analyse and assess their risks and impacts, and if necessary implement strategies to limit or solve them: “When we ask ourselves – continues Rulli – to whom these regulations apply, the formally correct answer is ‘only to the largest companies for the time being’, but in reality all the links upstream in the chain are inevitably involved, the rationale of the whole strategy being to control production systems on the one hand and to extend the life cycle on the other.
And for small or medium-sized companies, it is important that this awareness spreads: the challenge to be faced is to consciously manage their data. It is essential that companies collect data competently, respond to assessments and monitoring systems with a scientific and structured approach, because that information and that data will determine their rating, their impact assessment. “It is essential to be aware that the data you provide is relevant and determines risk and impact assessments that weigh on your own business and that of your customers”, reiterates Rulli. From these considerations and from the collaboration with hundreds of companies in the fashion supply chain as well as numerous Brands, the 4sustainability® system was born, which allows the collection of impact data on 6 environmental and social dimensions aligned to the best market methodologies, stimulating the implementation of risk and impact reduction actions periodically verified to design from green and social washing. There are now thousands of supply chain companies on the Ympact platform running the 4sustainability model, of which more than 500 have verified data and more than 250 have achieved certified levels of implementation. It is precisely these supply chains, capable of managing data and improving it, that are better able to meet current market demands and, tomorrow, will face the challenges of regulation.
WHAT TO DO
In 2026, the first reports on the tracking of supply chain risks involving Tier 1 and 2 will have to be formulated. So, what to do in view of these deadlines?
Let’s start with the data collection methodology on which the regulation is based, the one proposed by the OECD – Organisation for Economic Co-operation and Development, which outlines the 4 steps needed to express one’s ability to manage risks:
– map suppliers;
– collect data to assess risk and environmental and social impact;
– implementing mitigation actions (correction of processes, correction of risk assumptions, even redesigning one’s supply chain);
– report periodically. This step is linked to the Sustainability Reporting legislation.
“If these are the requirements, it is easy to understand – Martina Schiuma argues – that companies will also have to structure themselves from a technological point of view, since the duty of reporting will force them to abandon manual, poorly organised and fragmented methods of data collection, otherwise they will be unable to demonstrate the validity of their actions.
Therefore, we will not only witness a social and environmental revolution, but also a technological one, because if those players who have not been able to promote their activities through the new online media have lost their customers, today those who will not be able to structure themselves with an internal data collection and a system of analysis and sharing with their corporate customers will suffer a considerable loss of competitiveness, to the point of risking being ousted from the market”.
Schiuma continues with a very clear piece of advice: “It is important to equip oneself, as a company or, even better, as a group of companies, with one’s own data collection and analysis platform so as to be able to manage it in the best possible way without ‘suffering’ customer demands. Those who do not choose this path risk finding themselves in the situation of having to report on many different systems, which would turn into a cost rather than added value. The moment that the account of my virtuous actions is available to everyone without the need for special efforts, but only against a good organisation, a potential competitive advantage over competitors would be achieved”.
Lorenzo Saa of Clarity AI is of the same opinion: “You have to be prepared to have in-depth data, people and systems capable of managing it and delivering it to your customers, bearing in mind that the demands might be similar in substance but different in form. One has to be ready to change one’s processes in case they do not conform to customers’ risk assessments”. Given the complexity of the subject, Clarity AI is betting heavily, as the name suggests, on the use of Artificial Intelligence: “Because we think it is a tool through which we can bring scale, efficiency and quality to the information that we then make available to investors, clients and consumers. You think that once you get past the first level of suppliers, you very quickly find yourself having to report on a wide range of different companies. Perhaps located in countries outside the EU and that provide very little information, which can also be difficult to find due to the language and cultural barrier. In this case, the help of Artificial Intelligence can be not only successful, but also indispensable”.
Giovanna Ceolini notes, however, a critical issue inherent in the regulations: “The sustainability certification label for footwear companies VCS – Verified and Certified Steps, which we are proposing as Assocalzaturifici, responds exactly to the demands and requests for data sharing and certification by major brands. But footwear companies still have a very lukewarm approach to the topic of sustainability. The reason is simple: all the platforms available today are a cost that companies struggle to meet. We are advising companies to equip themselves with these tools, but we realise the sacrifice and the difficulties that companies have to face”.
CRITICALITY
This is not the only shadow hanging over the new European legislation.
“It is certainly important to record the courage and positive impact of the regulations that the EU is proposing; however, one cannot fail to note some difficulties in grounding them”, says Saa of Clarity AI. And they continue: “The lack of specific parameters indicating which data to collect, how to collect it and according to which criteria to assess risk, expose the industry to uncertainty, confusion and relativism. The supply chain could be faced with a considerable amount of different requests, including data requests from its customers.
More detail on the specific methodologies to be adopted in data collection and evaluation by the European Commission or other authorities may be useful”.
Ceolini elaborates further: “Unfortunately, those that have been passed are directives and not regulations. Therefore, it will be up to each state to apply them and formulate its own laws in this regard. This is a very negative aspect because there is a high risk of inhomogeneity within the European Union itself. The landscape in which we will have to operate will be even more complex”.
Assocalzaturifici warns against 3 other critical aspects: “The obligation for large brands to control and be responsible for the supply chains could lead to the further growth of the take-over phenomenon, which has already been going on for some time. This is a systemic risk, as it could impoverish our industry in terms of skills and human resources.
Another issue that we are strongly submitting to the legislator concerns international competition. It would be good if the obligations to which European production is currently subject were also extended to all products sold in Europe, otherwise the risk that the market will be further distorted by non-compliant, but much more competitive imports will increase even more”.
Finally, Assocalzaturifici notes a fact: “It is true that companies must become more aware of the importance of sustainability issues and plan development plans to structure themselves in this sense. At the same time, at the moment, the sustainability theme is very much felt upstream of the product, i.e. by big brands, but much less so downstream, by consumers. Our data, in fact, tell of a consumer who today does not recognise any pluses in sustainable products. It is not true that buyers are willing to spend more for a sustainable product. Today, the market is strongly polarised between those who can still afford luxury, which has in any case lost its inspirational allure, and those who are looking to buy good mid-range products while paying close attention to price”.
CONCLUSION
“Italy must live this historic moment as a great opportunity to capitalise on the great work done in the past decades, measure it and communicate it. We are excellent in many areas, we must also become excellent in data management”, Francesca Rulli concludes positively.
Organising oneself to comply with the new regulations can therefore become a competitive advantage, despite the many difficulties highlighted, but it must be done as soon as possible through training and corporate structuring processes that can no longer be postponed, as well as structured and market-validated tools, from which users will easily benefit.
4SUSTINABILITY
4sustainability.it
It is an innovative implementation framework and a registered trademark certifying the sustainability performance of the fashion and luxury supply chain.
ASSOCALZATURIFICI
assocalzaturifici.it
Assocalzaturifici is the Association that represents, on a national level, industrial companies operating in the footwear production sector. It has about 500 member companies.
CLARITY AI
clarity.ai
A sustainability technology company that provides data, insights, and tools to help investors, companies and consumers make their decisions through a sustainability lens.
THE ID FACTORY
theidfactory.com
The ID Factory is a supply chain traceability platform (SaaS) that, through the creation of a unique digital passport, enables fashion companies to achieve complete transparency of their global supply chain.
