Compliance Regulation in Fashion: An ESG Manager’s Guide

In early 2025, the European Union introduced sweeping regulations targeting fast fashion and textile waste, mandating that producers fund the collection, sorting, and recycling of end-of-life garments. These measures, part of an extended producer responsibility (EPR) scheme, apply to both EU-based and international e-commerce retailers, signaling a significant shift in the global fashion industry's operational dynamics.

Simultaneously, in the United States, California enacted the Fashion Environmental Accountability Act (AB405), compelling fashion brands to measure and disclose their greenhouse gas emissions across the entire product lifecycle and set reduction targets aligned with the state's climate goals. 

New York followed suit with the reintroduction of the New York Fashion Sustainability and Social Accountability Act (NYFSSA), which, if passed, would require companies to map their supply chains comprehensively and publicly disclose environmental and social due diligence efforts.

These developments underscore a global trend: fashion brands are under increasing pressure to not only comply with a patchwork of evolving regulations but also to proactively demonstrate genuine commitment to sustainability and ethical practices.

In this article, we'll explore how the tightening web of compliance regulations is reshaping the fashion industry, the challenges ESG managers of fashion companies face when adapting to these changes, and the actionable strategies to stay ahead in this new regulatory landscape.

How Current Fashion Compliance Programs Operate — and Why They Must Evolve

Let’s begin by examining traditional compliance frameworks. Historically, fashion compliance programs have centred around three main “tent poles.” These include:

• Product Safety Standards: Ensuring garments meet safety regulations concerning flammability, chemical content, and labeling.

• Supplier Audits: Conducting periodic assessments of manufacturing partners to verify adherence to labor laws and environmental standards.

• Documentation and Manuals: Maintaining comprehensive records detailing business operations, product lines, and vendor relationships.

What sets traditional frameworks apart from the newly emerging regulations, as we’ll learn more about below, is a singular focus on Tier 1 suppliers. 

Furthermore, actions and recommendations within the traditional compliance requirements are usually reactive. So, they address issues post-occurrence, rather than preventing them by pivoting away from production processes, materials, and/or conditions that create the issues.

In contrast, the emerging regulatory landscape is bringing global shifts with mandates emphasizing:

• Extended Producer Responsibility (EPR): Requiring brands to manage the end-of-life impact of their products, including recycling and waste reduction initiatives.

• Supply Chain Transparency: Mandating detailed disclosures of supply chain practices, including sourcing and labor conditions.

• Environmental and Social Governance (ESG) Reporting: Compelling companies to report on environmental impact, social responsibility, and governance practices.

As you might expect, there’s a distinctly proactive approach to compliance for fashion brands who intend to (and are required to) remain “in the green,” as it were. 

But it also calls for a re-thinking of the entire logistics infrastructure because this more comprehensive approach to compliance would require brands to get beyond immediate suppliers and provide visibility, tracking, and auditing across the entire supply chain — inclusive of tiers 2 and 3.

Case studies: Harnessing Innovative Tools and Processes to Better Manage Compliance

As an article by WTW about the reputational risks to fashion brands found, the fashion sector is acutely aware of the importance of proactive compliance. To that end, brands are increasingly adopting innovative tools and processes to manage these risks effectively:

1. Digital Product Passports (DPPs)

DPPs are emerging as a key tool for enabling traceability and regulatory compliance under the EU’s upcoming Ecodesign for Sustainable Products Regulation (ESPR). 

In 2024, brands like Chloé and Puma piloted DPPs in collaboration with the CIRPASS consortium and EON platform. These passports consolidate data on a product’s lifecycle — from material sourcing to end-of-life — and make it accessible via a QR code.

2. Blockchain-Based Traceability Platforms

Blockchain tools help brands ensure that supply chain data is tamper-proof, verifiable, and shared in real time — which is critical under regulations like the German Supply Chain Act and the CSRD. 

Both Armani and Prada used blockchain technology to this end: the former partnered with the blockchain company Arianee to digitize product certificates and enable traceability while the latter used Aura Blockchain Consortium to certify authenticity and track sourcing.

3. Supplier Data Management Platforms & AI-Driven Risk Monitoring and Screening Tools

Integrating tech solutions into pre-existing compliance workflows is the key to reducing both cost and heavy workloads when it comes to compliance tracking. These types of platforms help ESG managers collect, standardize, and analyze supplier data for audit readiness and compliance reporting.

One example is the Retraced platform, which allows brands to map supply chains down to raw material tiers, collect supplier documentation, and flag ESG risks. Meanwhile, options like Open Supply Hub (formerly Open Apparel Registry) can also help map factories and improve supply chain transparency.

Additionally, ESG managers can also bank on AI tools to scan thousands of suppliers, conduct due diligence to detect forced labor risks in Tier 1–4 suppliers, and track ESG scores to alert brands to risks in real time.

4. Integration of Sustainability Data Into ERP Systems

Tools are only as strong as the tactics that harness them. 

To actually make use of the data and tech you’re working with, you’ll need to embed ESG KPIs directly into enterprise resource planning (ERP) systems — as Stella McCartney did when integrating ESG metrics into financial forecasting and supply chain decisions using advanced data tools. These types of decisions ultimately ground sustainability goals into business areas like inventory management, procurement, and costing.

5 Strategic Recommendations for ESG Managers: Meeting Compliance Requirements Without Slowing Innovation

To help ESG managers adapt to these evolving requirements without disrupting production, we’ve developed a chart that offers strategic changes, with a clear action step to help implementation right away.

Getting internal systems aligned with the latest compliance demands is a big lift — but it’s only half the battle. ESG managers also need to understand what’s on the line if those efforts fall short. 

Today, non-compliance isn’t just a regulatory red flag — it’s a business risk with real financial and reputational fallout. Up next, we’ll break down the true costs of falling behind and why proactive compliance is fast becoming a competitive advantage.

Why the Cost of Non-Compliance Hits Fashion Brands Harder

Once a “slow-burn” risk, non-compliance, particularly in the fashion sector is an immediate operational threat. 

And while it’s true that most industries face mounting regulatory pressure, fashion holds a unique position: companies in the sector rely on globalized production models, outsourced tiers of suppliers, and marketing-heavy public profiles. 

To understand why, we need to look back: 

• Historically, compliance frameworks in fashion were fragmented and loosely enforced. 

• Brands were only required to meet basic health, safety, and labor standards—often self-reported, rarely audited, and frequently outsourced to third-party certifiers. 

• Environmental disclosures were largely voluntary. 

• Audits were infrequent, predictable, and narrowly focused.

Are you seeing a pattern here? This patchwork approach created massive loopholes. With limited regulatory enforcement and no universal sustainability reporting mandate, it was easy for fashion companies to underinvest in traceability, transparency, or long-term supplier relationships—and still grow revenue.

For instance, a brand could remain “technically” compliant with domestic laws but still source from suppliers with opaque or exploitative practices abroad. These are the types of gaps enabling widespread greenwashing and labor violations to remain unchecked — for decades.

That’s why regulatory shifts ushered in by instruments like the EU’s Corporate Sustainability Reporting Directive (CSRD), the German Supply Chain Due Diligence Act, and the Uyghur Forced Labor Prevention Act (UFLPA) are so significant and promise to give teeth to a priority that was always present but never truly enforced:  

Failing to comply is now both measurable and punishable — with multinational implications. 

How Compliance Programs Need to Adapt to the New Regulatory Environment

The fashion industry's vulnerability lies in its visibility: the sector sells identity and values as much as garments, and reputational damage here is both fast-moving and costly to reverse. So non-compliance leads to greater costs than legal penalties — extending to long-term, brand-damaging headlines, consumer backlash, and eroded stakeholder trust.

In fact, a study published in Fashion and Textiles found that negative corporate reputation significantly deteriorates consumers' attitudes and purchase intentions — and they don’t discern between the “types” of reputational damage, which makes corporate social responsibility a key area of concern for any ESG manager.

Translation: the stakes are uniquely high for fashion brands, where reputational damage can swiftly lead to tangible losses in consumer trust and sales — which means the bar for compliance is high as well.

Now, it’s important to note that a “high bar” doesn’t mean a complex, tedious, or even undoable standard to meet. And there are two pieces of evidence to consider when trying to make a case for a robust, internal compliance framework: 

Firstly, it may be hard to teach an old dog new tricks but, evidently, it’s not hard to teach a big dog new tricks. So if you’re running a lean team, you’ve got an even better chance at implementing proper compliance.

Take Nike, for example. Though its margins are narrow, the global apparel brand achieved a 40% reduction in greenhouse gas emissions from its owned or operated facilities and 93% are now running on renewable electricity as of 2025. 

If large, enterprise-level brands can pivot so effectively, smaller and medium-sized fashion brands are extremely well-positioned to be even more agile, innovative, and swift with their internal changes to operations and logistics — as long as they make strategic business investments in solutions like traceability platforms, consistent data collection and reporting, and long-term partnerships with vendors in their supply chains.

Secondly, achieving compliance is not about size, complexity, nor even budget — it’s about mindset. Consider that, in contrast to Nike’s clearly defined, well-stated, and deadline-controlled goals, fast fashion companies experienced a “decline in their brand strength and reputation [...] H&M saw its brand value drop 26%, and Zara declined by 15%. Their slump in value was due to vague communication and a lack of transparency regarding sustainability,” according to the Brand Finance Apparel 50 2023 Report.

In other words, ESG managers should know that clarity, timeliness, and a well-planned transition to make compliance and traceability an operational reality is what it truly takes. 

You Can’t Spell Compliance Regulation Without a “T”

There’s a little secret to compliance in fashion: it’s the word, “transparency.”

We’ve seen how non-compliance doesn’t just lead to fines — it results in missed partnerships, delistings from retailer platforms, stalled product launches, consumer boycotts, and slower access to sustainable financing. 

And, to drive it forward, ESG leaders must show how smart compliance protects brand value, opens market access, and strengthens long-term resilience — in other words, operationalizing transparency so that it’s a competitive differentiator. 

To go beyond grand promises that result in no real action, you’ll need to break “transparency” down into two aspects: traceability and consistent reporting. And, unsurprisingly, this is precisely what the most recent EU regulations want from fashion brands anyway.

Traceability in fashion is the ability to track a product from raw materials to finished goods. And don’t let the behaviours of 50% of the world's largest fashion brands that disclose little or no information about their supply chain mislead you — their disclosure is imminent. Instead, focus on the 12% of brands worldwide that have managed to provide information, consistently, about their raw material suppliers. 

For ESG managers inside fashion brands, the key that frees them from the dual burdens of non-compliance risks and maintaining compliance frameworks internally is this: build internal support for compliance initiatives means reframing them not just as risk mitigation, but as strategic business investments in anything and everything that supports visibility, transparency, and traceability. 

So, from the costs of non-compliance to the cost benefits to be gained from compliance embedded in transparency, consider the following facts:

Consumers have demonstrated a clear preference for ethical brands

According to a 2021 Deloitte survey, 58% of consumers have chosen ethical and sustainable clothing brands, and 1 in 3 stopped purchasing brands because of concerns related to the environment and social responsibility. Even if revenue is the bottom-line driver of change here, meeting compliance standards comes as a byproduct of putting consumers — and profits — first. 

The business case makes itself.

Transparency builds customer loyalty

Another notable benefit is that it acts as a buffet against one of the costs of non-compliance we examined earlier: reputational damage. 

Remember how we discovered that consumers’ purchase decisions are negatively affected by negative PR crises — but they’re unable to distinguish between sustainability-related issues and other types of CSR? Well, research indicates that nearly nine out of ten shoppers will stick with a company during a brand crisis if that company has a history of being transparent. 

Think of it compliance — and all the related activities you’ll need to implement to support it — like a comprehensive “insurance policy.”

You can drive transparency at the supplier level without alienating relationships

A survey highlighted that over 80% of fashion brands consider environmental, social, and governance certifications, transparency, and traceability as prerequisites in supplier selection. 

Additionally, the survey also discovered the tactics and methods brands were relying on to remain “in the know” about their suppliers. 92% of those surveyed used scorecards to audit suppliers and 78% relied on third-party audits (making data a key component operationalizing sustainability). 

Building Resilient Compliance Processes for the Future

Resilient compliance isn’t built overnight. It requires forward-looking processes that treat transparency as a strategic asset, not an administrative burden. This means investing in interoperable data systems, equipping supplier networks with traceability tools, and embedding ESG accountability across governance, design, and sourcing functions.

The fashion brands that thrive in this new era won’t be the ones that avoid risk — they’ll be the ones that manage it dynamically. With the right foundation, compliance can become more than a requirement — it can become a lever for innovation, trust, and long-term brand value.