For the last five years, the European Union has been a vocal advocate for tighter sustainability regulations, spurring and scaling momentum towards circularity, transparency and traceability. Then, at the end of February, progress ground to a halt — and some say it began to reverse.
The change in question is the European Commission’s divisive and much-anticipated Omnibus Simplification Package, ostensibly a plan to simplify regulations and help the EU regain competitiveness after a period of stagnating growth and innovation. For the fashion industry, two key policies were on the red tape chopping block: the Corporate Sustainability Reporting Directive (CSRD), which requires large companies to publish reports on their own social and environmental risks and the risks they pose, and the Corporate Sustainability Due Diligence Directive (CSDDD), which requires large companies to identify and address adverse human rights and environmental impacts across their supply chain.
Under the proposed changes, 80 per cent fewer companies would be required to undertake sustainability reporting, and mandatory due diligence would be almost entirely limited to Tier 1 (a brand’s direct business partners). The proposal has now been submitted to the European Parliament and Council for review. Negotiations — and potentially revisions — are set to follow in April, after which both the parliament and council will need to accept the Omnibus for it to be adopted.
As the EU negotiates, the fashion industry is divided. Has the EU just issued fashion businesses a much-needed reprieve from unnecessarily complex and time-consuming bureaucracy? Or is it backtracking on hard-fought regulations and destabilising the business case for sustainable supply chains?
“If the EU says [these regulations] are not so important anymore, it may remove the need, and willingness, for many brands to engage in their supply chains,” says Marie-Luise Pörtner, global regulations specialist at certification agency Global Organic Textile Standard (GOTS). “Meaningful stakeholder engagement is completely gone with the Omnibus proposal.”
Pörtner’s concerns are echoed widely, particularly among non-governmental organisations (NGOs) and civil society organisations (CSOs). But others argue that slashing bureaucracy will — as the commission attests — create a more level playing field for the many SMEs (small and medium-sized enterprises) that make up fashion supply chains. Among those SMEs are the suppliers and manufacturers who have been disproportionately carrying the burden and cost of regulation, says Vincenzo Cangioli, president of Italian textile manufacturer Lanificio Cangioli. “Disparity in regulation is a killer, and the EU did not assess that with sufficient care [the first time],” he explains.
Could less reporting lead to more progress?
Prior to the Omnibus, some fashion brands were exercising an “excessive interpretation” of transparency rules, says Mauro Scalia, director of sustainable businesses at industry organisation Euratex — requesting not just sustainability metrics from suppliers, but sensitive information like CEO payslips. If the Omnibus goes through, it would limit how much information large fashion brands can request from suppliers with 500 employees or less, and the overall number of sustainability reporting data points would be reduced by around 70 per cent. “If policymakers want to streamline what information big players can ask of smaller ones, we welcome that,” Scalia says.
It’s not just the content of the information requested that’s impacted SME suppliers, but the sheer volume, which has been a drain on time, staff and budgets. “[Reporting] is a big issue. It takes a lot of energy from us and it’s unproductive,” says Cangioli. A single report can take three to four days to complete, and the manufacturer underwent 22 brand audits in 2024, each lasting up to two days, on top of audits by government agencies, he adds.
“During the last two years [since the CSRD entered into force] we have seen lots of companies dedicating too many efforts and resources to creating key performance indicators (KPIs) without using the data to improve performance,” says Francesca Rulli, CEO of supply chain consultancy Process Factory, which has been working with Italian suppliers to streamline and consolidate progress. With the simplifications in place, she believes SMEs will be able to act meaningfully in areas such as efficiency, chemical management and decarbonisation first, then report on it later.
The challenge is securing the necessary capital to make these changes. If the amount of sustainability data available decreases, banks will have a harder time assessing risks and opportunities, and identifying the supply chain businesses that could benefit from support, says Lewis Perkins, CEO of industry NGO and decarbonisation finance catalyst Apparel Impact Institute (Aii). In turn, this could reduce the amount of affordable financing for companies to transition away from fossil fuels or improve efficiencies in the supply chain. While the mandatory reporting burden may technically be reduced, it will still be in suppliers’ best interests to go beyond the bare minimum to access much-needed financing.
Attracting brand investment is also important. Cangioli explains that most of the reporting the manufacturer now does was initiated via brand-funded sustainability projects, before evolving into entrenched company efficiency measures. For this reason, things will carry on much as before internally — but hopefully in a more streamlined manner. “It’s extremely important and we’re going to keep on monitoring even if brands don’t ask us to,” Cangioli says.
The business case for voluntary sustainability
For Cangioli, it’s common sense to chase decarbonisation and energy efficiency because it keeps costs down in the long run. It has also helped build strong relationships with brands, because they know the manufacturer is aligned with their own sustainability goals, he says. But fashion brands are notoriously fickle in their commitments to sustainability, often flip-flopping according to quarterly financial results, so it can be difficult for suppliers to bank on long-term sustainability investments paying off and being rewarded.
There is also a question mark over how much commercial importance brands will place on supplier conduct beyond Tier 1. With looser reporting regulations in place, brands could go back to feigning ignorance over what happens further down their supply chains. Whether or not they continue to monitor this closely themselves depends on how they approach risk, explains Katie Martin, director of sustainability and innovation at risk management platform Avetta. “Reducing reporting requirements and due diligence significantly increases risk for brands. At the individual business level, the Omnibus will limit visibility into vendor practices, which will lead to absorbing the risk of potentially underperforming actors and the associated costs,” she says. With that limited visibility, a brand may rely more heavily on NGO or media reports to inform them of harmful activities carried out by indirect suppliers, making supply chain issues a much more public affair.
Reducing reputational risk remains the central driver for the environmental and social progress of brands, says Perkins. To maintain some level of oversight, brands may enforce their codes of conduct via supplier contracts, with the expectation that Tier 1 suppliers will enforce them with Tier 2 suppliers and so on. It’s a move Pörtner of GOTS says could ironically increase the burden on SMEs, who will now have to balance multiple contractual obligations, instead of just adhering to a single set of regulations.
While reputational risk will keep some brands moving in the right direction, certain suppliers are more motivated by the promise of market advantage. Multiple sources Vogue Business spoke to emphasise the role KPIs and sustainability reporting play in securing a coveted spot on a preferred suppliers list, which pre-dates EU regulations. For now, those preferred suppliers benefit from funding for improvements such as heat pumps or electrification, but Perkins says money is limited, and in as little as two to three years they will be expected to replicate today’s subsidised interventions on their own. “They have a market advantage to do the work sooner rather than later,” he says.
In a bid to boost competitiveness and take back control of its supply chains, the European Union is streamlining its sustainability regulations. These are the debates, deadlines and names to know.
The trouble with business as usual
There is an emerging sentiment that progress in the supply chain will roll on with or without the Omnibus. “Although we’re disappointed by what looks like a watering down, in all honesty, it won’t change much for us,” says Edward Brial, co-founder and CEO of Materra, a tech company working with farmers and brands to expand adoption of regenerative cotton. “Climate transition plans and adhering to the Science Based Targets initiative (SBTi), CSRD and upcoming Forest, Land and Agriculture (FLAG) targets are still big priorities for global brands, including the ones we work with.”
It’s a heartening perspective, but there’s a catch: business as usual can work both ways. Anja Sadock, SVP of marketing at traceability platform TrusTrace, says that the brands she works with see the Omnibus as an opportunity to spend less time reporting and more time taking action — but believes others will exhale with relief and not push as hard without scrutiny. Regulation is a crucial lever to bring the laggers up to speed, but the EU is betting on notoriously ineffective voluntary action.
“For us, the case for legal, mandatory human rights due diligence is clear. It will improve supply chains and it will improve workers’ conditions. There must be consequences if companies don’t abide by it because we have been running under a voluntary system already for years, and it clearly hasn’t worked,” says Giuseppe Cioffo, corporate accountability coordinator at Clean Clothes Campaign, the garment industry s largest alliance of labour unions and NGOs. “This is a realignment of power towards business interests, away from production workers.”
If brand ethics are the guiding light for uncovering — and remedying — supply chain abuses, that leaves the most vulnerable in the supply chain at the whim of the most powerful, Cioffo says. Supply chain workers, unions and NGOs could be left navigating a landscape with fewer “hard stops” in the law. For example, brands would no longer be required to terminate supplier contracts when abuses are identified — currently a crucial lever for systemic improvements, he says. It could also undermine the active approach to supply chain risk management that was vital for uncovering those abuses, shifting supply chain management into a compliance exercise. “There is less remedy opportunity, fewer remedy mechanisms and less clarity with regards to who [workers and victims] would need to address when their rights are violated,” says Cioffo.
How supply chains change shape under the Omnibus proposal will ultimately depend on where each actor is positioned within it, says Perkins. Existing disparities are likely to endure as the EU primarily seeks to protect its own competitive interests. “Regulation is the holy grail for all of us,” he explains. “Without it, the industry is going to have to self-regulate in order to be at the table.”
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