Transparency and Traceability - A Challenge for the Fashion Industry on its Way to Circularity

With the arrival of the EU Strategy for Sustainable and Circular Textiles earlier this year, the EU once more stresses traceability and transparency as one of the top-priorities in the transformation of the fashion industry towards more sustainability. Importantly, this pressure not only comes from regulators. Equally, consumers, governments, and civil society are demanding responsible business practices and call upon the industry to address the negative impacts in the areas of human rights, the environment, and human health.

But how is this connected to circularity?

The positive effects of enhanced traceability and transparency on social sustainability go hand in hand with environmental sustainability. For environmental sustainability, however, it is necessary to transform the complex fashion production apparatus into a circular model. Hence, embracing the principles of the circular economy constitutes a necessary step toward economic growth and development that respects the environment through the efficient use of natural resources, as well as sustainable production and consumption models.

However, due to the systemic nature and complexity of the circular economy, full circularity can only be achieved in a common effort of all involved stakeholders. Of course, on a single brand or company level, becoming circular can be reduced to the implementation of circularity across the individual value chains, which results in using circular material inputs, increasing longevity through higher product quality and repairability, closing energy streams in production, shortening supply chains or expanding the life-time of new collections. However, to allow for a holistic and scalable transformation of the entire industry, it needs the active interaction between all stakeholders. This, on the other hand, works best when everyone knows their role within “the system” and also knows what everyone else around is doing. In other words, the more transparent we* all deal with each other, the more effectively we can identify scalable potentials of circular innovations resulting from collaborative interactions. This was basically also the motivation behind the EU Strategy for Sustainable and Circular Textiles.

(*By “we” all stakeholders are addressed, i.e. industry representatives, associations, consumers, and regulators.)

What’s more, the fashion industry can actually derive serious benefits on its sustainability journey by acknowledging traceability and transparency as enablers for circularity. First, as highlighted by the European Circular Economy Action Plan and the European Chemical Strategy for Sustainability, establishing circular economy traceability and transparency frameworks for resource management will help the industry to unwind the current supply chain complexity. Second, regulating traceability and transparency will be relevant for waste prevention and to motivate sustainable production and consumption efforts on both the industry and the consumer sides. Traceability is also key for reducing risks to human health and the environment by enabling the exchange of information on issues that are relevant to everyone in the industry, such as the production and use of chemicals and the disposal of waste. Essentially, it will facilitate providing feedback to all relevant actors in the value chain, consequently enabling them to take needed action. Ultimately, traceability will support transparency for consumers at the point of sale, by informing them about a product’s entire lifecycle, thus contributing to their active participation in the transition toward a circular economy.

Some industry players and associations have already realized the benefits of mutual and transparent collaboration and formed associations such as, e.g. the Sustainable Apparel Coalition or the HIGG MSI. Some brands even start cooperations with competitors to tackle global common problems more effectively with joint forces - e.g. Tommy Hilfiger and Timberland. However, this is still rather the exception. In general, the level of traceability and transparency that is demanded by the regulators and is also key to fostering such collaborations is currently difficult to achieve due to the lack of data and incentives for assessing this data.

Those who already have had the pleasure to apply for a certificate or do a life-cycle assessment (LCA) of a product and needed to collect the necessary data for the application, are certainly familiar with the challenges. Simply obtaining the data, let alone verifying its origins or correctness can become a tedious resource-consuming task that not seldomly becomes a show-stopper for companies to engage in such activities. In some cases, the data might even be available and verified but cannot be accessed due to trade secrets, lack of transparency incentives or due to the fear of losing a competitive advantage. But these are challenges that need to be tackled if the fashion industry is truly pursuing the goal to become circular. Namely, how efficiently and quickly this can be achieved will ultimately depend on this type of data transparency, traceability and honest communication.

Hence, regulations such as the German Supply Chain Law (Lieferkettengesetz) or the EU Strategy for Sustainable and Circular Textiles have one common goal — enabling transparency and traceability across the value chains with the motivation to accelerate a scalable shift to Circular Economy. This, however, is not just a guideline stating that if you want to become circular, it might be good to be transparent about your activities. No! These are actual regulations that need to be fulfilled by all companies to remain competitive and in some cases even operative. For example, the German “Lieferkettengesetz” will make companies legally responsible for human rights and environmental abuses within their global supply chains. Companies will be required to prove that they are carrying out activities to identify and address any negative impacts on people and the planet that they may have contributed to. To ensure compliance, they will not only need to trace their own material flows, processes and supply chain but also those of their suppliers. This means assessing lots of data to identify the social and environmental risks and impacts they need to manage because these assessments will be an important part of supply chain due diligence.

Therefore, if they do not start measuring, assessing and collecting immediately, those, who have not yet dealt with the above-mentioned challenges of data collection and verification, will certainly be overwhelmed by the complexity of current supply chain networks, which are most of the time very intransparent.

So, when and why should you start collecting which data? That’s something that Circulix can help with, since it not only looks into enterprise and product related circularity criteria but correlates them with the latest regulations.