Will The Latest EU Sustainability Regulations Lead To Revolution?

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Just when you thought there were enough complex EU regulations in the fashion and textile industry to get a grip on, this week, the European Commission adopted the rules governing its implementation of the Carbon Border Adjustment Mechanism (CBAM). There is a lot to unpack when it comes to CBAM, since it represents the first move towards a more aggressive model for decarbonisation, but here’s a summary: as part of the EU’s efforts to go climate-neutral by 2050, CBAM will serve as a mechanism to deter companies from relocating their production and sourcing to regions with less stringent environmental regulations so as to sidestep domestic carbon-related expenses (a process known as carbon leakage).  This will be achieved through taxation at the point of import, which is intended to – over a relatively short period – set a universal “fair price” for carbon that transcends geographical boundaries.

Carbon Border Taxes (CBT) will be implemented gradually over a period of four years, commencing on the 1st of October 2023, and will initially only apply to cement, iron, steel, aluminium, fertiliser, electricity, and hydrogen – which are the most carbon intensive sectors. This is all to prepare for the 1st of January 2026, when the EU will begin levying a carbon price on each shipment of these goods.

Although fashion and textiles are not on the list yet, it does not take much forward-thinking to see how the same policies – especially if, or more likely when, they are adopted in Canada, the US, the UK and other markets – can be applied to carbon leakage in our sector. To get in the right mindset: think about adjustments to the price of imported denim that account for the emissions involved in its production.

What does this all mean for fashion? The key, in The Interline’s opinion, is to look at CBAM not just as the next step in a steady march of regulatory compliance, but as a shift towards global decarbonisation and entirely new market dynamics. Decarbonising the world economy – and the fashion supply chain – is going to be a radical reshaping of what it means to do business in the modern world. This drive may start with Europe, but over time carbon loopholes will close everywhere – the same way that ports have already started to detain products that were processed or sourcing from particular regions. The core problem might be different (human rights abuses instead of emissions) but the mechanisms for enforcement are the same.

But while we’re thinking about the implications here for import markets, it’s non-EU sourcing and manufacturing countries who will need to be the most reactive if they want to achieve or continue market compatibility. While the EU’s proactive stance when it comes to sustainability regulations, particularly in the fashion industry, is to be commended, the ‘Brussels Effect’ – referring to the EU’s unilateral ability to regulate global markets – is something that needs to be called out. While it may have worked for the EU and its approach to General Data Protection Regulation (GDPR), CBAM’s is a regulation that will have severe ripple effects in developing countries, where much of the world’s manufacturing is done. Already, several of the EU’s trade partners (including Brazil, South Africa, China, and India) have raised concerns about the the new regulatory requirements that are being imposed unilaterally and not in line with multilateral trade rules, saying CBAM is a tactic to threaten countries outside the EU to update their climate practices, at a speed that might align with the urgent need to meet emissions reversal targets, but that might not be realistic.

Not necessarily a bad thing, right? In theory, no. Those emissions targets are set by unambiguous science, and meeting them is the essential task of our time. However, such a major change has the potential to worsen international trade tensions and weaken the already delicate underpinnings of the global trading framework, as well as substantially affect the lives of human beings working in existing supply chains. And the recent trade in oil, for example, has demonstrated that unscrupulous international markets will be willing to step in to fill the void left by the EU bloc ceasing to purchase from a particularly problematic region. Do we want to create an even worse dark market for textiles?

The other side of the coin, though, is that this is yet another wake up call for textile and garment producers to prioritise carbon efficiency improvements, strengthen emissions monitoring, and adopt more sustainable production processes – ideally without needing to cut jobs in order to keep costs down.

But is it a call that those producers can heed without support from their customers? Probably not.

As a potential way around that impasse, CBAM should be complemented by fund mobilisation from the developed to the developing countries; just as at COP15 in 2009, developed nations collectively committed to mobilise US $100 billion per year to the developing countries for building climate mitigation infrastructure. The goal was formalised at COP16, and at COP21 in Paris, it was reiterated and extended to 2025.

In lieu of clarity as to how production markets will be supported through an inevitable transition, it’s going to be essential for producers and importers outside the EU to stay flexible, well-informed, and ready. This could entail implementing their own individual carbon pricing mechanisms, dedicating resources to clean energy technologies for emission reduction, or entering into trade discussions with the EU to resolve apprehensions regarding carbon leakage before broad regional rules are laid down. And as things change, they should be prepared to operate in a future where carbon accountability isn’t just a choice, but might become the baseline in global trade.

This is all easier said than done. But also this week – with impeccable timing!- integrated strategy consultancy Eco-Age is reported to be launching an advisory division focusing on policy and regulation in the fashion sector. The company is best known in the fashion industry for its Green Carpet Fashion Awards, as well as its extensive client roster that includes Chopard, Diesel, Gucci, UGG, and Harrods.

The launch of the new advisory arm will help businesses to navigate the changing landscape with regulations like the Eco Design for Sustainable Products Regulation, the Green Claims Directive, and the EU Green Deal. The division will also consider U.S. laws, including New York’s Fashion Act. The Interline by no means endorses any particular advisory practices’ services, but the fact that large consulting and strategic advisory firms are seeing an opportunity to sherpa major brands through a radical reshaping of the industry is a big hint at the scale of transformation we’re going to see.

And on the topic of business as usual fundamentally changing, it seems that the world of sustainability and technology are mirroring once again in their own way: taking steps forward and then back again in terrains with unwritten rules and where new frontiers are being drawn.

Google (which continues to all-but-own discovery on the web) is in the news this week for trying to both train its AI tools on the whole of the internet’s content, while at the same time bending to the whims of whatever industry shouts the loudest about its intellectual property being ingested in this way. In this week’s case, it’s music: Universal Music Group is collaborating with YouTube (who is owned by Google’s parent, Alphabet) to explore the use of AI within the music industry in a nebulous way.

Under the banner of the “Music AI Incubator”, the initiative involves the estate of Frank Sinatra, among others, with the idea being to explore the use of AI-driven tools and to gather insights. The ultimate goal? To increase engagement from other artists after finding ways for performers to profit from the technology – or, in other words, to quietly map out the new frontiers of an entertainment industry where performers’ likeliness, voices, and other characteristics can be used to train AI models.

This comes amidst the recent surge in popularity of generative AI tools and the concern over the potential to create new songs using creators’ work – songs that would not have proper licensing or attribution. This might sound like a minor problem, but the reality is that it’s quickly become endemic, with bedroom producers able to draft in the “voices” of essentially any recording artist whose body of work is large enough to train a model on. Several of these have already made headlines, and have been confused for new releases from the artists whose voices, or production styles, or beats, have been cloned.

The Interline has written before about how product discovery is going to change in the era of the AI-search, where the AI will need to know as much as possible about your products if it’s going to make an informed recommendation. The question is, what are brands going to do during this period where Google and others are scraping images of their products to train image-generation models, and a near-future period where the brands regain control of those rights? Is what’s happening in the music industry (a sort of devil’s bargain between platform holders who know the genie is out of the bottle, and household names who recognise it won’t be put back in and are trying to wrestle with its emergence on their terms) suggestive of what might take place in fashion?

Unfortunately for both industries, the options available to address what has already been collected, utilised, and used for profit are likely to be limited. For the future, the extent of those rights is undergoing clarification through legal battles, labour strikes, regulatory investigations, executive directives, and new legislation. Right here, right now, the large language models we all know (and some love) have already been trained on the wide swathe of content that makes up the contemporary internet, and they’re not going to be untrained – whether their dataset includes copyright assets and personalities or not.

In years from now, it’s speculated that AI companies will use more curated and controlled data sets to train their AI models, and the approach of indiscriminately using vast amounts of unrefined data extracted from the internet will be regarded as outdated. That time is not today, though, and the gap between now and then remains something of a no-man’s land of content ownership, legislation, and “borrowing”.

In that interim, all brands can really do is follow along and see what plays out in the battleground of courtrooms around the world, with the biggest names in the industry likely to be the ones to take the lead in shaping a more regulated AI landscape, and steering it toward a more controlled trajectory. It seems clear that this is a course that fashion brands will also want to have a hand in controlling.

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