Business drivers of Transparency and Traceability


Azul Stengel, Co-founder of Lienzo

Photo by Elisa Moldovan

While transparency and traceability sound like good ideas, the fashion industry has yet a long way to go to achieve these things across its value chain. However, there are several business incentives to implement these within companies. The following article aims at highlighting the different reasons why transparency and traceability should be encouraged within brands and will soon be regulated at the international and local levels.

The next three sections shed some light on what are the three main drivers of transparency and traceability today.

Regulatory Frameworks

In the past, voluntary commitments to transparency and traceability have failed to make a meaningful contribution. As a result, policymakers have decidedly targeted the fashion industry within their new legal framework. In 2022 alone, several EU and US laws have revolved around making the sector more transparent and less polluting. Both the social and the environmental aspects have been identified as key issues that need to be addressed, and across regulations, traceability has been a main requirement.

In order to be compliant, companies need to abide by local and international law. Some of these requirements overlap in the long run, and the aim of the EU and governments is to establish an international standard. However, most of the regulations revolve around the following topics:

  • Due Diligence & Transparency: Laws that require the identification and creation of strategies to mitigate social and environmental risks along the supply chain.

  • Traceability: Regulation surrounding the mapping of products across the supply chain, production processes and distribution logistics. The aim of these regulations is to supply the bases for evaluation of the negative environmental and social impacts across the life-cycle of the product.

  • Sustainability disclosures: Reports currently need to include information on sustainability and environmental risks within their financial statements. This is then a two-way street, where companies must evaluate their impact and, in turn, how the environment and climate risks have an impact on the company.

  • Claims substantiation: Reliable and relevant evidence must be provided to substantiate environmental and social claims. The aim of this is to prevent greenwashing and establish a data-based framework in the long term.

  • Advanced consumer information: Products need to be labelled with detailed information concerning their environmental impact or score, circularity (recyclability), traceability and presence of harmful substances or microplastics.

Transparency & Communication

A study conducted in 2021 by Changing Markets (1) found that 62% of consumers do not trust sustainability information provided by brands. This has a very harmful effect on brand perception and positioning. It is key for brands to integrate within their strategy effective communication with their clients and create reliable sources of information for them regarding the environmental impact of products and company sustainability policies.

According to Maeve Galvin from Fashion Revolution, “there is significant market value in ‘guilt-free’ shopping”. In an evolving market that needs to answer to the demands of informed consumers as well as the expectations of future generations, companies need to transform their communication strategies to foster transparency and show data-based results. A study conducted by Wunderman Thompson (2) shows that 78% Gen Z consumers want their money to go to a brand they believe in. Creating relationships with their consumers based on reliable information is key to establishing credibility and customer loyalty in an era of misinformation.

From CSR to ESG

Corporate social responsibility is no longer enough to evaluate the impact a company has at the social and environmental levels. It is then that companies need to measure their Environmental impact, calculating carbon emissions, water consumption, pollution, and waste disposal across their value chain. Furthermore, it is key to look into the Social aspect of their evaluation, as companies are to be held accountable for their actions at international and local levels. Fostering transparency through and through is the only way to establish credibility and create sustainability strategies in the long term.

Incorporating these strategies into Governance structures is paramount to ensure that these strategies are implemented. By creating a governance structure that incentivises sustainable policies, companies can build the infrastructure needed to follow through on sustainable practices. Furthermore, as Millenials and Gen Z begin to dominate the workforce, it is important for companies to align with their sustainability values and expectations to attract and retain talent. A 2020 census from Unily (3) reported that 65% of respondents wanted to work for a company with a strong environmental policy.

To conclude, there are strong business drivers for transparency and traceability. Compliance with international and local regulations calls for the establishment of clear and traceable impact measurement of the value chain. Disclosure of such information will have a positive impact on brand perception and customer loyalty. Furthermore, reliability in brand communication will capture a larger portion of the market as Millennials and Gen Z take over as primary consumers. And finally, an internal infrastructure that integrates sustainable practices will capture talent and reduce turnover rates, as well as create efficient business models that align with positive social and environmental values.

(1) Licence to Greenwash. How certification schemes and voluntary initiatives are fuelling fossil fashion. Changing Markets Foundation, March 2022.

(2) Marketing in an era of heightened social awareness. Wunderman Thompson, 2022.

(3) Future of the sustainable workplace, in the age of Covid-19 and climate change. Dr. Leyla Acaroglu, Unily, Disrupt Design, 2020.