EU due diligence rules and local apparel industry

The European Union's Corporate Sustainability Due Diligence Directive (CSDDD) is set to transform global trade and corporate practices, marking a watershed moment for industries worldwide. Slated to take full effect by 2026, this landmark legislation represents the EU's boldest move yet to integrate sustainability and accountability into business operations.

For the global apparel industry -- long associated with environmental challenges and labour rights concerns -- the directive signals a monumental shift. It is not merely a policy but a call to action for a sector notorious for intricate supply chains and sustainability hurdles.

At its heart, the CSDDD requires companies operating within or engaging with the EU to identify, mitigate, and prevent adverse human rights and environmental impacts throughout their value chains. This involves tackling issues like forced labour, unsafe working conditions, and ecological harm. Businesses must perform comprehensive due diligence, implement preventative measures, monitor progress, and publicly report findings. Moreover, the directive emphasises meaningful engagement with stakeholders, including workers, local communities, and civil society, to foster sustainable solutions. Non-compliance will result in severe penalties, ranging from hefty fines to exclusion from the EU market.

For the global apparel sector, the directive's implications are profound. It enforces unprecedented levels of transparency, compelling brands to trace and map their supply chains to the raw material level. What was once voluntary now becomes a legal requirement, demanding substantial investments in digital technologies, audits, and certifications. Companies that fail to comply risk losing access to one of the largest consumer markets in the world, while those that embrace the directive's ethos may gain a competitive edge. However, the financial burden of compliance will ripple down to suppliers, many of whom operate in resource-constrained developing countries.

For Bangladesh, the world's second-largest exporter of ready-made garments (RMG), the stakes are especially high. The EU remains a crucial market for its apparel exports, making the CSDDD impossible to overlook.

However, the challenges are formidable. Many of Bangladesh's small and medium-sized enterprises (SMEs), which dominate the sector, lack the financial and technical capacity to meet the directive's stringent requirements. The fragmented and informal nature of the supply chain further complicates efforts to achieve transparency and traceability. Compliance will demand investments in sustainable practices, digitalisation, and certifications, adding strain to already tight profit margins.

Yet, this directive also presents a unique opportunity for Bangladesh's RMG sector to cement its position as a global leader in sustainable manufacturing. With the highest number of LEED-certified green factories globally, Bangladesh has already shown its commitment to environmental stewardship. The CSDDD could act as a catalyst for further innovation, encouraging factories to adopt circular economy principles, minimise waste, and invest in energy-efficient technologies. Factories that achieve compliance will not only retain access to EU markets but also enhance their reputation as ethical, sustainable suppliers, attracting additional business opportunities.

To adapt to the CSDDD, Bangladesh's RMG sector must act decisively. Investments in capacity-building initiatives are critical to equipping factory owners and workers with the tools to meet compliance requirements. Digital transformation will play a pivotal role, with technologies like blockchain and AI providing solutions for supply chain transparency and risk management. Collaboration will be equally important, with brands, suppliers, and governments needing to share the costs and benefits of compliance. Policy support, such as financial incentives and infrastructure development, can help SMEs navigate this transition.

The CSDDD is more than a directive; it marks the dawn of a new era of accountability and transparency. For Bangladesh's RMG sector, it is both a challenge and an opportunity to lead the way in ethical and sustainable manufacturing.

The author is a former director of the Bangladesh Garment Manufacturers and Exporters Association