A European Strategy for Sustainable Textiles

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By the end of March, the European Commission is expected to complete the process started in 2020 related to the drafting of a "European Union Strategy for Sustainable Textiles".

The Textile Strategy is part of a broader process designed to ensure the recovery of the textile industry from the crisis related not only to COVID-19, but also to the recent conflict between Ukraine and Russia. It aims to direct investments on innovation and research activities and enhance the industry’s competitiveness, sustainability, coherence with the principles of circular economy, and the manufacturing and management of secondary raw materials.

Given your strategic role in the industry, and taking into account this forthcoming regulatory intervention, we strongly recommend clients pay particular attention to a set of different issues that are covered by the Textile Strategy:

• Minimum Requirements on Policies Governing Manufacturing. The Commission will introduce specific policies for textile products according to the provisions of the Ecodesign Directive which will lay down the minimum standards (in terms of sustainability, materials to be used, recyclability, durability, reparability, re-usability) that producers will have to comply with in order to have access to the European market.
  The Commission aims to set up a variety of control mechanisms to ensure that all products which do not meet both established best practice and these new minimum standards are removed from the market;
• Transparency and Tracking. One of the European Commission's main concerns is undoubtedly the target of guaranteeing total traceability of products under different profiles: (i) environmental, (ii) protection of human rights, (iii) proper structuring of corporate governance and (iv) social impact, thus giving rise to a real incentive campaign for ESG compliance;
• EPR – Extended Producer Responsibility. The Textile Strategy aims to intervene on the responsibility profiles of producers who will be required to intervene: (i) on the management of textile waste, (ii) on its disposal, and (iii) on monitoring each stage of product recycling, ensuring that their activities meet the minimum standards set in terms of percentage of products recycled and reused.
• Product Trade. The Commission, leveraging import/export trade agreements signed by Member States with non-EU countries, intends to promote and favor producers who, throughout the supply chain (from raw materials to the final product), rely on and maintain trade relations with partners who comply with the regulatory framework on sustainable production, circularity, innovation and ecological transition.

As of January 1, 2022, Italy has implemented the mandatory differentiated collection of textile products wastes. The same Chamber of Deputies, indeed, during the March 16^th session, intervened on the forthcoming European Textile Strategy, highlighting some critical points - such as the inadequacy of Italian regulations on the competitiveness of the sector and green regulations, or the excessive bureaucracy characterizing it - asking the government to commit to the achievement of some essential objectives to safeguard the textile and fashion industry, such as:

• granting stronger economic support to the industry (for instance, tax relief to contain the increase in the cost of energy and raw materials), specifically addressed to those companies that will introduce innovative technologies, techniques, services, processes and/or products in the supply chain leading to real improvements in terms of reduction of environmental impact and decrease in energy consumption;
• the creation of a Recycling Hub - an integrated system nationwide for the management and recycling of manufacturing waste (pre-consumption and post-consumption) and wastes resulting from the separate collection in the textile segment. For the latter, the purpose is to achieve 100% recovery of textile material through a specific investment line to be included in the Italian National Recovery and Resilience Plan (Piano Nazionale di Ripresa e Resilienza [PNRR]) aimed at the creation of Textile Hubs;
• the introduction, between the end of 2022 and the beginning of 2023, of an Environmental Fee designed to support the system devoted to the management, disposal and reuse of textile materials;
• promoting policies for transparency and traceability of supply chains through the coordination of tools such as BlockChain/Dlt and AI (artificial intelligence);
• establishing public or consortium facilities for the treatment of wastewater and sewage sludge from textile finishing cycles, with the implementation of the most advanced technologies for the reduction of pollutant loads;
• supporting the research of new families of chemical products with a reduced environmental impact that can be used in textile finishing cycles, encouraging the undertaking, on the one hand, of various ethical environmental certifications and, on the other, of protocols such as the Restricted Substances List (RSL) and Manufacturing Restricted Substances List (MRSL) protocols;
• allocating and financing the Made in Italy manufacturing industry in order to make it technologically advanced based on sustainability and recycling, promoting policies that focus on young talents, and, strengthening Italy's position in the world;
• allocating funds for the first Italian fashion week dedicated to sustainability and innovation on the model of the Sustainable Fashion Innovation Society;
• boosting the tax credit for Research and Development (R&D) activities relating to design and aesthetic conception, with the increase in the current tax credit rate and cap for at least five years;
• redrafting the content of the Patent Box law in order to extend the provision of a super deduction of costs borne for research and development activities to fashion brands and all companies in their supply chain;
• introducing a set of different long-term support measures (5-10 years) to encourage the relocation of production plants in Italy, such as:
  • low-interest loans or non-refundable financing;
  • foresee in the PNRR the recovery of the Italian fashion system as a tool for the development of innovation, competitiveness and ecological transition;
• adopting a regulatory framework designed to encourage the creation of schools and professional training programs that shall encompass topics related to sustainability and responsible innovation with the aim of bringing young professionals closer to the industry;
• given the recent increases in the prices of raw materials due to the conflict between Russia and Ukraine, promoting initiatives to encourage the procurement of raw materials outside the traditional lines of supply by financially and economically supporting the Reshoring initiatives, that is, the choice of the players in the fashion industry to rely on markets that guarantee higher levels of protection of workers' rights. In the short term, the Government has been asked to intervene promptly and to adopt appropriate financial, support and compensation measures; and
• Intervening with adequate structural laws and funding in order to promote the digitalization of the industry, starting from the strengthening of e-commerce, which is increasingly relying on fully digitized systems of try on to buy, moving on to the creation and support of virtual showrooms working with Augmented Reality systems, up to Customer Relationship Management (CRM).

Our firm is available to assist you in the implementation of the complex set of national and European regulations applicable to your business.

Curtis and its consultants can provide you with support in order to, inter alia:

• help you in identifying the most suitable form of financial support for your business needs;
• assist you in the drafting, completion and handling of the necessary documentation in order to be able to take advantage of all different forms of incentives and measures that, from time to time, will be introduced, as well as supporting you in your interactions with the competent authorities;
• revise existing and future agreements in order to include provisions and terms that require counterparties to comply with the targets set out in the Textile Strategy;
• support you in matching existing contracts to the Textile Strategy standards; and
• provide a full due diligence on your ESG compliance with particular focus on the transparency of your supply chain.

We remain at your disposal to provide any clarification you deem necessary, and to examine with you all the issues above.