The state of California is taking significant steps to make the fashion industry more sustainable.

In February 2025, the Fashion Environmental Accountability Act Bill (AB 405) was introduced, aiming to incentivise companies to reduce their GHG emissions and improve their supply chain transparency.

Which companies does AB 405 target?

This new legislation will apply to companies which are:

- Selling fashion goods within the state of California

- Have annual gross receipts exceeding $100m

Key activities these companies will need to reduce to comply with this new legislation include GHG emissions, excessive water consumption, textile waste accumulation and chemical pollution.

What will in-scope companies have to do?

To accomplish this, in-scope companies will have to:

(1) Establish a GHG emissions baseline and implement short-term and long-term reduction targets - with additional requirements for companies with over $1bn global revenue

(2) Disclose supply chain details on Tier 1-4 suppliers in the following phases:

By January 1 2027 - Tier 1 suppliers must be disclosed (covering at least 80% by volume)

By January 1 2028 - Tier 2 suppliers must be disclosed (75% by volume)

By January 1 2030 - Tier 3 suppliers must be disclosed (50% by volume or dollar value)

By January 1 2032 - Tier 4 suppliers must be disclosed (50% by volume or dollar value

(3) Improve oversight of their supplier’s chemical and wastewater testing – which includes requiring their Tier 2 suppliers to report wastewater chemical concentrations and water usages by 2028

Companies in-scope will also be required to create an annual Environmental Due Diligence Report, providing insights on the existence, implementation and outcomes on all of the above.

What happens to non-compliant companies?

The risks of non-compliance proposed are significant.

Should a company fail to file a complete Environmental Due Diligence Report, penalties will be imposed which include:

- Listing the company on a publicly available non-compliance list

- Civil penalties up to 2% of annual revenues

Should a company fail to meet GHG reduction targets, they will also face the risk of facing civil penalties.

How are companies currently performing?

Using the Integrum Platform, we have looked at a list of 10 in-scope companies with over $1bn in annual revenue and compared how these companies perform on emissions:

Note: Not all scope 3 emission figures are directly comparable – different companies will have different methodologies regarding how this final figure is calculated, but as new legislation like this comes in, we are likely to see more uniformity moving forward. All underlying data regarding each company’s GHG emissions reduction target can be seen on the Integrum Platform.

We also compared these same 10 companies on how they perform on 'Supply Chain Management' and also their overall ESG score.

To see these benchmarked tables, please click here.

Conclusion

Should this bill be passed through, all these companies will need to make significant improvements and provide detailed evidence to demonstrate this transition.

Investors should be concerned that investee companies who are found to be non-compliant will face both financial and reputational damage and thus should be looking at how best to mitigate this risk.

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𝗧𝗵𝗶𝘀 𝗮𝗿𝘁𝗶𝗰𝗹𝗲 𝘄𝗮𝘀 𝘄𝗿𝗶𝘁𝘁𝗲𝗻 𝗯𝘆 𝗜𝗻𝘁𝗲𝗴𝗿𝘂𝗺 𝗘𝗦𝗚 𝗛𝗲𝗮𝗱 𝗼𝗳 𝗦𝗮𝗹𝗲𝘀 𝗔𝗯𝗯𝗶𝗲 𝗠𝗮𝗶𝗻.

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