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Buying a Gucci bag or Louis Vuitton dress used to have snob value. Now well-heeled millennials increasingly want to know that they have social and environmental value too
There was a time in the not-too-distant past when luxury goods were associated with excess and conspicuous consumption, bringing to mind images of pin-striped currency dealers racing through the streets in bonus-fuelled Porsches and billionaires entertaining supermodels on superyachts.
One thing it definitely was not about was sustainability. As sustainability expert Andrew Winston wrote in the Harvard Business Review recently: “With a few exceptions, it’s been an industry not traditionally associated with concerns about environmental impacts, human rights, and wellness, even while those trends have been sweeping through the mainstream consumer products sector.”
But many in the sector say that is now changing. “Old luxury was about opulence, excess and bling – and it was very individual,” says Diana Verde Nieto, founder of Positive Luxury, a luxury brand consultancy that highlights sustainability initiatives in the sector through its Butterfly Mark. “But times have changed. It is more inclusive. It is about being part of a community while at the same time retaining a sense of the individual.”
Sustainability is now a major part of the luxury brand proposition, says Verde Nieto. There are a few key reasons for this. First, luxury brands are facing the same pressures as other companies to take more account of environmental, social and ethical issues such as climate change, resource scarcity, water stress, child and forced labour, bribery and corruption.
These pressures range from the physical realities of climate change, such as droughts, floods and water shortages, to new regulations including the UK’s Modern Slavery Act, EU and US rules on conflict minerals, initiatives such as the Sustainable Development Goals and pressure from consumers who – thanks to social media – are better-informed and more engaged than ever before.
Shoppers are increasingly interested in the story behind the products they buy, says Steve Wickham, head of corporate social responsibility at London-based Matrix, a product design and procurement specialist whose clients include The White Company and Miller Harris. “They want to know how the product is made, who has made it and in what conditions,” he says.
High profile, high stakes
Brands can leverage this interest to their advantage if they have the right narrative. The accessories manufacturer Elvis and Kresse, a founding UK B Corp, which uses the Butterfly Mark, takes decommissioned fire hoses from the London Fire Brigade and turns them into wallets, bags and belts. Other materials it uses include parachute silk, tea and coffee sacks, shoe boxes and even old auction banners.
“In the case of the hose, we scrubbed away the soot and grease that builds up after 25 years of active duty and discovered a truly remarkable, truly green textile,” the company says.
For luxury brands, the imperative to deal with sustainability issues is heightened by the high profile that being a luxury brand brings. Often consumers are made aware of the issues by celebrities who are one of luxury’s traditional constituencies – socially aware stars such as Leonardo DiCaprio and Emma Watson – and because these brands have a much higher profile than more mainstream marques, their behaviour is in the spotlight much more. And with so much of their value tied up in the brand itself, these companies have much more at stake.
“Because of where they sit in the consumer market, there is a greater risk if luxury brands fail to act responsibly,” says Tyler Gillard, head of sector projects at the Organisation for Economic Co-operation and Development’s responsible business conduct unit.
Consumers, particularly millennials in the developed markets, are increasingly concerned about ethical issues and they really expect companies to change, Verde Nieto adds. “The world is more interconnected and transparent than ever before and young people expect to see evidence of that. They grew up with it and can’t understand why anyone wouldn’t behave like that.” Millennials are growing up and have more spending power, she says. “But it is when these guys are leading companies that it will get super-exciting. When millennials are at the helm of businesses, it will be unthinkable that sustainability will not be at the heart of it.”
At the same time, the luxury sector is founded on a trust premium based on quality, Gillard says. “If consumers find out a product is tainted by, say, the use of child labour, it may shift people away from that brand. Even if they aren’t all that concerned about child labour, these issues will likely still undermine consumer trust and confidence in the brand, for example, to deliver on the quality expected of them.
“But there is also a major opportunity for luxury to become a leader on responsible business conduct because of the nature of their products. Companies are starting to recognise the value of ethical behaviour for their brand and their customers. That ethical behaviour reinforces the premium they charge their customers. There is a real opportunity to equate sustainability with quality.”
This point is well illustrated by Elvis and Kresse, which uses many of the luxury sector’s buzzwords when it says of its use of old fire hoses: “We wanted to honour this tough, life-saving material, hence our focus on quality craftsmanship and classic, timeless design. We build as much value as we can into each piece and style them for use beyond single seasons. All Elvis & Kresse products are hand-made and unique.”
Luxury and sustainability make natural bedfellows, asserts Marie-Claire Daveu, chief sustainability officer at Kering, the fashion group whose brands include Gucci, Saint Laurent and Stella McCartney (see sidebar). “In luxury, we use so many raw materials from nature. If we want to continue to do business, we have to take care of it. The biggest risks for the world, not just our sector, are climate change, resource scarcity and loss of biodiversity.”
Kering has been a leader in efforts to integrate sustainability into its business through its Environmental Profit and Loss (EP&L) initiative, which it says “makes the invisible impacts of business visible, quantifiable and comparable”. The EP&L measures the environmental footprint in the company’s operations and across its supply chain and then turns that into a monetary value.
“This allows us to tackle where we have the most important impacts, identify new countries to source from and new raw materials to use,” says Daveu.
“The EP&L has given us a new way to look at our business, uncovering opportunities that would have otherwise remained invisible, innovating our business models, improving our processes' efficiency and reducing our environmental impact,” the company adds.
Kering wants other companies to follow its lead, so in 2015 it open-sourced its methodology. “If we want to change the paradigm, we cannot do it alone. If we are real leaders, we have to share,” Daveu says.
Balancing sustainability with cost
Another behemoth of the sector, LVMH, has a framework it calls LIFE (LVMH Initiatives For the Environment), which aims to tackle nine environmental issues that range from integrating environmental performance at the design stage to securing access to raw materials and material and product traceability and compliance. It also has an internal carbon fund, set up in 2015, whereby every brand in its stable pays €15 per tonne of carbon emissions, which goes towards energy efficiency or renewable energy schemes.
Because of the nature of their products, luxury brands have more control and visibility over their supply chains and often a higher degree of vertical integration, Gillard argues. In addition, because customers are prepared to pay more for luxury goods, these brands have the financial space to carry out proper due diligence on their supply chains. However, he adds, “the opportunity is there, but is it happening? It is quite varied.”
Daveu argues that the key to bringing sustainability into the mainstream is to ensure that more ethical or environmentally friendly options do not cost more. Kering has committed to sourcing 100% of gold and diamonds in its products from verified operations that do not have a harmful impact on local communities, wildlife or the ecosystems which support them.
“Buying ethical gold costs more, so we have to find a way to make it not cost more. The first year we used it, the cost premium was more than 25%. Now, three years later, it is less than 1%,” she says
Wickham at Matrix agrees that there is often a perception that sustainability is more expensive but this is not necessarily true. He says his company works closely with suppliers as consultant, trainer, project manager, monitor, auditor and partner to improve performance. “Take the issue of long working hours in factories. If we can help factories to be more efficient and improve the quality, then there will be less rework, you can reduce working hours and so you don’t increase costs.”
Different sectors within luxury focus on different issues, says the OECD’s Gillard, who recently held a meeting with representatives of a range of luxury brands from sectors such as art and antiquities, wine, fashion and jewellery to discuss the OECD’s new due diligence guidance for responsible supply chains. Some sectors, he says, were very engaged in social audits, but not thinking about raw material. Others were very focused on Know Your Customer arrangements and issues around money laundering, but “their focus on social and human rights issues was almost non-existent”.
This divergence is partly because companies deal with the issues that are most material to them, but partly it is because certain sectors have escaped scrutiny. While there has been much focus on fashion and jewellery because of issues around the environmental impact of cotton, forced labour and conflict minerals, there has been little scrutiny of less known issues such as conflict financing of antiquities, for example.
The key to dealing with sustainability issues lies in the supply chain, which is where most impacts lie – whether that is the use of forced labour by suppliers, the use of conflict minerals, water-hungry and chemical-heavy cotton, even the use of cashmere, which is increasing degradation of grasslands and desertification in Mongolia.
“The main problem is lack of visibility. Most of the challenges with unethical behaviour are further down the supply chain. You have to know your supply chain not just at the first tier but all the way down,” says Phil Bulman, a director at supply chain consultancy Vendigital. “None of the brands want these practices happening in their supply chains, but equally they don’t tend to be that good at looking at their suppliers to try to stamp it out. Companies fail to act at their own risk. Ultimately, these things always get found out.”
Transparency equals profit
There are a number of initiatives that are helping brands to get greater visibility of their supply chains, such as KnowTheChain, which helps businesses and investors address the risks of forced labour, and Sedex, a platform for sharing audits, information about suppliers and ways for them to improve their performance.
Matrix, which in 2016 won a Queen’s Award for Sustainability, says it takes a “beyond audit” approach. “We focus on what happens the rest of the time. A lot of companies just ask for a box-ticking exercise. Many brands we work with don’t know where to start with their ethical programmes,” says Wickham.
Yet there are real benefits to thinking strategically about issues such as raw materials that go beyond being able to say you are doing the right thing, says Gillard. “By having greater transparency, you have far more knowledge about your raw materials, where they come from, how much you use and how you use them. This is useful not just in terms of your ethics but also for running your business.”
This article is part of our luxury goods briefing. See also: