The mass-market beauty company had $96.8 million in sales for the first half of 2016.
Rights groups applaud the decision as a victory for individual and religious freedom.
The technique refines and employs cashmere as padding, bypassing duck feathers in down jackets.
The first Diesel Living Home Textile collection will be unveiled at Maison & Objet in Paris in January 2017.
The label said Monday that it had not been able to ensure changes to the “objectionable practices” shown in a PETA film.
PETA released a video purporting to show the mistreatment of sheep there.