The fight for green credentials has swept the fashion industry, emerging as a key battle line for luxury groups seeking to burnish their image with consumers, but behind the eco-quests sits a broad set of issues related to social responsibility. These, too, are gaining increased scrutiny, say analysts, and the luxury industry has a leadership role to play.
“I have an enormous amount of requests related to the subject of corporate social responsibility,” also known as CSR, said Celia Friedman, a partner at consultant firm Oliver Wyman. “It’s clearly a subject linked to current events and a subject that chief executive officers are concerned about,” she added.
The firm sifted through information provided by publicly listed luxury firms around the world and drew up a report called “Responsible Leadership in Luxury” that weighs the importance of such issues, which include the workplace environment, involvement in local communities and ensuring human rights are respected throughout the supply chain. It’s all closely tied to risk management — especially in luxury — but creates long-term value, according to the firm.
Analysts at Morgan Stanley have emphasized the risks linked to supply chains, suggesting investors ought to question luxury goods companies about their supply chains and how often they conduct factory visits and independent audits.
“The rising investor commitment to incorporating ESG [environmental, social and governance issues] within investment frameworks means that red flags are increasingly scrutinized,” said Morgan Stanley in a note to clients last year, noting that articles in the press had highlighted the lack of formal employment contracts and poor working conditions.
“It’s above all a subject of exposure to risk,” said Friedman. “And in luxury, all the value is in the brand, so a problem with risk in the supply chain puts the brand in danger.”
The idea behind the Wyman study was to shed light on the subject for luxury executives and show it is closely linked to growth and survival over the long term.
“We consider it an issue of financial value,” she added.
“Addressing CSR as ‘greenish pet projects’ is no longer an option as the increasing exchange of information in our digital economy has let to more transparency and companies can no longer blame the complexity of their supply chains or their lack of oversight into issues such as child labor practices or worker underpayment,” said the Wyman report, noting that organized and reputable stakeholders are calling for accountability.
The results of the Wyman report, which calls for looking beyond the risk management angle and considering CSR as a lever for creating long-term value, show a “nascent correlation” between CSR scoring and market valuation.
“In the long term, financial analysts are starting to pay more for companies displaying more mature CSR practices as they are less exposed to reputational risk and more attuned to societal and consumption mega trends,” the study said.
Following an initial setup cost to implement CSR practices, they become part of the way business is conducted, as described by Friedman.
“Once you launch a project related to a particular issue — perhaps investing money to change the standards, afterward it becomes business as usual, so you can’t go back — it’s a way of doing things that replaces another way of doing things,” she said. It’s important to have a commitment from top management for the initial investment, she added.
The ceo of a group is best-placed to call for brands to integrate CSR practices, while a group of executives can think up best practices, seek the right balance, identify operational opportunities and pull in external experts to challenge the company, in her view.
Last year was marked by a flurry of activity on the sustainability front, spurred on by frustrated citizens, who took to the streets to demand more environmentally minded measures from policymakers, in a series of climate marches around the world.
To list just a few examples of industry measures, Kering announced in September that it would be going fully carbon-neutral and offset greenhouse emissions; the group’s chairman and ceo François-Henri Pinault had rallied a group of fashion industry players the previous month to sign on to the Fashion Pact, a pledge to work toward certain environmental goals. LVMH Moët Hennessy Louis Vuitton, meanwhile, has held a series of “Future Life” discussions showcasing its environmental goals, including one during Paris Fashion Week, attended by ceo Bernard Arnault.
But the luxury sector is also well-placed to demonstrate leadership on issues beyond the environment, says Friedman.
“It’s an industry that earns an enormous amount of money and that has the means to create local employment and to better pay employees — and perhaps holds the keys to the economy of the future,” she suggested.
“Top luxury executives, perhaps more than any other industry, will have a role to play with regards to society’s expectations because the industry has a larger margin of maneuver compared to other industries,” she added.
This could stretch beyond the industry’s role in preserving and developing certain areas of expertise, or ones that are in danger of disappearing, and that can support local economies.
“It’s an enormous responsibility,” but the industry can serve as an impetus for the rest of society, she said.
Friedman and her colleagues sought to include a wide range of criteria for their study, looking at things like how many women are in a company, and how many hold high-level positions. Diversity and inclusion were also among criteria considered in the Wyman study.
Kering is one luxury group that has been focusing on the workplace environment, including recently bulking up parental leave policies, which it applies to employees on a worldwide basis, and recruiting a chief diversity, inclusion and talent officer.