How can we decarbonize the luxury sector?

The fruit of exceptional, time-honored expertise, the symbol of a unique lifestyle and values, luxury covers a wide range of sectors, from fashion (Haute Couture, leather goods, cosmetics, etc.) to gastronomy and the hotel industry. The largest part of this industry is represented by fashion.

In terms of environmental commitment, this sector is marked by a belated but growing awareness of climate change, with the first actions demonstrating the beginnings of reflection and initiatives.

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A favorable economic context

In 2023, the global luxury market will represent 1,500 billion dollars worldwide. Unaffected by the economic slowdown, it still boasts annual growth rates of around 10%, and sets new records year after year with profitability levels averaging between 19 and 22%, ignoring the effects of inflation given the specific characteristics of its market and a less price-conscious clientele. This growth is also due to an increase in the number of consumers and a successful digital turnaround. 

French houses and companies still hold the upper hand, with an over-representation of the KHOLs: Kering, Hermès, L'Oréal and LVMH, which in 2023 will represent over 900 billion in market capitalization, including 400 billion for LVMH alone.

The luxury market is traditionally divided into two main segments. The personal luxury market, which includes fashion accessories, clothing, watches, shoes, jewelry, perfumes and cosmetics, and the experiential luxury market , which includes travel, hotels, restaurants, furnishings and culinary products, wines and spirits.

While the personal luxury market continues to enjoy excellent levels of growth, it is the experiential market that is showing the strongest momentum.

The luxury sector's almost uninterrupted economic growth and prominent position in the European landscape make it a key player in the ecological transition in the fields in which it operates. This role is all the more important as the luxury industry, as a forerunner, sets the trends that subsequently influence the mass market.

Finally, luxury seems to be a sector predisposed to the ecological transition. By emphasizing the quality of materials and know-how, as well as the timelessness of its products, it is perfectly in tune with the development of sustainable practices.

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The impact of luxury on the environment

Estimating the impact of the luxury sector on the environment is difficult. As we have already explained, the luxury goods industry is active in numerous sectors, both products and services, with varying implications that are often difficult to compare. In the absence of more detailed studies carried out by luxury brands and independent players, it is therefore difficult to draw up a comprehensive account of the luxury industry's impact on the climate.

The fashion sector alone is already a major emitter. 1.2 billion tonnes of CO2 are emitted every year by the textile industry. It is the third most polluting sector in the world, after food and energy. According to the Ellen MacArthur Foundation, greenhouse gas emissions from the fashion industry will increase by more than 50% by 2030. If no concrete action is taken, by 2050 the fashion world could consume a quarter of the world's carbon budget.

Aware of these challenges, leading groups in the luxury goods sector have been spearheading initiatives for several years now to align themselves with the greenhouse gas emission reduction trajectories advocated by the Paris Agreement and the Science Based Targets initiative, not least to preserve their brand image.

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Growing pressure from stakeholders

Luxury products embody a unique lifestyle. Customers who purchase a luxury product want to embody the image and values conveyed by the brand. In fact, the reputational risk posed by climate change is a real threat for brands to take into account. The Boston Consulting Group estimates that 80% of the value of a luxury product is linked to the brand (compared with 20% on average for a standard product), so it is vital for luxury brands to defend the values advocated by their customers.

Just as pressure was successfully exerted on the major luxury brands in the 90s to abolish the use of fur, in recent years the sector's clientele has been moving in a clear direction: the environment is gradually becoming a central concern.

Indeed, millenials (i.e. Generation Y, from the 80s and 90s) are more concerned about the environment than previous generations: it's a priority for 42% of them, compared to 37% for the average customer.

This concern for the environment is even more pronounced for Generation Z, which is expected to account for 15% of luxury purchases by 2025 and 40% of luxury goods purchases within 15 years, making it a prime target for luxury players. They will therefore need to strengthen their commitment to the climate in order to preserve their brand image, and make it a strong argument against the competition.

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Intra-sector initiatives

In recent years, the luxury goods sector has begun to make a commitment to the environment, and the competition between brands to reinforce their image is driving them to innovate and to draw the various players in the sector into their wake.

These initiatives are often driven directly by the major groups themselves, who bring their suppliers along with them. This is the case of Kering, whose CEO, François-Henri Pinault, presented the "Fashion Pact" in 2017. "Fashion Pact at the G7 in Biarritz. This agreement brings together more than a hundred companies in the fashion sector and announces among its flagship measures CO2 emission neutrality by 2050, 100% use of renewable energies by 2030, and an end to the use of materials from intensive livestock farming for their collections.

More specifically, Fashion Pact follows the requirements of the SBTi (Science-Based Target initiative) and encourages signatories to build their targets on SBTi-validated scopes 1, 2 and 3 in order to achieve Net-Zero by 2050.

Although the Fashion Pact does not include any binding measures, its presentation to the G7 makes it a powerful and driving force in the fashion industry's environmental commitment, led by luxury companies.

Other initiatives are supervised by third-party organizations. One example is the "Fashion Industry for Climate Actiona charter launched by the UN on a global scale at COP24 2018 in Katowice, Poland. This charter targets a 30% reduction in greenhouse gases by 2030 for its signatories, and also relies on the SBTi (Science-Based Target initiative) methodology to frame the decarbonization of the 43 fashion players currently committed.

With nearly 200 fashion companies, the Sustainable Apparel Coalition publishes an annual Pulse Score report, in conjunction with the Boston Consulting Group, which assesses the sector's progress on environmental issues, and then provides the keys to correctly analyzing a company's impact and the steps to be taken to control it.

The biggest luxury brands are a driving force behind the fashion industry's commitment to the environment, and provide a framework for the sector's development, drawing on methodologies such as SBTi and the support of experts in the field.

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The main sources of carbon emissions

Raw materials

‍Inthe fashion world in general, the bulk of greenhouse gas emissions (over 60% of total CO2eq emissions) come from two stages in a garment's life cycle: fabric manufacture from raw materials (28%) and textile processing (dyeing and finishing, at almost 36%).

As the main manufacturing countries (India, China) rely heavily on coal and natural gas for their energy production, the energy-intensive industrial processes involved in fabric manufacturing and dyeing are high emitters of greenhouse gases. Although the luxury goods sector, which tends to favor hand-made products produced in small artisan workshops, contributes less to this process than fast-fashion players, it is not totally exempt. 

As for the raw materials used, those used to make natural fibers such as cotton or wool require huge amounts of water, pesticides (around 1/4 of global consumption) and arable land. Synthetic fibers like polyester consume much less water than natural fibers, but emit around 3 times more greenhouse gases.

‍Whendealing with the luxury goods industry, it's obviously impossible to overlook leather, a material particularly prized by the sector for the manufacture of numerous items (clothing, accessories, shoes, handbags...).

While the vast majority of leather produced worldwide comes from cattle (66%), the major luxury brands also value exotic leathers (reptiles, buffalo...), whose production is often more carbon-intensive than conventional leathers, with no equivalent co-benefits. Where bovine leather is often a by-product of the meat industry, exotic leathers come from animals specifically bred for their skins.

Part of the environmental impact of leather production corresponds to that of livestock farming:

• High methane emissions from cattle, a powerful greenhouse gas.
• Deforestation caused by the expansion of livestock pastures

Finally, leather tanning is particularly harmful to the environment. This is the process by which raw hides are transformed into leather. This water-intensive process uses numerous chemical products that are particularly polluting. According to a study conducted by the European Commission's Research Centre, the production of 200 to 250 kg of chrome-tanned leather requires 1 tonne of raw hide, over 500 kg of chemicals and 15 to 50 cubic metres of water. The waste generated by this process is also extremely polluting.

Even today, over 80% of the world's leather is chrome-tanned.

Transport

In the classic fashion sector, transport only accounts for around 1% of a garment's environmental impact, and the production of raw materials (wool, cotton cultivation, polyester manufacture...) only for 15%.

In the luxury goods sector, although products are produced and therefore transported in much smaller quantities, orders are generally shipped by air to their customers. As a result, the share of GHG emissions linked to transport is significantly higher in the luxury goods sector, due to the over-representation of air freight, the mode of transport with the highest emissions.

This applies not only to the personal, product-driven luxury market, but also to a large part of the experiential luxury market, particularly in the context of prestige vacations, where the use of airplanes and even private jets are often part of the experience.

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Packaging

Luxury, even in its personal segment, inevitably has a strong experiential dimension. This experience is reflected in the shopping experience, which must reflect a sense of exclusivity, from the location and layout of the boutiques, to the service associated with the sale and, of course, the product... and its packaging. 

Packaging is an essential element in the luxury market. While in traditional retailing, packaging is largely concerned with transport and storage, in luxury goods the emphasis is on the customer experience and the transmission of brand values. It is an integral part of the product.

In the luxury market, packaging acts as a showcase. Beyond the risk of over-packaging, there is the question of raw materials. Customers expect high-quality materials. These two factors therefore have a significant impact on the sector's carbon emissions.

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How can we decarbonize the sector?

Well aware of the major challenges they face and the growing pressure from consumers on environmental issues, the big names in luxury are experimenting with solutions to reduce their carbon footprint.

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Controlling your value chain

To guard against any scandal that could damage their brand image, many luxury companies have taken up another major climate change challenge: controlling the value chain.

Luxury goods are generally made from rare or precious materials, and as we said earlier, the extraction and processing of these raw materials represents a major climate challenge for the luxury industry. The chemicals used to treat textiles, for example, have serious consequences for the climate.

The major players in the luxury goods industry have therefore joined forces with their suppliers to understand their environmental and climatic impact, and support them in adopting more respectful practices. 

Kering, LVMH, and Hermès, for example, have bought out some of their tanners for this purpose, and are conducting comprehensive audits of their suppliers in order to better control their value chain. This auditing has an undeniable effect on the climate impact of these companies; indeed, Kering has announced that its strategy initiated in early 2017, which has taken the form of numerous audits, has led to an annual reduction of several thousand tonnes of CO2 emissions .

Controlling environmental risks mainly involves auditing suppliers, controlling the value chain and optimizing the use of resources. The major luxury houses are seeking to define new sustainable practices in the consumption of water, cotton and the various raw materials whose use or production could be interrupted as a result of climate change. To this end, Kering has launched the Clean by Design program, the first phase of which concluded in 2017 after an audit involving 24 textile factories collaborating with the group to optimize resource consumption, and ensure continuity of production. 

The Contrat de filière Mode et Luxe signed in 2019 by the industry, the French Ministry of the Economy and the major French trade unions, stresses in particular the importance of reliable product traceability on environmental issues. Not only is this an ecological imperative for these brands, it also represents a real opportunity for luxury players.

By monitoring their value chain and carrying out comprehensive audits of their suppliers, brands can not only promote more sober production methods, but also ensure the long-term future of their suppliers. Large companies with sufficient funds and this strategic vision can support suppliers to help them maintain their unique know-how, and help them innovate on new processes with less climate impact.

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Influence the sources and types of raw materials

As far as fashion is concerned, it remains difficult to make compromises in terms of raw materials for clothing. Design remains highly polluting, and this pollution continues throughout the product's life cycle. 

Innovations are being developed to replace traditional materials or reduce their environmental impact.

The chrome tanning process is thus tending to be replaced by vegetable tanning, which is much less polluting and presents fewer hazards for both manufacturer and consumer.

Less polluting food production waste is used to offer a plant-based alternative to imitation leather (grapes, pineapples, etc.) or faux fur (corn). The company Bolt Threads offers a plant-based alternative to mushroom-based leather (mycelium) and silk, and supplies some of the world's leading luxury and fashion brands.

Luxury brands are also involved in the search for new materials, launching their own initiatives: Matières à penser from LVMH and Le Materials Innovation Lab from Kering. The mission of these two structures is to identify sustainable, environmentally-friendly alternatives to the raw materials used by their various houses.

Some brands have also taken the upcycling plunge. This is the case, for example, of Gucci with its Gucci off the Grid line, which uses recycled materials. Other brands such as Burberry and Louis Vuitton have also launched collections aimed at developing the circular economy.

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Rethinking the purchasing experience and the product life cycle

The luxury goods purchasing experience is one of the keys to understanding the levels of emissions generated by this industry. We need to rethink this experience throughout the product life cycle.

Pooling modes of transport and reducing the share of air freight will potentially harm the sense of immediacy sought by some consumers, but will have a huge impact on the levels of greenhouse gas emissions generated by each product.

When it comes to packaging, we'll be opting for more sustainable materials and aiming to reduce the amount of packaging used for each product.

To reduce the environmental impact of packaging in the perfume sector, L'Oréal has decided to extend the concept of refillable perfumes, enabling the bottle to be reused. Already adopted by Mugler since 1992, which now achieves 40% of its new fragrance sales via refills, the process has been extended to other group brands such as Armani, Prada and Lancôme.

In cosmetics, Chanel has developed the N°1 range, based on eco-designed, lightweight packaging made in part from bio-sourced materials.

These actions certainly require educating and empowering the consumer. A paradox in an industry where, more than ever, the customer is king and his demands are almost the rule. Nevertheless, consumer expectations have also evolved, and this applies just as much to the consumption of luxury goods. Younger generations are looking for products and services that combine quality with respect for the environment. This evolution is reflected in both personal and experiential luxury, with the development of low-carbon luxury travel offers, for example.

When it comes to the consumption of luxury goods, if second-hand clothing used to be an almost taboo subject in a sector where uniqueness and durability are valued above all else, it has now become common practice . Luxury thrift shops and garment rentals are on the rise, without detracting from the brand image of the major fashion houses. On the contrary, thanks to the boom in second-hand clothing in recent years, the consumption patterns of luxury customers have become more streamlined, and the customer base has expanded.

Some brands have even turned it into an asset, like Stella McCartney, who has teamed up with the resale company "The RealReal" to encourage their customers to resell their pieces once they no longer need them.

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Integrating sustainable development into its governance practices

Various initiatives and groups of players in the sector are proposing analyses of the climate problem and proposing solutions to deal with it. Nevertheless, the major luxury brands are often pioneers in the development of this vision of climate change, they are at the origin of progress, and they compete with ingenuity and means to stand out.

Some of the major French companies stand out from the crowd, such as Kering, which developed a comprehensive environmental accounting system in 2012 , Environmental Profit & Loss which enables it to analyze its entire value chain.

The LVMH group, for its part, set up an internal carbon fund in 2015. This sets an internal carbon price that is revised each year and to which each of the companies making up the group is subject. They contribute to this fund in proportion to the GHG emissions generated by their activities. The purpose of this fund is to finance projects aimed at reducing the Group's greenhouse gas emissions.

Also at LVMH, Louis Vuitton has been committed since 2012 through the Life 360 initiative, which sets targets to date based on 4 pillars: creative circularity, biodiversity, climate and transparency, and has thus enabled a reduction of 500 tons of CO2 equivalent per year.

These changes are brought directly to the management of these groups, who openly declare them to be an integral part of the company's long-term strategy. It is then up to the group brands to implement the strategy internally. 

While some innovations are driven by niche brands or start-ups (such as Clear fashion, which provides information on a brand's environmental commitment), for the most part it's the major groups that are setting the framework and defining acceptable standards for the entire sector in terms of climate change.

These initiatives are a source of hope for the industry, as the major French groups are innovating in this field, and proposing models that can be reproduced by the rest of the industry. In this sector, it is particularly crucial that these large companies lead the way, as they have enormous resources at their disposal, and are capable of developing a long-term vision (the Comité Colbert, for example, which groups together 82 of France's leading luxury houses, is looking ahead to 2074). The myriad of smaller players that make up the rest of the sector, the TPEs and PMEs, then benefit from the advances made by the French leaders. 

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Conclusion

Today, the luxury goods industry is widely aware of environmental issues, and all stakeholders are working together to make progress on these issues. The major houses are working alongside associations and public authorities within movements such as the Sustainable Apparel Coalition, the Fashion Industry Charter, the Fashion Pact...

These national and global cooperative ventures are echoed at local level, as demonstrated by the Paris Good Fashion project, which brings together public, private and voluntary sector players to make Parisian fashion more sustainable. Galeries Lafayette, the Institut Français de la Mode, the Fédération de la Haute Couture et de la Mode, the Ellen MacArthur Foundation and the City of Paris have joined forces to achieve a number of local objectives: facilitating exchanges between local players, supporting intermediate brands and young designers on environmental issues, making Fashion Week more responsible by using green energy and managing the end-of-life of materials used...

However, the excesses of the luxury industry are often singled out for criticism. A sector accustomed to grandiosity and excess, the image of luxury suffers from its visibility, and the sector must redouble its efforts to ensure that its actions in favor of the environment are not perceived as paradoxical. Luxury brands must therefore continue their transition and rethink their approach at all levels in order to align themselves with the environmental values of their new generation of customers and embody change.

While most of them have now set themselves targets for reducing their carbon footprint, particularly on their scope 3, these are intensity targets. This process tends to decorrelate their sales from their carbon footprint, by focusing on the impact of the product or service and not the company as a whole. Acting on their carbon footprint in absolute terms would mean reducing production volumes and ultimately raising prices. This is an approach that few industries, apart from the luxury goods sector, can afford, given the scarcity effect specific to this sector.

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