When Chanel published its financial results in June, the waves it sent were nothing short of seismic.
The move was a first for the 108-year-old fashion house, which wanted to shake off rumors about a potential takeover by flaunting its more-than-robust financial health. By declaring that it made $9.62 billion in 2017—11 percent more than the year prior—Chanel solidified its position as one of the world’s biggest luxury labels, outearning rivals like Gucci and Louis Vuitton.
“We recognize that we are often a subject of much speculation and that people don’t have facts to hand, leading to the circulation of false or misleading information,” Philippe Blondiaux, Chanel’s chief financial officer, told the New York Times then. “It was time to let the strength of our balance sheet speak for itself.”
Chanel also released its inaugural sustainability report, another smoke signal that the notoriously secretive company was edging toward greater transparency.
Such “disruptions in the [luxury] industry” will soon be par for the course, according to BSR, a global nonprofit that consults with multinational businesses on sustainability issues. With climate change, biodiversity, emerging technologies and increasing social inequality reshaping the status quo, change is the only thing that will allow companies to “reaffirm their value” and remain resilient in this turbulent new world.
“Climate change and biodiversity loss are affecting the supply of precious raw materials, as well as the resilience of the sector’s infrastructure; new technologies and automation are redefining the manufacturing process, retail experience and nature of work; and rising economic inequality means luxury brands will need to reaffirm their value, particularly in emerging markets,” BSR’s Responsibility Luxury Initiative—whose members include Chanel, Cartier, Kering, LVMH Moët Hennessy Louis Vuitton, Ralph Lauren, Swarovski and Tiffany & Co.—wrote in a report last month.
The luxury industry is nothing without “well-functioning ecosystems” after all, BSR noted. Given its role as an influencer and trendsetter, how might luxury drive environmental and social progress?
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The report identified three main strategies. First, brands must bolster their resilience by engaging in the circular economy. Next, they must build strong, relevant brands by contributing a positive impact on society. And finally, brands must shore up trust by articulating value to all stakeholders.
Engage in the circular economy
Engaging in the circular economy, where products are designed to be reused and recycled rather than thrown away, is vital for luxury companies because they rely on high-quality raw materials—wool, leather, exotic wood, cashmere, among others—that are increasingly threatened by climate change and biodiversity loss, BSR said.
Businesses, the report noted, must adopt regenerative sourcing practices that restore ecosystems instead of depleting them.
Though the high-quality raw materials in luxury goods are “pre-designed” for circularity because of their value and versatility, brands can extend product life cycles by employing recycled and upcycled materials for their products.
This is already happening in luxury’s rarified spheres. Hermès, for example, deploys leather scraps in its “Petit H” collection. The R Collective, sold at Asia’s Lane Crawford and YeeChoo, incorporates luxury waste in its garments. And Tiffany & Co. purchases roughly 55 percent of its silver, gold and platinum from recycled sources.
Companies might even design new business models that elevate the value of their products by “giving them many lifetimes,” such as “re-commerce” platforms like Rent the Runway, Vestiaire Collective and The RealReal.
But luxury firms shouldn’t wait around for innovations to develop, BSR cautioned.
By turning to strategic suppliers they’ve developed close, long-term relationships with, brands can proactively help identify, encourage or co-create new materials and processes. They can draw from the playbooks of companies like G-Star Raw and C&A, which collaborated with their supply-chain partners to concoct their own flavors of sustainable denim, then open-sourced their bills of materials for industry-wide use.
“Companies can create solutions that address sustainability challenges at the company level, or they can pioneer new processes that can be used more widely by other sectors,” BSR said.
Contribute a positive impact on society
Most luxury companies already play significant philanthropic roles through their affiliated foundations. Leveraging this history, companies can help further social and environmental progress by assessing how their products and services affect society and the planet, then using “complementary business and philanthropic strategies” to address the issues, BSR said.
“Companies also can use charitable giving as a strong voice to influence public opinion and support policies that promote environmental sustainability and social responsibility,” the group added.
A brand that does this well, according to BSR, is Tiffany & Co., which became the first jeweler to stop using coral 10 years ago. Since 2000, the Tiffany & Co. Foundation has awarded more than $20 million in grants for coral and marine conservation. It also promotes awareness of the importance of corals and marine ecosystems by reaching out to jewelry and home décor industries, consumers and marine-tourism providers.
Luxury firms are also uniquely positioned, through their reputational cachet, to promote gender equality in their operations and supply chain, BSR said, whether by developing initiatives to increase the number of women in leadership positions, ensuring pay equity or supporting the economic and social empowerment of upstream workers.
Kering, for one, says it’s committed to empowering women by ensuring gender parity at all levels and salary equality in all functions by 2025. Seven out of 11 of Kering’s board members are women, which is more than most other luxury firms on the CAC 40, it said.
To support professional development and opportunities for women, LVMH introduced its gender diversity initiative, EllesVMH, in 2007. In a similar vein, De Beers says it’s investing in talent attraction and development, unconscious bias training, a mentoring program and enhanced policies and recruitment guidelines.
By wielding their clout with suppliers and business partners, brands can help ensure that people working in their respective value chains receive fair, living wages, BSR said.
“Luxury companies also can seek to understand how new technologies are affecting the people in their value chain and support a fair transition for workers whose jobs may be eliminated,” the report noted. “They also can provide training that gives workers skills they will need for future jobs.”
Strongly articulate value to all stakeholders
BSR wants to see more luxury firms take a page from Chanel’s transparency pivot. And indeed luxury companies can set new standards of transparency by providing details about how their business practices affect the environment and local communities.
“They can build trust by harmonizing high standards of best practice and creating frameworks that show verifiable progress over time to meet commitments to reduce negative impacts and create positive outcomes for nature and society across their value chains,” BSR said.
To capture the attention of a growing number of shareholders who are invested in sustainability and seek to invest only in companies that create long-term value, luxury firms must build a “resilient business narrative” that defines how companies use social and environmental strategies to spur growth, fuel innovation and strengthen brand equity.
Luxury brands can, for example, demonstrate how they are ensuring supply-chain security for climate-affected precious raw materials 20 years from now, how they will adapt to forthcoming environmental regulations or how they intend to remain competitive with more efficient production practices, BSR said.
Plus, brands can take advantage of their connection with consumers by engaging them more deeply on this “new value proposition” for luxury, like in the case of Gucci, whose new Equilibrium website lays out the brand’s mission to “bring positive change to secure our collective future” in an entertaining and accessible way.
Besides ensuring that their products embody sustainability through materials, design and potential for longevity, companies can also generate new narratives to communicate sustainability’s position at “the heart of modern luxury” without being preachy.
“It’s now time for luxury companies to deepen and broaden collaboration and use their voices and influence to advocate boldly for a resilient future,” BSR said. “By working together, luxury leaders have an opportunity to seize the moment and…help create strong, resilient businesses and a brighter future in a time of disruptive change.”