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The rise of sustainability in luxury brand strategies

Many factors are driving luxury brands to adopt significant sustainability practices, finds Heriot-Watt University Dubai’s Dr. Nermeen Mustafa

At first glance, the term sustainable luxury may seem paradoxical. Organisations that create and sell luxury products and services are often scrutinised as they are often associated with wasteful behaviour and non-sustainable practices.

On the one hand, luxury is associated with superior quality, exclusivity, craftsmanship, and high cost. On the other hand, sustainability is the ability to balance economic, social, and environmental variables in order to use resources responsibly. Luxury brands are finding creative ways to operate sustainably.

In recent years, luxury business practices have been shifting towards more sustainable and ethical practices.  However, stakeholders are no longer content with sporadic corporate social responsibility efforts and are expecting to see entire business models and value chains adapt to embody sustainable practices.

Some of the key practices that many luxury brands are collectively working towards include the reduction of carbon emissions and greenhouse gases, promoting a circular economy, ethical sourcing of materials, the sharing economy, material innovation, and promoting well-being. Thus, sustainability practices can be categorised into employee-related practices, environment-related practices, and economic-related practices.

Various factors are driving luxury brands to adopt significant sustainability practices into three levels of their strategies: corporate level, business level, and functional level strategies. One of the most important driving factors is customer preference for sustainable businesses, as millennials and Gen Z generations strongly prefer brands that follow ethical and sustainable practices.

A second important factor is brand reputation, word of mouth, and brand image. There is a growing expectation that brands clearly report their sustainability practices, while consumers and environmental bodies are critically watching. There is an expectation that environmental policies and global agreements will be clearly implemented. There are numerous examples of pioneering initiatives among prominent luxury brands.  However, it is worth noting that the pressure from industry movement among strategic group peers towards sustainable initiatives is driving the laggards into action.

Recently, a wave of initiatives were launched among organisations housing luxury brands, thus showcasing a collective push towards more responsible practices. The Kering Group, which houses brands such as Gucci, Saint Laurent, and Alexander McQueen, is a clear example of organisations transforming their entire value chain towards sustainability goals. A glance at the group’s website states, ‘Join us as we shape modern luxury’. The group has supported Gucci’s “Circular Hub” initiative, which involves practices that promote the utilisation of recycled materials, durability, repairability, and recyclability.

Their transformation of the entire value chain starts from raw materials and design and extends to production optimisation and logistics. The strategy of the Circular Hub is to operate as an open innovation platform that facilitates designing, manufacturing circular products, and researching new solutions.

In addition, Chanel launched an initiative called ‘Mission 1.5°’, a 10-year environmental plan, issuing sustainability-linked bonds. Moreover, the luxury house has also anchored this into employee policies by embedding it as a key performance driver for employees who are expected to contribute towards the set targets.

In line with this industry-wide wave of efforts, Hermès has partnered with a biotech brand to produce mycelium-based leather-like material sourced from mushrooms. Burberry, a British brand, is actively operating carbon-free globally and aims to achieve climate positivity in the coming years.

Burberry has recently elevated its sustainability efforts by acquiring a supplier to apply sustainable practices deeper into the value chain by ensuring quality and durability. Additionally, Burberry engages in upcycling activities, donating surplus fabric to fashion schools in the UK.

LVMH’s internal Carbon Fund is a notable project financing climate change combating activities within the group. At Dior, initiatives such as Life 360 and Women@Dior, respectively, focus on biodiversity and women’s employability skills worldwide.

Stella McCartney, renowned for ethical and sustainable fashion, launched an ethical label in 2001, embedding ethical principles throughout its business processes by sourcing cruelty-free materials and promoting community well-being. LVMH, as a co-founder of the Collab SOS fund, supports climate change initiatives through Stella McCartney, aiding start-ups in developing climate solutions.

Adopting sustainable practices requires the redesign of value chains while calibrating this across all functions, including material sourcing, R&D, design, operations, logistics and employee practices. We are seeing a shift away from ad hoc sustainability efforts and more towards redesigned business models and value chains across luxury brands.

Some brands have gone beyond their organisations to support supply chain partners in sustainable efforts.  The Fashion Pact, a CEO-led initiative, indicates that senior management is leading luxury brands towards sustainable practices, which is the level of involvement required for effectively adapting and redesigning business models and value chains in organisations.

By Dr. Nermeen Mustafa, Associate Professor, School of Social Sciences, Heriot-Watt University Dubai