How ESG plays a role in luxury consumption



LUXURY companies take a more holistic approach to sustainability. They see that ESG strategy and business strategy become one. Companies such as Burberry, Hugo Boss, Guess and others have created environmental goals that include reducing greenhouse gas (GHG) emissions and opening a decarbonization path for the clothing industry. mode using the methodologies of the Science-Based Targets Initiative (SBTi). Fashion icons, in particular, have long been associated with environmental activism, such as Stella McCarthy pioneering new materials to avoid using materials like leather.

To reduce carbon emissions in their operations, luxury brands are looking for innovative solutions in their supply chains, traveling less and increasing digital capabilities, such as the use of virtual showrooms. Many collaborate with others to promote fair trade, responsible business practices and charitable causes. Meanwhile, others champion social change, ensure fair wages and prioritize diversity, equity and inclusion initiatives.

The circular economy opens new doors of sustainable opportunities. For example, “closing the loop” business models drive the resale and rental of luxury goods, extending the life of luxury goods, reducing waste, and decreasing environmental footprints through recycling.

Close the Loop commercial models are ideal for luxury because of their timeless style, durable materials, limited editions and small production runs. Online options will contribute to this growth by providing increased access, ease and convenience for sustainable luxury solutions.

Of course, there are also risks. Counterfeit products, brand degradation, and poor experiences from first-time sellers or new seller platforms could occur. Brands can mitigate these risks by building, purchasing, or partnering with a third-party vendor to expand these capabilities and take ownership of more of their product lifecycle.

The dual role of transparency

VISIBILITY and traceability are the two main components of transparency. Visibility illustrates when a company has a complete view of all parties that play a role in its supply chain, from farms and other suppliers of raw materials used in its products, to companies responsible for processing, manufacturing, distribution and logistics. Traceability details when a company is able to trace all materials and components used in a product from their origins, through each stage of processing and manufacturing, to the final product sold to a buyer. Supply chain transparency should not be associated with having to disclose all information to everyone. Ultimately, it is up to each company to decide what data should be disclosed to whom.

Understanding the origins and heritage of luxury products has long been part of their appeal, but consumers want certainty about the ethical sourcing and authenticity of these products. Both are the main concerns. In fact, in a recent survey, 81% of consumers think the ethical sourcing and production of products is important and 20% admit they only started caring about these issues in the last two years.

Blockchain technology can help, which is why several luxury brands are investing in this technology. For example, LVMH, Prada, and Cartier have partnered to develop Aura Blockchain Consortium to provide consumers with a higher level of transparency, giving them a secure way to learn more about the products they buy.

With blockchain, consumers of luxury goods will be able to confirm the origin and authenticity of their items. Technology secures the transaction, builds trust and strengthens the brand-consumer relationship by validating the heritage, prestige and narrative behind the brand. It is the consumer’s direct connection to the original source, helping to rule out the possibility of a counterfeit item.

The excerpt is taken from the KPMG Thought Leadership publication “The Paradox of the Luxury Brand“.

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