Booming Luxury Sales to Test Fashion’s Climate Commitments

KEY INSIGHTS

• Big companies’ climate commitments are facing scrutiny for being less ambitious than they appear.
• A BoF analysis of 30 of the world’s biggest fashion companies found only half have set absolute targets to reduce emissions related to manufacturing supply chains.
• Some companies have set targets relative to growth, meaning their emissions could continue to increase alongside sales.

Last week, Gucci-owner Kering said its sales hit nearly €18 billion ($20 billion) in 2021, as consumer demand for high-end handbags, logo-heavy designer gear and luxe streetwear surged.

That was welcome news for the company and its investors, but big fashion brands’ rapid return to pre-pandemic sales levels poses a tricky challenge when it comes to efforts to curb the industry’s climate impact.

Kering is an industry frontrunner when it comes to sustainability; the company said it would go carbon neutral in 2019 and aims to achieve net zero emissions by 2030. By the end of the decade, its goal is to all but eliminate emissions from its own operations, and its commitments have been approved as in line with efforts to cap global warming at levels that could stave off the worst effects of climate change by the Science Based Targets initiative (SBTi), an organisation widely viewed as the gold standard for corporate target setting.

Even so, the balance between profit and purpose remains a delicate one. Like most fashion companies, Kering’s biggest environmental impact takes place in its supply chain, but the company’s target to reduce the indirect or Scope 3 emissions (which cover that part of its business) has been set relative to sales. That means if Kering keeps growing, so could its emissions.

While the company has yet to publish environmental data for the year, its Scope 3 emissions have closely tracked sales trends in the past. In 2020, a pandemic-hit Kering saw revenue fall around 20 percent; the emissions associated with its supply chain declined a similar amount. The year before, revenue jumped 16 percent; Scope 3 emissions did the same.

Sustainability advocates say this trend illustrates how cutting emissions relative to production or economic growth undermines companies’ lofty climate goals.

“What really is critical for net zero ambitions to be meaningful and effective is a clear and transparent pathway to cut absolute emissions — and the word absolute is very important here — by half by the end of the [decade],” said Muhannad Malas, senior climate campaigner at US-based advocacy organisation Stand.Earth.

While companies across industries are making increasingly ambitious pledges to tackle their climate impact, dig beneath the surface and they are often less progressive and concrete than they appear, industry watchers say.

A report published earlier this month assessing 25 of the world’s largest companies’ net zero targets concluded just that. Businesses including Unilever, Ikea and Walmart were found to have set targets with “low integrity.” (The companies said they remain committed to meeting and improving their emission reduction targets. Walmart said the report did not accurately reflect its goals.)

Many of the companies’ goals have been approved by well-respected environmental organisations, but still lack specifics that would create true accountability and demonstrate a path to change, the report by European non-governmental organisations NewClimate Institute and Carbon Market Watch found.

“Net Zero targets and carbon neutrality targets of many companies are a lot less ambitious than they seem,” said Gilles Dufrasne, policy officer at Carbon Market Watch.

It’s a similar story when it comes to fashion, a BoF analysis of 30 of the industry’s biggest players found. While the majority of fashion’s biggest companies, including LVMH, Kering, Nike and Zara-owner Inditex have committed to a “net zero” goal, only half have laid out absolute, time-bound targets to cut Scope 3 emissions. Chinese sportswear giant Anta, Urban Outfitters-owner Urbn and Abercrombie & Fitch are among the companies that have yet to set any clear Scope 3 targets at all.

When it comes to brands addressing their emissions, “if you don’t do Scope 3, you don’t do anything, basically,” said Diana Mangalagiu, professor of strategy and sustainability at France’s NEOMA School. “My view is that, altogether, the fashion industry’s still doing pretty badly.”

A&F has said it is working to better understand its Scope 3 emissions with a view to setting goals for reduction. Anta pointed to steps it is taking to reduce its carbon intensity and its goal to be carbon neutral by 2050. Urbn did not provide comment.

Roughly a fifth of the companies analysed by BoF, including LVMH, Hermès and Kering have set intensity-based Scope 3 targets, meaning their emissions could continue to grow alongside sales. Kering noted the ambition of its climate targets has been recognised by environmental disclosure nonprofit CDP and SBTi. LVMH said its target is linked to revenue rather than production volume and it is taking steps to bring down the impact of the items it sells. Hermès did not respond to requests for comment. All three companies’ targets have been approved by SBTi as in-line with the most ambitious goals to limit global warming.

Such limitations in accepted global climate standards are coming under increased scrutiny as the time left to avert catastrophic levels of climate change contracts; climate scientists have warned that global emissions must come down by 45 percent by 2030 to stay on track with efforts to limit global warming to no more than 1.5 °C, an internationally agreed cap intended to stave off the worst effects of climate change.

SBTi says it takes a “flexible” approach to Scope 3 target-setting, while still requiring a commitment to deep decarbonisation, to take into account the fact that measuring and managing indirect emissions remains challenging. The organisation is currently reviewing its methods and aims to continuously strengthen its framework, it said in a post responding to the NewClimate Institute and Carbon Market Watch report.

Pinning down, let alone reducing, a company’s Scope 3 emissions remains difficult, said sustainable strategy consultant Michael Sadowski, who helped develop apparel and footwear sector guidance for SBTi-approved targets. “If you’re a brand, your Scope 3 emissions are really the emissions of every supplier that is behind you in the supply chain,” he said. “It’s a shared area to address.”

There are signs brands and suppliers are beginning to work together to tackle this disconnect, but companies still need to do more to demonstrate they are moving beyond target-setting to drive real reductions: Though many brands do outline broad strategies to achieve their targets, few provide information on how they plan to fund these efforts, or publish data that show manufacturing emissions are coming down, BoF’s analysis found. “We need to go much bigger and much faster,” Sadowski said.

As many as two thirds of brands and retailers that have announced Scope 3 goals are not on track to achieve absolute cuts, according to a report from Textile Exchange and consultancy The Climate Board published in October.

Without concrete action, high-profile commitments risk becoming “just another form of greenwashing,” said Stand.Earth’s Malas. “How brands plan to become net zero is, at the end of the day, what we need to be paying very close attention to.”

This article contains analysis that will appear in the second edition of The BoF Sustainability Index, which will publish in June.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.