Can Luxury Brands Both Do Good And Do Well?

While old-school capitalists focused purely on making huge profits, today’s captains of industry take social responsibility and ethical practices far more seriously. With ESG (environmental, social and governance) concerns more prominent on a company’s agenda, are profits being sacrificed as a result?

Let’s take a look at the fashion industry which is arguably is one of the most wasteful on the planet, with labour practices that are regularly being questioned. While there are of course plenty of fashion brands with admirable sustainability records while providing decent working conditions and pay, these are the exception rather than the rule.

A report published last November from the Ellen MacArthur Foundation, whose mission it is to accelerate the world’s transition to a circular economy, made some shocking discoveries about the fashion business. Every second, the equivalent of one garbage truck of textiles is landfilled or burned, while an estimated US$500 billion of value is lost every year from clothing that’s barely worn and rarely recycled. The report was published in partnership with fashion designer Stella McCartney, who is widely credited as the founder of the sustainable luxury movement.

Alongside the environmental damage (clothes release half a million tonnes of microfibers into the ocean every year – equivalent to more than 50 billion plastic bottles) there is the cost to society in poor working conditions and pay. With the spotlight on the fashion industry from environmental and human rights’ groups, many have been getting their houses in order.

A number of brands now offer stylish clothes made using sustainable and ethical practices. One such company is Toronto-based Kotn, which launched in 2015. Its aim was to sell ethically-made, sustainable cotton basics using a unique supply chain. Its founder Rami Helali spent years building fair trade partnerships with every firm involved in the supply chain. But does Kotn have to sacrifice profits in order to be so ethically-minded?

“It is absolutely possible to build a profitable and sustainable and responsible fashion company, both ethically and socially,’’ he said. While Kotn is a minnow compared to fashion retail giants like H&M, The Gap, Uniqlo and Zara, it shows what is possible if everyone is onboard. But while the company’s directors and shareholders may decide to take a stronger corporate social responsibility stance, customers are not always as concerned.

“There isn’t enough consumer pressure for it to become detrimental for fashion brands to operate in the way they’re operating now,” Helali added. “I would say now, the general environment is that consumers are leaning toward wanting sustainable practices, ethical practices and that whole thing, but it’s clearly not enough.” However, the tide is slowly but surely turning towards more conscientious consumption. Lawrence Koh, Associate Professor, Department of Strategy and Policy at the NUS Business School, said: ‘’I do see a distinctive shift in young people, millennials, not just looking for cheap bargains but willing to pay more for sustainable products. They are also educating their parents on being more socially responsible.’’

Being sustainable can actually be good for business (and profits) if you show you are helping protect the environment and donating some of those profits to charitable causes. H&M has been making major inroads into the world of sustainability. The Swedish mega-retailer launched its eco-friendly Conscious Collection back in 2012, and has a goal of becoming climate-positive throughout its value chain by 2040. In fact, the H&M Group is regularly ranked as one of the world’s most ethical companies.

And it does this while making healthy profits. During H&M’s last financial year (December 2017 to November 2018) profits were 12.65 billion kronor (S$1.8 billion). While this may not on its own prove that sustainability is good for business, it strengthens the case that being ethically-minded is definitely not bad for business.

Another company driving sustainability in the fashion world is s luxury retailer Burberry. ‘’They are doing a lot to become more sustainable and eco-friendly, such as not destroying unsold clothing, banning fur and using renewable energy,’’ said NUS Business School’s Lawrence Koh. The British fashion house is also making healthy profits and has been in business for more than 160 years. Burberry saw a seven per cent rise in yearly pre-tax profits (to March 30) of £441million (S$758 million). It is also featured on the Dow Jones Sustainability Index for the first time last year.

Mervin Teo is vice president for Quadria Capital, a Singapore-based investment company that focuses on impact investing. He said: ‘’Sustainability and profits are not mutually exclusive. In fact, sustainable and responsible businesses do well for a number of reasons so they tend to be more profitable.’’ Sustainable companies are less likely to fall foul of regulators so they will avoid fines and penalties. They also tend to have strong governance, making them attractive to partnerships which can grow their network.

While sustainable fashion is on the rise, what about sustainable luxury? One luxury brand fighting the cause is Chopard. The Swiss jewellery and watch company announced last year it would only use 100% ethical gold in the production of all its products. It is helped by the fact that it created its own gold foundry in 1978, a rarity in the industry.

Today, the company claims to be the world’s largest buyer of Fairmined gold, with its supply of gold procured only from sources that have been verified as having met international best practice environmental and social standards. Hopefully other luxury brands will follow suit. Even if customers don’t always care how products are made, there are many compelling reasons for being sustainable. Being less wasteful, more efficient and using fewer resources means lower costs. The lower your costs, the higher your profits. That’s good for a business, its shareholders, the environment and even customers if it passes on these savings. In fact, everyone can win.