7th March 2012
The exponential growth in the luxury sector, fostered by strong demand from China, raises compelling issues for the responsible investor; is luxury by definition sustainable, and moreover in times of austerity and recession, can it be considered as part of an ethical portfolio?
There is certainly little argument over performance. The luxury goods sector continues to report robust demand, fuelled by a growing, affluent Asian Middle Class with its insatiable demand for branded Western goods. The main luxury houses have mostly reported strong earnings and performance relative to the wider market; Hugo Boss 60%+ over 1 year, whilst at home two distinct UK luxury brands, Mulberry and Burberry have returned 50%+ and 25%+ over 1 year respectively.
With their exclusive cachet, it is not unreasonable to ask whether luxury is leading the charge when it comes to sustainability; just how interested are these exclusive brands when it comes to environmental, resource and supply chain management?
Perhaps a sensible starting point is durability rather than sustainability. By definition if we look at luxury products as those that have longevity and quality, then they have implicit sustainability built in. This is premised on the consumers in theory buying into the concept of ‘fewer but better’, which in turn reduces resource, energy, water and emissions.
Moreover, we are seeing innovative policy changes occurring within the luxury industry with corporate social responsibility initiatives becoming more prevalent within many companies. Swiss luxury goods giant Richemont (Cartier, Mont Blanc, Dunhill) has published a ‘green handbook’ that assists architects with environmental considerations when designing new buildings, while another of the group’s bands, Chloe, has reviewed its packaging with 80% now produced from FSC (Forest Stewardship Council) board.
Here in the UK, Burberry and Mulberry are both members of the Sustainable Luxury Working Group ‘comprised of companies in the luxury industry that are committed to advancing good social, environmental, and animal-welfare practices in their business operations, including sustainable sourcing practices’. These companies support the best design and manufacturing skills within the UK, including vital jobs; indeed, such has been Mulberry’s strong performance, that it is opening a new factory in Somerset in 2013, creating 250 much needed jobs.
The sector undoubtedly faces challenges; the sourcing of raw minerals, the textile supply chain and attendant labour conditions, and animal welfare issues in the leather sector; more philosophically, the argument is made by some that luxury is about conspicuous consumption, and so can never be ethical.
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