“Given the luxury sector’s reliance on high quality raw materials, we must understand the potential vulnerabilities that climate change will pose to them and be proactive in building resilience across our supply chains.”
– Marie-Claire Daveu, Chief Sustainability Officer, Kering
Designer brand house Kering, home to such high-end labels as Gucci, Alexander McQueen, and Balenciaga, employs over 38,000 people globally and generated over €11.5 billion in revenue in 2015 . As a portfolio of luxury brands, Kering relies on high-quality and precious raw materials to produce fashion garments and accessories. These raw materials – particularly cashmere, but also others such as cotton, leather, vicuña, and silk – are especially sensitive to climate change, presenting risks to the company’s future ability to source the inputs of the luxury goods they produce. Diversification across suppliers and materials will not be enough to protect Kering’s brands’ product lines and production processes from the effects of climate change.
Climate Changes & Production of Cashmere
Cashmere, a fiber material made from the winter undercoat of certain breeds of goats, is a prime example of a raw material in high demand that is greatly affected climate change-associated risk. Kering’s luxury brands seek out premium cashmere fibers from the neck region of Hircus goats from the Mongolian steppe region, historically the best source of materials to create the warmest and softest finished goods . The quality of cashmere fibers is highly reliant upon the growth of the goats’ winter coats, which in turn is largely determined by water availability and winter temperature levels. In recent years, climate change and over-grazing have increased the frequency of a natural disaster phenomenon unique to Mongolia known as a dzud, when a summer drought is followed by extremely cold and snowy winters, potentially resulting in the deaths of large swaths of the livestock supply . In response, Mongolian herders have been increasing the size of their herds, unintentionally further degrading the pasturelands and increasing the desertification of the steppe region . Between the weather fluctuations and human interference, the quantity and quality of cashmere supply has become unpredictably variable, yet Kering is still faced with trying to increase production of cashmere garments and accessories to meet growing consumer demand.
Introduction of an Environmental P&L
In an attempt to create visibility into sustainability issues, Kering introduced the concept of an Environmental P&L (EP&L) in 2011. They hoped the new reporting would allow the company to account financially for the impact of its activities on the environment and aid them in making more sustainable business decisions . They continue to publish such annual EP&Ls and have since open sourced the methodology to encourage other manufacturers to adopt the practice as well, believing that collaboration and cross-company scale are the only ways sustainability issues can realistically be solved . Kering hopes that quantification of environmental impacts within their supply chain will help them prioritize their sustainability efforts and be able to measure the impact of sustainability solutions they implement .
Partnering with BSR to Share Learnings & Propose Solutions
In 2015, Kering partnered with the non-profit Business for Social Responsibility (BSR) to publish a report entitled “Climate Change: Implications and Strategies for the Luxury Fashion Sector” on the risks to the industry of climate change and propose potential solutions to mitigate them. By making the information public, Kering hoped to inspire other luxury fashion companies to build out business plans more resilient to climate change risk .
Looking at future risks to cashmere supply, the BSR report proposes a number of long-term initiatives to reduce variation in and increase the sustainability of supply including:
- Working with collaborative initiatives such as the UK-Mongolian Sustainable Fibre Alliance to work across luxury brands to encourage animal welfare initiatives and improve fiber yields from goat herds 
- Educating livestock farmers about more sustainable grazing and herding practices to slow the further degradation of geographic regions suited to raising cashmere-producing goats 
- Investing in animal husbandry and cross-breeding research to ensure the survival of goat breeds more tolerant to present and future climate conditions .
Turning Reports into Action
To date, Kering has done an admirable job of shining light onto the risks posed by climate change to high quality raw materials like cashmere. Action on mitigating these risks, however, have been less clear. In the short term, the company continues to design and produce cashmere garments to meet customer demand, aware of and absorbing potentially higher costs for the raw inputs caused by variations in supply. The creation of EP&Ls has allowed Kering to document the significant environmental impacts (“losses”) of its business practices, but does not inherently create a pathway toward balancing the books such that environmental impact (“liabilities”) can be offset by sustainable business practices (“assets”).
 Kering Group, “About Kering,” http://www.kering.com/en/group/about-kering, Accessed November 2016.
 Joanna Chiu, “Climate change in Mongolia destroying pastures on which nomadic herders rely,” The Guardian, March 10, 2016, https://www.theguardian.com/global-development/2016/mar/10/climate-change-mongolia-destroying-pastures-nomadic-herders-dzud, Accessed November 2016.
 Kering Group, “Environmental P&L,” http://www.kering.com/en/sustainability/epl, Accessed November 2016.
 Kering Group, “E P&L Methodology,” http://www.kering.com/en/sustainability/methodology, Accessed November 2016.
 Kering, “Climate Change: Implications and Strategies for the Luxury Fashion Sector,” p. 3, http://www.kering.com/sites/default/files/document/bsr_kering_report_climate_change_implications_and_strategies_for_the_luxury_fashion_sector.pdf, Accessed November 2016.
 Ibid., p. 35.
 Ibid., p. 35.
 Ibid., p. 35.
General Motors, 2010 Annual Report, p. 118, [URL], accessed October 2011