In an industry built on excess, LVMH is trying to set the standard for sustainable supply chains. While these efforts may be an adoption of a trend, it is prudent for the world’s leading luxury goods conglomerate to make their supply chain more energy efficient.
LVMH’s 70 brands, or houses, span fashion and leather goods, wine and spirits, watches and jewelry, and perfumes and cosmetics . The raw material inputs to many of these products, including water and agricultural products such as cotton, grapes, grains, and flowers, are threatened by increasing global temperatures and water scarcity brought on by climate change. For LVMH to ensure the longevity of their brands, some of which already boast centuries-old heritage, they’ll need to reduce their contribution to climate change.
Since the 1992 creation of an Environment Department, LVMH has made strides toward reducing its carbon emissions. In 2010, a supplier code of conduct was implemented that includes requirements for sustainable practices. In 2013, Louis Vuitton received ISO 14001 environmental certification for the leather good and accessories supply chain after implementing a tracking system for CO2 emissions and modernization of logistics to include technology like geothermal heating and sensors for automatically regulated interior lighting .
Recently LVMH has significantly increased its sustainability efforts. LVMH Initiatives for the Environment (LIFE) 2020, established in 2016, demonstrates this commitment with a focus on four pillars: products, supply chain, CO2 and sites . The hallmark of this initiative is an internal carbon fund into which each of the 70 brands contributed 15 euros for every ton of CO2 emissions generated . In 2018 that amount will double to 30 euro per ton . This carbon fund is used to pay for sustainability projects conceived by each house and selected by an internal committee. This initiative’s goal is to reduce CO2 emissions by 25% between 2013 and 2020 and apply the highest supply chain standards in 70% of procurement chains . In 2016 over 6 million euros were invested in the fund . These projects have spanned various aspects of the supply chain.
- Production: Belvedere Vodka has made changes to its distillery in Poland that have contributed to a 40% reduction in greenhouse gas emissions by switching the fuel source from oil to natural gas and implementing heat recovery systems to improve efficiency . By the end of 2017, all French LVMH manufacturing and corporate offices will be powered exclusively by electricity generated from renewable sources .
- Packaging: LVMH launched an internally created tool to enable brands to measure the CO2 impact of packaging materials, the first step toward reducing this figure . Bulgari used this tool in 2016 to reduce packaging for its Aqua Amara perfumes by 48 metric tons .
- Shipping logistics: Many LVMH brands have implemented practices to decrease the environmental impact of shipping. The Krug Champagne brand, for example, bans the use of air shipping in favor of the lower CO2 emitting sea shipping. Parfums Christian Dior also increased the sea/air shipment ratio by 11% in 2016 .
- Retail sites: Given that nearly 70% of LVMH’s carbon footprint is generated in retail store locations, it makes sense that one significant initiative was changing all lighting in these sites to LEDs .
While these efforts are commendable, LVMH has opportunity to improve its 70 brands’ supply chain energy efficiency:
- Holistic approach: LVMH prides itself on the autonomy it offers to its houses, however this separation of authority prevents consistent standards across the entire organization. While the company lauds individual brands’ effort to improve energy efficiency, these efforts are clearly piecemeal. The carbon fund offers flexibility for different brands to prioritize business-specific efforts, but a top-down approach may prove more impactful.
- Transparency: Related to this holistic approach, LVMH does not provide detailed reporting on energy usage or efficiency goals . Its competitor, Kering, on the other hand, released its first environmental profit and loss report in 2015 . Providing transparency on energy usage, not just improvements, will help motivate broader change.
- Transportation: As mentioned, specific LVMH brands have made strides in transitioning to less carbon-emitting transportation methods, but there is still room for improvement. Specifically the perfumes and cosmetics and fashion and leather goods could reduce the use of air shipment.
LVMH recognizes the need to curb the carbon emissions that could threaten the raw materials its businesses rely on, but is the luxury retail industry inherently incompatible with sustainability? Is the best way to reduce the environmental impact of this industry’s supply chain to influence consumer preferences away from products some may consider unnecessary? What would it take to change consumer preferences in these categories to truly influence the actions of players like LVMH? What will come first, the impact to their raw material inputs or a fundamental shift in consumer preferences?
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