Sustainability conscious generations are the main drivers of luxury sales growth globally and with Millennials and Generation Z willing to spend more on sustainable and socially conscious brands, luxury brands have not only an ethical reason to go green, but also a blossoming commercial incentive.
There has been pressure on businesses for some time to demonstrate their ethical and climate-friendly credentials, but the heightened attention in the wake of COP 26 last November has concentrated a few minds. There is a recognition that more can potentially be achieved by businesses collaborating to further ethical considerations than waiting for the government to do something about climate change To fulfil ambitious sustainability goals, maintain consumer trust and public perception, businesses will want to ensure that their supply chain partners align with their values.
At least one fifth of the world’s 2,000 largest public companies are joining the race to zero by committing to net zero carbon targets, with some luxury brands, like Reformation and All Birds having already achieved carbon neutrality certified by non-profit organisation, Climate Neutral.
As well the public pledges, some of the larger companies do have legal obligations placed on them; including, among other things, conducting due diligence on supply chains to ensure that certain products are not sourced from deforested areas. The government has also announced disclosure obligations for larger businesses, requiring them to disclose their environmental impact.
Truly carbon neutral (or negative) targets cannot be achieved in isolation, meaning attention is turning “down the chain”. Whatever your position in the luxury supply chain, suppliers, large and small, should prepare to scale up their “green” goals to win and retain business from the ever growing environmentally aware pool of partners.
Consequently, there is a move among some larger businesses and something luxury brands can consider, towards including terms in contracts with partners to meet certain sustainability and ethical obligations.
Examples range from ‘light green’ clauses encouraging partners to adopt ‘greener’ practices, to ‘dark green’ clauses which specify obligations and build in incentives for meeting or exceeding environmental targets. Particularly ambitious green clauses may even require partners that fail to meet targets to pay to offset their higher carbon impact or even allow a party to terminate in favour of a more sustainable supplier. Types of obligations may include using ‘green’ energy, employing energy efficiency measures, using more environmentally friendly methods of transport, purchasing carbon offsets, reducing food waste and water consumption and reducing or eliminating the use of single use plastic.
In order to avoid green washing, businesses should ensure their partners are prepared to be realistic about what they can achieve and willing to accept consequences for failures to achieve them.
How onerous these clauses are, will usually depend on the risk profile of the business – that is, the type of products and services that are provided – and their carbon impact. Another factor will be the ambition of the clause – i.e. are you committing, or asking your partner to commit to a one-off change, such as removing single use plastic in the business, or is it an overarching goal which will incorporate many different actions and have ever more ambitious targets.
What happens if you or your partner don’t comply? In short, it will depend on what you have agreed to and the commitment of each party to their own environmental goals. It can be difficult for larger companies to police that such obligations are being complied with by all of their business partners. However, if you hold yourself out as a “sustainable brand” and you don’t meet your environmental goals, or deliberately do things that are not good for the environment, your own customers will find out, you will face negative PR and you may find yourself on the wrong side of regulators clamping down on green-washing. And of course, if you or your partner are found to be in breach of your contractual obligations, there is the nuclear option to terminate agreements, which may have a devasting financial effect.
Both to promote a genuine positive environmental impact and to minimise risk, parties should ensure at the negotiation stage that they are being asked to sign up to things that are realistically achievable.
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