By Dr. Stéphane J.G. Girod
Luxury brands have treated sustainability mostly as a cost and a reputational risk management exercise. But the big opportunity is to reinvent the business before today’s growth model runs out of road
Luxury’s approach to sustainability has hit a dead end. In Purposeful Luxury, I show that the top 100 luxury brands have started to conscientiously reduce negative impacts across the three ESG categories. But the results are largely insufficient because brands still treat sustainability as a compliance exercise and a cost.
But as the sector enters a period of structural slowdown, brands should see true strategic sustainability as an opportunity to renew their competitive advantage and compete on values.
So why does sustainability matter so much now? Because luxury brands are being squeezed by three powerful forces all at once. The main one is the continued deterioration of nature, which is putting ever greater pressure on the resources and ecosystems luxury ultimately depends on.
Second, geopolitics is slowing traditional engines of growth. Globalization fuelled spectacular economic prosperity, creating huge demand for luxury goods. But that engine is now sputtering, while powerful new competitors are emerging from China with sustainability at their core. The benefits of globalization were never shared equally.
More recently, conflicts have added to economic pressures, contributing to inflation, higher living costs and greater social polarization.
These elements have started and will continue to make luxury look like the business of inequality if brands do not transform.
Bain estimates the personal luxury goods market has lost around 70 million customers since 2022 as brands raised prices and doubled down on their biggest spenders. At the same time, Chinese brands such as Laopu Gold, Icicle and Songmont are winning over customers who once bought from established Western houses. Luxury’s old growth model is running out of road.
Why does luxury still see sustainability as a cost?
The biggest obstacle is that many luxury companies still see it as a threat to growth. The irony is that, while luxury sells the idea of rarity, it has become an industrial business, built on constantly increasing sales volumes, revenues and turnover. According to Bain, the global personal luxury goods market has grown almost fivefold in three decades, from about €73 billion in 1994 to roughly €362 billion in 2023, despite the more recent slowdown.
The fear among luxury brands is that if they take sustainability seriously, they’ll have to make and sell fewer products. And that immediately raises questions about revenue, profits and growth. Sustainability has become a compliance exercise for many executives: more reporting; more measurement; more consultants; more targets; more training. That feels like bureaucracy more so than business strategy.
On top of that, there is an issue about consumer perception. Sustainability can trigger feelings of guilt because it reminds customers that these goods often serve status, ego and instant gratification, while also placing pressure on nature and society. That can ultimately lead to greenhushing, when brands go quiet on sustainability.
And more importantly, many brands still focus merely on reducing harm. Very few brands are aiming to become impact-neutral, let alone create new environmental or social value, as I show in chapter 6 of Purposeful Luxury. If sustainability is framed that way — as damage limitation — it will keep looking like a cost rather than a source of value.
Also, brands still hesitate to challenge customers’ ideas of what luxury should look like. In wine and spirits, for example, many still avoid recycled green glass for rosé champagne because they fear it will dilute the perception of luxury. Others still cling to unnecessary packaging. Those decisions show just how often brand image still trumps sustainability in this industry.
That’s not to say there’s zero progress on sustainability. But it’s still limited. According to my research, only four of the 18 biggest luxury brands are both committed to net zero and on track to meet their 2030 Scope 3 targets — the toughest emissions to tackle. At the same time, Europe is rolling back parts of its sustainability reporting regime, prompting some companies to question how urgent the agenda really is and convincing some that sustainability can be put on the back burner.
The problem is that political and public enthusiasm for sustainability has cooled, leaving many executives wondering where the return on investment really is. That’s the trap: companies are getting better at reporting sustainability while putting off the much harder job of changing the business itself. Progress on targets will require deeper transformation once the low hanging fruits are exhausted.
Where does competitive advantage stem from?
Sustainability isn’t there merely to make luxury groups feel better about themselves. The bigger opportunity is staying relevant. Some 30 years ago, James March showed that companies obsessed with today’s business often do well in the short term, but become self-destructive over time. Sustainability is part of that preparation for tomorrow.
And the opportunity isn’t just to reduce harm. It’s to show customers the new value sustainability creates. The whole narrative must shift from cost to business opportunity by selling to customers the benefits of innovation.
Take for example the luxury hotelier Songtsam, which employs local Tibetans to run its hotels and shares part of its profits with nearby villages. Far from philanthropy, those investments create products, experiences and values that other brands can’t easily copy. It’s how Songtsam competes.
Luxury groups, then, must develop the brand codes — design, craftsmanship and storytelling — as well as marketing and distribution needed for a much more circular business where the future will also be in creating platforms for reselling, sharing and renting luxury goods. Rethinking the luxury experience also means investing much more deeply in the communities brands depend on, too, and playing a bigger role in supporting culture and education.
Put together, these changes become a competitive edge. And that starts with authenticity. Luxury has spent decades protecting its products from being copied, but now it has to prove something else: that its values are authentic too.
That’s where sustainability creates value. It makes brands more relatable, more relevant and harder to copy. It also drives innovation, opens up new business models such as resale and rental, and strips waste out of the business.
What should luxury CEOs do differently?
Luxury bosses should focus on four priorities:
- Stop treating sustainability as a box-ticking exercise. Invest more in circularity and set much more ambitious targets for slashing emissions, curbing waste and overproduction.
- Redesign products from the ground up. Build circularity into them from day one, so they’re easier to repair, reuse and eventually recycle. Don’t try to bolt it on later; retrofitting it is far tougher.
- Make fewer products and produce them much closer to demand. Stop piling up stock that may sit unsold in warehouses before eventually being destroyed. New EU rules now ban large fashion houses from destroying unsold goods, removing one of the industry’s traditional ways of managing excess inventory and preserving scarcity. But it remains unclear how brands will comply, or whether some will simply shift unsold inventory to other jurisdictions for disposal. To reduce overproduction, brands will also need to refocus on the wearability, attractiveness and functionality of their products. Too much fashion, even at the high end, ultimately goes unworn — and therefore becomes waste.
- Stop burying your sustainability progress in annual reports. Spell out what you’re doing. Luxury brands have spent decades convincing customers their products are authentic. The next challenge is convincing them the business is too.
