Circular economy, sustainable sourcing key for Gucci owner Kering to hit emission targets: CSO

MONGOLIAN nomads have been breeding goats for their cashmere for thousands of years. 

Climate change has caused the goats to produce less cashmere wool, however, with hair fibre that is of lower quality. 

This is a problem for a critical component of Mongolia’s economy as well as for luxury group Kering, which uses Mongolian cashmere in its fashion products.

The French-listed company’s huge dependence on raw materials from nature means Kering’s long-term viability is increasingly under threat from the climate crisis. 

Even if the company – which manages luxury fashion brands including Gucci and Yves Saint Laurent – can continue to secure demand from customers willing to pay top dollar for cashmere sweaters or leather bags, without enough raw materials, they would not be able to make those products, Kering’s chief sustainability and institutional affairs officer Marie-Claire Daveu told The Business Times. 

Seeing the urgent need to pivot to a more sustainable way of doing business, Kering placed sustainability at the core of its strategy 15 years ago.

Kering uses a metric known as environmental profit and loss (EP&L), which was developed in-house in a bid to financially quantify environmental impact.

The company reduced its EP&L intensity by 40 per cent in 2021, from its 2015 baseline, four years earlier than its target of 2025.

Against the same 2015 baseline, Scope 1 and 2 emissions declined by 71 per cent in 2022. Scope 3 emissions – which refer to indirect emissions arising from a company’s supply chain – fell 51 per cent.

Scope 1 emissions refer to direct greenhouse-gas emissions released through activity at a facility level, while Scope 2 emissions refer to those released at the power station for the generation of electricity that a company consumes.

In March last year, Kering updated its sustainability targets to reduce emissions across Scopes 1, 2 and 3 by 40 per cent by 2035. 

Given that 83 per cent of Kering’s environmental footprint is tied to its supply chain, Daveu recognises that the bulk of her responsibility lies in tackling the sourcing and processing of raw materials, as well as the production of items. 

Three strategies

She laid out three strategies Kering has embarked on to meet the targets: fair production, new circular economy business models and the sourcing of raw materials.  

Fair production involves using artificial intelligence to make better predictions of sales, so the company can produce just the right amount to meet demand. 

As for the circular economy strategy, Kering has invested in Vestiaire Collective – an online marketplace for second-hand luxury fashion.

It has been 15 years since its inception in 2009, and Vestiaire Collective has not achieved profitability; but it has announced plans to be profitable by the end of the year. It launched a crowdfunding campaign in January 2024. 

It is the third leg of the strategy – lowering the carbon footprint of its raw materials – that would possibly have the biggest impact on Kering’s emissions. 

Daveu said the company is looking to scale up various pilot projects it is working on in sustainable sourcing. 

One example is regenerative agriculture. This involves cotton or animal farming that restores soil health through rotational cropping or grazing, protecting biodiversity, eliminating the use of synthetic inputs and ensuring farmers are paid fairly for improved practices. 

Another is the innovation of disruptive raw materials. Examples of these include the use of mycelium – the root-like structure of a fungus – to make vegan leather. Kering is working with more than 250 startups that look at the research and development of raw materials.

When asked if Kering has any timeline on the increased incorporation of sustainable raw materials into its supply chain, Daveu said that the nature of innovation makes it hard to predict when the company can scale the implementation of such projects.

In addition, the quality bar these raw materials have to pass to justify a luxury price point adds an additional layer of complexity. 

“You have to be sure, of course, about the quality. You have to be sure about the fact that you will have security in the volume. And third, the price for the raw materials,” said Daveu. 

Mix of materials

She believes that the company will eventually use a mix of disruptive raw materials, and conventional ones sourced from regenerative agricultural practices. 

Kering’s targets to reduce absolute emissions by 2035 are a tall order. The company’s total emissions for 2023 came in at 1.8 million tonnes of carbon dioxide equivalent. Although this was a decline from 2.4 million tonnes in 2022, it was partly driven by a 4 per cent decrease in its revenue in 2023. 

Unlike its competitor LVMH and Hermes, which reported year-on-year growth in sales, customer disaffection for Gucci – which is Kering’s biggest brand – led the company to warn profits would fall as much as 45 per cent in the first half of 2024. 

When asked how Kering would navigate the dual challenges of sustainability and declining revenue, Daveu said she was not in a position to comment on the company’s financial position. 

“The main point is to have a de-correlation between the growth of greenhouse gas emissions and the growth of business and profitability. Of course, we are a company, and we have to continue to grow and to increase our profitability. But we are in luxury. So the growth is not linked with volume. It’s about the quality and elevation of the brands, new experiences,” she added. 

She believes that initial investments into sustainability, however, will eventually lead to lower costs. Factories or tanneries that are more efficient would lower energy and water consumption, for example.

Nonetheless, Daveu said sustainability will not give Kering a competitive edge over its other luxury rivals. 

“All our best practices, we open-source them. We don’t keep only for ourselves because we don’t see sustainability as a competitive advantage,” she said.

“We see sustainability really as an enabler to continue to develop the business.”