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How does a negative ESG footprint impact luxury brands?

May 2023
 by Tom Head

How does a negative ESG footprint impact luxury brands?

May 2023
 By Tom Head

For luxury brands, it is imperative that high standards are upheld across the board. No company can trade in high-end goods if their reputation doesn’t stand up to scrutiny. With customers placing more importance than ever on environmental and social issues, if a brand finds itself caught up in controversy surrounding its ESG credentials, even the most pristine image can be permanently tarnished.

What is ESG?

ESG – short for Environmental, Social, and Governance – is the term used for a set of criteria that measures a business’s impact on society and the environment. In recent years, this has become a factor of increasing importance as the public becomes more concerned about issues ranging from climate change to questionable workplace practices, and customers increasingly seek to support companies with strong social and environmental credentials. Negative news cycles come and go, but a blot on the ESG copybook can spread quickly via social media and stay with a business for a very long time.

The importance of ESG for luxury brands

Social status alone can lead to luxury brands becoming vilified and attacked, particularly in times of economic and societal strife. In April 2023, French protesters took their frustrations out on the offices of LVMH in Central Paris. The group, which encompasses Louis Vuitton, Moet, and Hennessy, was essentially collateral damage in the riots sparked by the French government’s proposal to raise the retirement age to 64. The premises were stormed, with one protester quoted as saying money for pensions “should come from the pockets of billionaires”.

Damage to a brand’s online search profile – the results that people see on a search engine results page – has a direct impact on its prospects for long-term success. Based on what they see online, customers may withdraw financial support for a brand on moral grounds, with investors, swayed by a shift in public sentiment, following suit. A negative ESG record can have a longer-lasting, harder-hitting impact than other unfavourable headlines, and this particularly rings true for brands in the luxury sector. If a brand’s reputation is built on quality, exclusivity, and prestige, any wrongdoing can severely weaken its appeal.

When turning to Google to find out about a brand, adding ESG-related terms to a search can drastically change the results that are returned, altering the complexion of what is associated with a brand. For example, searches for “Ralph Lauren” return links to largely positive press and owned assets, which rank highly across Google’s results pages. But a slight change of the search term, to add words such as “waste”, “animals”, “Mexico”, “Cambodia”, or “conditions” after the name Ralph Lauren, results in links to negative articles related to the brand’s ESG credentials appearing on the first page of Google results. These search results include news articles detailing allegations against Ralph Lauren of waste mismanagement, plagiarising indigenous Mexican designs, links to deforestation in Cambodia, and the use of exploitative suppliers in India, among others.

ESG in a changing landscape

Over the past decade, ESG issues have been amplified to wider audiences, often fuelled by social media. Disparaging stories concerning ESG matters are easily shared, spreading quickly across platforms that host hundreds of millions of active users.

Social media compels users to share their disdain, with posts expressing outrage at the latest controversy frequently going viral. Such activity isn’t always contained to sites such as Twitter and Facebook – it can also result in businesses receiving negative reviews on public platforms, and even lead to brand boycotts. In extreme cases, a poor ESG record can result in legal and fiscal penalties, including hefty fines and long-running litigation.

These threats don’t exist solely in the digital space, with luxury brands who are perceived to have flouted ESG measures also at risk of physical targeting. In October 2022, the Just Stop Oil group defaced Rolex stores and Ferrari dealerships in a London paint-spraying spree. With social media moderation methods often proving unreliable, such groups can galvanise public opinion online, where allegations escalate rapidly and plans for demonstrations and attacks are made.

Links to labour abuses, animal cruelty, the use of sweatshops, acts of plagiarism, and cultural appropriation can also see businesses fall foul of ESG standards. It takes no more than an association with someone (such as a sponsor or ambassador) who has spoken or acted in a way that is deemed offensive, to cost a brand dearly. In such cases, the best remedy is often a swift distancing – a response seen by luxury fashion giant Balenciaga in 2022, when it cut its partnership with Kanye West after he made a series of anti-Semitic remarks that caused a global outcry.

A three-step guide to ESG compliance

So how should luxury brands conduct themselves to avoid reputational damage in this modern environment?

The first step is proactivity. If there is anything a business can do to improve its ESG record, they should act immediately. Introspection is the best place to start, by auditing and tracking the narrative online and identifying potential issues that could cause harm to their online profile. It’s also possible to align the top search engine results with the values of suppliers, investors, senior employees, or the companies they represent – and ensure that historical issues or new waves of negative press do not cause any further reputational damage. Organisations who are serious about protecting their reputation and doing the right thing will go out of their way to make the necessary changes.

Secondly, luxury traders need to operate with transparency. They must be honest with all stakeholders and tackle any issues that could cause them reputational harm going forward. There is nothing more harmful for a brand than being exposed for something it has tried to cover up.

The third and final step is sustainability. By committing to ethical and responsible practices, brands will appeal to a wider range of consumers. In a competitive market, businesses need to make sure they’re claiming every advantage possible.

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