Global law firm Baker McKenzie and sustainability stalwart Positive Luxury released the latest edition of their environmental, social and governance (ESG) guide, “The Future of Sustainability Legislation for Luxury.”
Considering a new administration will be entering the Oval Office, a new government in the United Kingdom and the European Union’s ongoing transition to a new European Commission, the duo said the report provides a “timely overview” of the key ESG changes expected to unfold over the next few years.
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“Upcoming global ESG regulations will be a catalyst for transformation within the luxury sector,” said Amy Nelson-Bennett, CEO of Positive Luxury. “Rather than seeing these as mere compliance hurdles, luxury brands should view them as opportunities to get ahead by embedding sustainability into their operations.”
Centered around six essential action points, the report highlights the regulatory changes coming sooner than later (and what to expect from those changes) as brands navigate the shifting legislative landscape to remain compliant.
“Those that use this guide to embrace the shift will not only build stronger consumer trust,” Nelson-Bennett said, “but also position themselves competitively by demonstrating real change for people and nature.”
Up first was the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Corporate Sustainability Due Diligence Directive (CSDDD), which underline the urgency for transparency throughout the entire product lifecycle.
“The fast-evolving legislation across key geographies for luxury brands requires comprehensive due diligence, transparent reporting and proactive adaptation to new standards,” Katia Boneva-Desmicht, global chair of consumer goods and retail at Baker McKenzie, said. “This guide is a helpful tool for luxury businesses to stay ahead of stringent ESG requirements and be prepared for significant changes, including stricter enforcement and higher penalties for non-compliance.”
If the climate transition hasn’t already started, brands need to adopt a plan that aligns with the Paris Agreement as well as the EU’s eco-objectives, Positive Luxury said. With snowballing scrutiny and greenwashing legislation, brands need to “meticulously verify” their green claims to ensure accuracy and compliance. The London-based sustainability experts suggested that brands embrace innovation, align communication across all departments and educate stakeholders on ESG obligations such as new materials and recycling methods.
“These provisions encourage luxury businesses to create products that last longer, are easier to repair, reuse and recycle,” said Csenge Guylban, a sustainability consultant at Positive Luxury. “Instead of destroying stock, be creative and invest in reuse, recycling or remanufacturing processes. Companies should set aside resources for EPR to fund the costs of collecting, sorting and recycling as well as data tracking and reporting.”
The intersection of competition and sustainability was also spotlighted.
Luxury brands may cite competition laws as the reason for such rivalry between the two despite shared desires to tackle climate change.
“However, legitimate collaboration…can often yield better sustainability results to the benefit of the population at large than when businesses act on their own,” said Imogen Green, a London-based Baker McKenzie associate. “Recognizing this, regulators—including the European Commission and the UK’s Competition and Markets Authority (CMA)—have stepped up to provide guidance on how existing competition law frameworks apply to agreements pursuing sustainability objectives.”
This, of course, poses risks of varying degrees as competition rules differ from country to country. But it would be wise, to make sure the company’s sustainability function is “linked up” with its legal department.
“Competition law safeguards should also be in place for any sustainability project with competitors and should also be routinely checked for scope-creep to manage the risks inherent in any form of cooperation with market players,” Green said about exchanging competitively sensitive information and agreeing on common approaches that could restrict competition.
Julia Hemmings, a London-based Baker McKenzie partner, considered the artificial intelligence elephant in the sustainability sector.
On one hand, AI can drive efficiency, innovation and solutions to complex challenges like climate change and supply chain transparency. On the other, the development and deployment of AI systems require “substantial computational power,” leading to increased energy consumption and emissions. This, of course, creates a classic Catch-22.
“This creates a tension where AI, a tool that could be an aid to achieving sustainability goals, at the same time exacerbates the problem,” she said. “Therefore, balancing the benefits of AI with environmental impact necessitates a concerted effort to develop more energy efficient technologies and to integrate renewable energy sources into AI infrastructure.”
