1 Introduction

At first sight, luxury fashion might appear as the ideal precedence case for a sector that has the potential to become a pioneer in sustainable business. Luxury fashion includes fashion products that are in contrast with necessity goods, typically costlier, and predominantly purchased by customers with an elevated disposable income or greater accumulated wealth than the average population.

There is no clear-cut definition from which price range a piece of fashion can be considered luxury as the concept closely interrelates with individual perception of what is a luxury lifestyle. Nevertheless, some key features tend to characterize luxury fashion objects, which in turn make the luxury sector, in theory, very suitable to step up for sustainability.

The presumed high quality of luxury fashion implies a longer use of the fashion piece, which spreads the environmental and social costs for the production of the item on a longer time span (Joy et al. 2012). Hence, in contrast with a mainstream brand that targets a customer wanting to wear its products only several times (fast fashion model), luxury brands want to guarantee longevity of their products over many years. With regard to human rights and working conditions in fashion production in particular, the elevated pricing policy of luxury fashion brands a priori permits more scope for integrating additional costs for sustainable manufacturing into the production process. For example, the additional costs for in-depth working conditions assessments may be transferred onto the final product price without making a significant difference for the actual purchaser of the product due to her or his high disposable income. In contrast to mainstream brands, the lowest competitive price is not a key argument for selling luxury products. Furthermore, one could argue that structural labour issues in apparel manufacturing in the Global South affect luxury brands less, as production sites are traditionally located in the Western Hemisphere (e.g. Italy, France, Spain, Portugal). Besides, brand reputation in luxury fashion is highly relevant for sales and the vulnerability for reputation loss is significant—to a certain extent comparable to the volatility in the diamond industry (compare engagement of the diamond industry in the Kimberley process as analysed by Kantz 2007). Products need to embody a high degree of exclusivity in design, together with impeccable quality standards. Hence, if a luxury fashion company fails to ensure socially sustainable production conditions, how could it be guaranteed that exclusivity in design and quality are assured?

Having a closer look, the factual evidence on luxury fashion’s performance on sustainability, in particular human rights, draws a different picture. Given that the vast majority of luxury fashion companies are outsourcing their production similar to common high street fashion companies, luxury companies become more vulnerable to alleged environmental and social rights abuses. The luxury sector is not immune to social issues that prevail at the most vulnerable spots in global fashion supply chains (e.g. Clean Clothes Campaign 2014) and there are even calls to reform trademark law so that luxury companies meet their ethical responsibilities (Sun 2013). This paper aims to convey an overview of the degree of transparency to which leading luxury companies disclose information on their sustainability policies and management approaches, with a specific focus on human rights, and social and labour standards on the manufacturing stage. Transparency is crucial for pushing sustainability in the industry forward as it allows investors and consumers alike to make their investment or purchase decisions respectively on solid grounds. It also allows competitors and allies in the business to benchmark their performance within the industry and learn from each other’s practices to push for progressive company performance and industry standards.

2 Structural Factors in Luxury Fashion with Regard to Sustainability

The marketing approach of luxury brands refers to key factors of quality, exclusive availability of the product, the precise and expert craftsmanship process, and product innovation, correlating with and to a certain extent also justifying the elevated price range of the purchased product:

The marketing strategies of the luxury industry have been the door for their consumers to the wonderland of luxury spending and consumption. These strategies are meticulously designed to highlight high quality, exclusivity, craftsmanship, precision, and innovation that luxury goods can deliver to their customers (Sun 2013: 554).

Trademarks appear as a crucial factor. Trademarks stand for the authenticity and hence exclusivity of the luxury fashion item, which is key for the consumer. Adding to this, the tracking of signature items (e.g. individual numbers for handbags) to ensure quality bears the potential to enable more effective safeguarding of social sustainability indicators. Even with the shift of production to low labour cost regions such as China, Romania, or Saudi Arabia, it remains important for luxury companies to capitalize on Italian or French labour jurisdictions in a way that permits maintenance of the “Made in Italy” or “Made in France” label (Likoksy 2008: 294). With the increased outsourcing of manufacturing of luxury fashion in the last 20–30 years, seamstress guilds in the Western Hemisphere with union-like rights have been replaced by (mostly) women working under debatable conditions in Vietnam or Cambodia, and other countries (ibid: 298). Civil society reports, such as a recent one by Clean Clothes Campaign (2014), raise harsh criticism against luxury brands. The report by Clean Clothes Campaign alleges that workers are often paid wages below any established standard and are required to work very long hours in factories that fail to meet basic health and safety requirements, with labour conditions in some more extreme cases equalling conditions of modern slavery. Adding to this, in order to maintain the local trademark labels, such as the “Made in Italy” label, migrant workers or second or third generation migrant workers inside Europe become essential. For example, there are a myriad of Chinese migrant workers in Italy (ibid: 19). According to Clean Clothes Campaign, since a first wave of immigration during the period between the world wars and in a second wave in the 1980s and 1990s, the Chinese diaspora has become an important element of the competitiveness of the Italian fashion sector as a whole. A network of Chinese family businesses is supplying Italian manufacturers in a flexible and lowcost manner, mostly working under Chinese rather than European labour conditions. Luxury companies cannot be excluded from these market dynamics (ibid: 20). Ceccagno and Rastrelli (2008: 72f.) cite that for instance, in the historic Prato in Tuscany, Chinese-run companies represent about 80% of all active enterprises. Clean Clothes Campaign (2014: 20) stresses that the supply chains and business relationships between Chinese businesses and their Italian clients are characterised by a high degree of fragmentation and complexity, excessive subcontracting, and labour conditions that can hardly be monitored or controlled. Also, the organization claims that Pakistani suppliers are flowing into the country, establishing similar structures as the Chinese, for instance in the Campania region (ibid). According to Clean Clothes Campaign, French luxury brands equally source from these foreign-run subcontracting factories in Italy (ibid). To ensure compliance with legal provisions on labour conditions, law enforcement agencies and labour inspectors are carrying out various operations (ibid: 22).

These allegations, such as the ones described in the already mentioned report by Clean Clothes Campaign, put pressure on luxury fashion companies to act. At the same time, the companies are also pushed to becoming even more and more profitable. This relates to the increasing extension of businesses into emerging markets (Likoksy 2008). Similar to other major global companies, such as Starbucks or Warner Brothers, luxury fashion brands aim at tailoring their products to the local context for emerging markets consumers beyond the products the companies are offering to customers in their more traditional European or North American market since decades. Hence, besides the outsourcing dynamics in production, another transformation is taking place: the attempt to adapt products to recently arising markets. This expansion puts additional financing pressure on businesses. As a result of the market pressure to react fast to these new demands, luxury fashion companies work increasingly with outsourcing professionals, banks, multinational law firms, and accountancies (Likoksy 2008: 299). Additionally, fashion companies are more and more publicly-traded rather than privately-held. Hence, the character of the luxury business model itself is changing (ibid 299). The profit cycle expectation shifted fundamentally as fashion houses decided to go public. Before, profitability of a luxury fashion business had traditionally been measured over years if not decades. Even a collection that did not sell well would have been accepted as an exception by a fashion house, because success was measured by more long term criteria than it is now. In other words, attached to decisions to be a publicly traded company or to be managed by a non-luxury executive triggered a shift in accountability rules. As in other sectors facing similar restructuring by financial institutions, the aim of investors has been to turn a quick profit from fashion. Decision-making changed to a short-term basis model, nowadays to a three-to-four month cycle of profitability (Likoksy: 299).

Structural factors are essential for a socially sustainable conduct of a company as these influence the corporate culture and processes within the company. For instance, with increased profit cycle expectations, luxury fashion companies need to cut down on financial resources deployed on production and hence among others also labour costs. Thus, decent labour conditions appear less of a priority in the light of financial pressure.

3 Increasing Demand for Transparency

Along with reports about the challenges of luxury companies to respect human rights and labour rights along their value chains, various initiatives and international frameworks exist to provide some broader orientation for addressing challenges to respect human rights. The responsibilities of business to respect human rights are defined in the UN Guiding Principles on Business and Human Rights (United Nations Human Rights Council 2011), along with its major proponent John Ruggie’s introduction on the responsibility of business to respect Human Rights (Ruggie 2013). Moreover one could name the International Labour Organization’s Declaration on Fundamental Principles and Rights at Work (ILO 1998), the principles of the UN Global Compact (United Nations 2016) and the Organisation for Economic Co-operation and Development’s (OECD) Guidelines on Multinational Enterprises (OECD 1976/2016) serve as further key reference points for human rights obligations of companies and labour standards. Sector specific initiatives for the textile industry include for example the Fair Labour Association (FLA), Fair Wear Foundation, the German Partnership for Sustainable Textiles and the Dutch Textile Covenant. For retail in general some key initiatives are the Ethical Trading Initiative (Ethical Trading Initiative and Hult International Business School 2016) or KnowTheChain (KTC) with a focus on forced labour in global supply chains (KnowTheChain 2016a, b). In addition, investors, consumers, and civil society increasingly demand transparency from luxury brands in terms of social conduct and monitor their performance (Winston 2016). In 1991, the Down Jones Sustainability Index emerged as the first global sustainability benchmark and prevails as the key reference point for investors and companies in terms of sustainable investment (RobecoSAM 2016). In terms of benchmarks on human rights, there is the Corporate Human Rights Benchmark, which includes as set of luxury fashion companies (Corporate Human Rights Benchmark 2016).

Also academics speak out about the need for luxury brands to weigh in on promoting social sustainability at the core of their value chains—along with durability, quality and style (Joy et al. 2012).

4 Information Disclosure by Luxury Fashion Companies

In light of these structural challenges for establishing sustainable strategies in luxury fashion, how transparent are luxury fashion companies about their sustainability approach, especially with regard to human rights at work? How much information do they disclose? Based on a sample selection of luxury fashion companies, this study aims to convey further insights by a comparative approach of analysing disclosed information by the companies. The following ten luxury fashion companies are according to a study by EY the leading ones in terms of market capitalisation and will hence be used for this analysis (EY 2015): Burberry, Coach, Hermès, Hugo Boss, Kering, LVMH Moet Hennessy Louis Vuitton, Michael Kors, Prada, Ralph Lauren and Salvatore Ferragamo.

The analysis serves as a snapshot in time (Summer 2016) and relies on company information available in the public domain, e.g. annual reports, websites, and is gathered to indicate how companies address human rights on a policy and management level inside and outside the corporations. Different corporate structures and terms as well as the companies’ individual operating contexts make an all-encompassing comparison a challenging task. Not every component of one company policy would equal a component of another company’s policy, thus comparisons are only possible to a limited extent. Moreover, as the focus of this study lies on transparency in a company’s disclosure of information on social standards, labour standards, and human rights, the measurement of actual social sustainability performance is not part of this paper. This would require an in-depth analysis of each company combined with its particular local structure at each production site and its context. Rather, the focus of this paper is an assessment of the scope and the degree of detail of disclosed information on human rights policies and practices by companies.

Therefore, this paper analyses whether a company discloses comprehensive information in line with the UN Guiding Principles on Business and Human Rights (United Nations Human Rights Council 2011). This paper depicts which degree of commitment the company’s information displays on social standards, labour standards and human rights as a first step, secondly whether it has a human rights policy in place that is publicly communicated, thirdly whether it conveys information on the governance and management of the policy’s contents, fourthly how a company indicates to engage with stakeholder to carry out due diligence on Human Rights concerns and fifthly whether there is a grievance mechanism in place and whether information on it is publicly available as this paper’s focus lies on disclosure (compare Fig. 1). The fashion companies included in this analysis will be clustered into three groups: laggards, catching-ups and front-runners. Laggards address less than two dimensions of corporate disclosure on social sustainability whereas catching-up companies fulfil at least two and up to four out of the five criteria (compare Table 1). The frontrunners disclose information on all five dimensions (Table 1).

Fig. 1
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Dimensions of corporate information disclosure on social sustainability (own illustration)

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Table 1 Comparison of company disclosure by dimension for each company
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5 Empirical Results

Burberry presents an entire media portal on corporate responsibility (Burberry 2016), publicly available on its website. Within this portal, it lays out its Human Rights Policy (ibid), which includes a comprehensive section on how human rights are managed within the company as well as how workers can file their complaints through available grievance mechanisms. Burberry indicates to uphold the rights for all workers in its supply chain to join a trade union through the Ethical Trading Programme (compare ibid). Burberry states that the company requires factories to provide a grievance mechanism, which is communicated to, understood by and applied fairly to their employees—verified by the activities of the Ethical Trading Programme (compare ibid).

Coach’s website has no general human rights policy publicly available, and does not disclose precise information on social standards, labour standards, or human rights by the company, although some information can be found on engagement with business partners and contractors. The Project Just, a fashion consumer awareness project, points out that all of Coach’s business partners are subject to a contractual requirement to comply with the company’s social compliance guidelines (Project Just 2016). However, these guidelines are not publicly available—the brand solely shares its supplier selection guidelines as part of its supply chain stewardship programme (Coach 2016: 25f). Coach indicates that the social compliance guidelines are an enhanced version of the supplier selection guidelines (Project Just 2016). Coach claims to not knowingly work with suppliers who fail to pay their employees a local minimum wage and is partnering with Better Work Vietnam to educate, improve, and maintain positive working conditions in some of its factories (ibid) (Table 1).

Hermès discloses hardly any information on human rights within its annual report or in any other sources available in the public domain (Hermès 2016).

Hugo Boss discloses factory assessments in cooperation with the Fair Labour Association which is a significant transparency commitment, and has a Sustainability Committee in place. The company is also a member of the Bangladesh ACCORD on Building and Fire Safety, as well as of the German Partnership for Sustainable Textiles and the Global Social Compliance Programme (GSCP). The company furthermore engages with workers over an ombudsman system. Hugo Boss depicts comprehensive information under the KTC disclosure platform (KnowTheChain 2016b). The company claims to engage with workers in its supply chain on labour-related issues during social compliance audits, in which worker interviews are an important part and which focus on general working conditions as well as on the verification of work-related documents (ibid). Hugo Boss points out that auditors hand out contact cards with the e-mail address of Hugo Boss to the employees so that workers can file complaints independent of the audit (ibid). On a more advanced level of grievance mechanisms, Hugo Boss participates in the FLA, which enables workers to use the anonymous complaint procedure provided by the FLA. This also obliges Hugo Boss to investigate, follow-up, and remedy the cases filed under the FLA complaint procedure. Hugo Boss also points out that it established “a global ombudsman system as a supplementary reporting channel. Employees and third parties such as suppliers or customers can confidentially notify an ombudsman, if there are indications of fraud, infringements of antitrust law or breaches of compliance guidelines. It is also possible to remain anonymous if desired” (KnowTheChain 2016b).

The Kering Group presents an informative sustainability report (Kering 2016), which is at the same time not very precise on Human Rights, governance and management of the latter, as well as grievance mechanisms. Regarding stakeholder engagement, the group highlights that a training programme on ethics was set up in 2013, together with a code for all of the group’s employees. It is available in nine languages and lays out the ethical ground rules at Kering along with case studies and exemplary ethical dilemmas (KnowTheChain 2016b). The training programme was introduced in February 2014, with the 2014 edition focussing on corruption, fraud, conflict of interest, and confidentiality of information on social media. Respect for human rights, diversity, corruption, and protection of the environment were emphasized in 2015, and responsible sourcing of raw materials, traceability, and compliance with business confidentiality in the subsequent year (ibid). Remarkably, the Kering Group repeatedly references PUMA as a leading and innovative company within the conglomerate when it comes to social issues. At the same time, this does not excuse other brands within Kering’s portfolio from not disclosing information on human rights conduct.

LVMH Moet Hennessy Louis Vuitton lays out multiple activities in its Social Responsibility Report, although the only precise information contained on social issues might trace back to its membership of the UN Global Compact and to its statement on human rights as part of its code of conduct (LVMH 2016). LVMH disclosed information to the UNGP reporting database (Shift and Mazars 2016). With a similar corporate set-up as Kering, LVMH is a big conglomerate of brands.

Michael Kors does not disclose much information on its website, nor in its annual report, on social standards, labour rights, and/or human rights (Kors 2016).

Prada discloses only a glimpse of information on social issues, and regularly points to its Investors Report and Code of Ethics, analogous to when contacted by KTC (Prada 2016). The term “human rights” does not appear in the company’s code of ethics; instead, the company refers to respect towards the “human person”.

Ralph Lauren conveys insightful information on its Global Human Rights Compliance Department and indicates to carry out capacity building and factory efficiency trainings (Lauren 2016). The company promises to extensively review all first tier suppliers on a mandatory basis, which involves an assessment of risks and recommendations for corrective actions processes (KnowTheChain 2016b). Additionally, Ralph Lauren has review processes in place for foreign migrant workers in higher-risk environments, for instance in Jordan and in India (ibid). Also, the company indicates that it is developing traceability policies with respect to certain product commodities and requests suppliers to put in place grievance mechanisms for workers (ibid). These policies are said to include procedures for risk assessments, as well as for reviews of employment practices and workers’ working conditions (ibid).

Salvatore Ferragamo conveys hardly any information on social issues, except some broad lines in the company’s financial report in the public domain (Ferragamo 2016).

6 Comparative Summary: Transparency on Sustainability

A general strategic tendency across all fashion companies is hard to detect although this paper can identify different sub-clusters with regard to information disclosure by the luxury fashion companies in the study sample. While disclosure on human rights and labour issues can give some indication of a company’s commitment to an engagement on human rights, it is important to bear in mind that the degree of information disclosure might not necessarily equal a company’s actual performance with regard to respecting human rights.

The least progressive companies in this analysis, the “laggards” encompass Hermès, Michael Kors, Prada, and Salvatore Ferragamo. These companies failed to disclose precise information on their policies and practices to respect human rights, or social or labour standards.

On the “catching-up” horizon are Coach, Kering and LVMH as the companies are taking action to manage human rights issues with an increasing degree of importance attributed to the issue. Coach only shows a mixed record of information disclosure, highlighting material such as the social compliance guideline, which are not publicly available though at the same time stating it is an enhanced version of the publicly available supplier selection guidelines. Such an approach can be called biased. At the same time, the public availability of the supplier selection guidelines puts pressure on the suppliers and makes them prepare their production sites in line with the guidelines. Kering has engaged its employees recently in training programmes that could develop into a crucial mechanism for stakeholder engagement to carry out due diligence. At the current stage though, the precise action taken by Kering to ensure the respect for human rights lacks disclosure. There is potential that less progressive brands within the group could learn from more advanced brands with a solid record of respecting of human rights. LVMH appears to engage in some activities on the human rights agenda as part of its UN Global Compact signatory status, although the level of information disclosure remains low, apart from its disclosure on the UNGP reporting database. Hence LVMH needs to be placed on the lower end of the “catching up” continuum.

Burberry, Hugo Boss, and Ralph Lauren stand out as the “front-runners” within the analysed group of luxury companies. Each of these fashion companies discloses considerable amounts of information on social, labour, and human rights standards, lays out details on their human rights policy and how human rights are managed within the company, as well as how the company engages with stakeholders to carry out due diligence on human rights. Each of the companies has some sort of grievance mechanism in place, although the quality criteria among the grievance procedures differ even in this advanced cluster. It appears that Burberry and Ralph Lauren convey more information on the nature of their grievance mechanisms, indicating for example corrective action plans, than Hugo Boss.

In this analysis we can see that the information on social, labour standards, and human rights was conveyed by seven out of ten companies. With a more precise degree of information demanded on human rights policy, the number of companies disclosing on this dimension decreased. Five out of ten companies disclosed information under dimension of Stakeholder Engagement and Due Diligence. Four out of ten companies had a human rights policy commitment. The dimension of management and governance was equally the least fulfilled together with grievance mechanisms (three out of ten companies). To a certain degree this might indicate that a strategic approach for broader integration of human rights governance into the overall company strategy and handling of complaints is not yet incorporated in many company strategies.

Social sustainability is relevant—not only for a company’s reputation and investor interests but also for internal strategic processes. The luxury fashion sector has a distinct responsibility—and opportunity—to emerge as a pioneer in the textile sector to respect human rights. Due to its elevated pricing policy and high quality positioning, luxury brands could embody the case of differentiation from mainstream brands by an impeccable human rights performance. There is immense unused potential in the luxury fashion sector that can be unlocked to foster social sustainability. To achieve this, luxury brands need to comprehensively integrate social sustainability in a comprehensive approach into their corporate strategy. This paper analysed the external disclosure of fashion companies on social sustainability, thereby touching on publicly available human rights commitments and other documents that target policies and practices. Of further relevance would be an in-depth look into the actual emerging of corporate strategy on social sustainability by luxury brands. Such insight would make it possible to compare which strategic approaches are applied to address social sustainability and in a next step, to which effects these strategic approaches lead to performance of social sustainability “on the ground”. This paper shows that some of the analysed fashion companies are stepping up to become front-runners, at least in their policies and practices formulated “on paper”. At the same time, it takes more to make luxury fashion an industry that embodies the slogan “fashion is made by humans for humans” (from German by Christiane Arp in Vogue September 2016).