In 2019, the emissions associated with making Louis Vuitton handbags, Moët champagne, Guerlain perfumes and other LVMH products amounted to 5.3 million tonnes of carbon dioxide equivalent. Last year, that number had jumped to 6.1 million tonnes of CO2e, a 16 percent increase.
But in its annual environmental report, LVMH celebrated its success in bringing down the emissions associated with manufacturing, transporting and ultimately disposing of its products (so-called scope 3 emissions) by 15 percent compared to its 2019 baseline.
A casual reader would be forgiven for being confused. The company only reveals several pages deeper into the report that it’s referring to the intensity of its emissions, a metric that breaks down the amount of planet-warming gases released relative to each dollar of sales generated.
Over the same period, LVMH’s revenues grew by nearly 50 percent, buoyed in part by meaty price hikes. Those higher earnings have helped flatter the company’s emissions intensity even as its overall environmental footprint has increased, albeit at a slower pace.
It’s a trend reflected across the luxury sector, where many big brands have pursued a strategy of aggressive price increases in recent years. And it may be allowing companies to report emissions reductions that seem better than they are.
What’s Price Got to Do With Emissions?
Intensity-based carbon accounting was designed to allow companies to set emissions reduction ambitions and bank progress, while still making room for business to grow.
It’s a methodology commonly used by luxury companies, especially when setting targets for tricky-to-tackle scope 3 emissions that are out of their direct control, but typically account for the bulk of their impact.
The problem is that intensity-based metrics rely on economic value to act as a proxy for industrial activity and hence impact. But when rising revenue is disconnected from production and other polluting activities, for instance, when it’s buoyed by price hikes, it opens the way to distort calculations of environmental progress.
The Science Based Targets initiative, an organisation that has become an arbiter for corporate climate targets, does allow for this kind of accounting within certain parameters, but acknowledges the risks it presents. “Economic intensity indicators … are subject to a number of variables that can lead to apparent changes in a company’s carbon intensity that have nothing to do with its environmental performance,” it said in an explanation of its methods published in 2021.
At Gucci owner Kering, scope 3 emissions have grown 71 percent since 2015, the baseline year for the company’s emission reduction targets. Over that same period, the company’s sales grew a similar amount; the emissions intensity it reported halved.
LVMH said that a granular assessment of its impact reveals where progress is being made. For instance, emissions relating specifically to purchased goods, which largely covers manufacturing, were more-or-less flat between 2019 and 2022 — though this was offset increases elsewhere. Moreover, the company said several factors have gone into its revenue growth, including changes to product volumes and mix, as well as price. The company’s scope 3 emissions are calculated in accordance with the corporate carbon accounting standard, the GHG Protocol, and approved by statutory auditors, it said.
Kering did not comment. Earlier this year, the company announced a new absolute reduction target for its scope 3 emissions.
In theory, the potential distortions caused by pricing could work the opposite way too, leading to a precipitous spike in emissions intensity if there’s a drop-off in sales.
“It leads to gaming in either direction,” said Kenneth Pucker, a professor of practice at the Tufts Fletcher School.
What’s the Impact of Price Inflation?
Exactly how much luxury’s recent spate of price hikes is influencing brands’ emissions numbers is almost impossible to calculate. A range of different factors will affect a company’s intensity calculation, most of which aren’t disclosed and could well differ from company to company.
That’s true even of basic pricing data, which brands don’t release consistently or introduce in a uniform manner.
For instance, between October 2019 and this April, the price of a small Gucci GG Marmont Matelassé shoulder bag in France increased by 75 percent, according to an analysis by HSBC. On the other hand, if you’re looking at the brand’s women’s Ace sneaker embellished with a gold bee, it’s only 27 percent more expensive today than four years ago. The price of a Louis Vuitton Speedy Damier bag has risen 56 percent.
That said, the average US price of mens and womenswear products online was up roughly 40 percent at both Gucci and Louis Vuitton in July 2023 compared to July 2019, according to an analysis by Edited. That’s around double the rate of inflation in the US over that same period.
According to Bernstein analyst Luca Solca, price increases mean that volume growth may have been 20 percent below top-line growth at luxury brands, helping to keep a lid on emissions.
Is it Greenwashing?
Carbon accounting is a complicated and still maturing space, and intensity-based metrics remain in wide use — though companies should be careful to make it clear in their disclosures when reported reductions are relative.
Scrutiny over how companies measure and disclose their emissions is mounting as the window to stave off the worst impacts of climate change narrows and climate reporting becomes more regulated. SBTi guidance written for the apparel and footwear industry notes that because of factors that include the volatility of financial metrics, economic-intensity-based target-setting is considered less robust than other methods.
“It’s a really confusing approach,” said sustainability strategy consultant Michael Sadowski, who helped write the SBTi guidelines for the fashion industry. “When people ask me, I’m like, ‘Don’t do that; just set an absolute target.’”
In March, Kering became the first among Europe’s luxury giants to set an absolute scope 3 reduction target, committing to reduce absolute emissions across its supply chain 40 percent by 2035.
For the group, elevated pricing is an explicit part of its sustainability strategy, with a “value over volume” approach theoretically allowing it to sell fewer goods at higher prices, powering top line growth without adding any costs to the planet.
“Everyone wants to grow,” said Sadowski. “If you’re making higher quality products and fewer of them and charging more, then isn’t that better than making a lot of crappy products?”