Last month, Baker McKenzie and Positive Luxury released the third edition of their annual ESG guide, ‘The Future of Sustainability Legislation for Luxury’. The guide highlights sustainability-focused legislative changes in the EU, UK and US as well as important issues for business leaders in the luxury space. 

Based in Paris, Katia Boneva-Desmicht is head of Baker McKenzie’s litigation and arbitration practice group and is the global chair of its consumer goods and retail sector. In this Q&A, Katia discusses why global ESG regulations catalyze transformation within the luxury sector.

How did you get involved in the luxury industry?

I’m a litigator and my first case was on behalf of a luxury brand, protecting their distribution system in France. That was the start and now I’m working for many luxury brands. In France, there are many luxury brands and they are a part of our culture so it’s natural that we are defending these companies, their savoir faire and their ability to create what see as almost a piece of art.

Of all the issues luxury brands face, why is ESG of such urgency?

We chose ESG because this is a major topic for all our clients. We ask our clients about the topics that matter to them and the one that comes automatically from them is ESG – packaging, reporting requirements, transparency of supply chains and so forth, and then seeing all this legislation to be implemented, the possibility of sanctions, the scrutiny from nonprofit organisations and activism from more organisations to be compliant. There is so much going on with ESG.

What is driving the increased focus on ESG?

It has always been a subject because it’s a question of reputation and image for all brands. They must be seen as good actors, and avoid negative impacts on their brands. Initially, this concern drove some initiatives. And then the legislation came and we all saw that there was a need for immediate action. For example, we all know that there is climate change and we need to find solutions. There was a need for all actors to comply with the requirements to be carbon neutral, make efforts to reduce gas emissions and avoid waste issues – all these topics came in and the idea was to try, through the legislation, to apply the rules to everyone. 

Companies comply with legislation because of the threat of sanctions. The sanctions are very important – they create the willingness to change things and the only way to change things is through legislation and make it compulsory to comply. We need quick responses to make this happen as soon as possible.

We also have activists who are increasingly watching what’s happening on the market and challenging brands. This phenomenon is increasing, and it should not be seen negatively because common standards make it easier to comply.

Given this environment, what should be luxury brands’ ESG priorities?

ESG must be a central function. Brands need to closely follow developments because there are so many changes occurring in a short period. It’s really important to keep updated on every piece of legislation.

If they don’t have one, brands must put an audit system in place to know what’s happening and have full knowledge of their supply chains. Brands must be transparent and keep records of everything – every green claim, every claim on their website – everything should be proven in fact.

The biggest challenge is dealing with all these pieces of legislation. That’s the biggest concern for brands and why we created our ESG guide which summarises what we are seeing in the different markets and helps brands find the information they must monitor. 

What does the ESG future hold for luxury brands?

We will see more activity on several fronts including great activism, the circular economy, greenwashing, recycling and waste management. 

Concerning greenwashing, we are seeing class actions arise around this in the United States. We’ll see brands become more attentive in their communications and messaging around environmental allegations and provide more substantiation of their claims.

As mentioned, the implementation of audit systems is a key issue. We’ll see the ESG function become as central as the compliance system because this is a very important role in the company.

And of course, we’ll see lots of activity with sanctions and the rise of counter-sanctions in the United States and other countries. 

Since you are in the luxury sector, I must ask. Do you have a favourite luxury item?

Yes, I have a favourite. It’s a bag, I won’t say the brand so my clients don’t get upset. But this is what I love about luxury, when you buy a luxury product, you buy an image, a story; it’s something particular, and people keep these assets for a very long time. It’s the opposite of fast fashion and by their nature, luxury goods are sustainable products.