Trust, Transparency and Traceability

Intro

I launched my first newsletter three days ago. I initially planned for a weekly newsletter, but the overwhelming response of 100 sign-ups on the first day and now over 200 sustainability leaders following, inspired me to commit to publishing on Thursdays. Thank you all for your support; it has motivated me to continue.

This week, I focus on Trust, Transparency and Traceability. I'm researching the first sustainable luxury insights article in the Watch Sector. During my research, I came across WWF Switzerland's ranking of luxury watch brands. When evaluating a brand, I conduct a quick litmus test: I look for their Sustainability Report and analyse their Sustainability team structure. This gives me an indication of how seriously they take sustainability.

According to the WWF report, the brand Pomellato, owned by Kering ranks 1st for sustainability. For those unfamiliar, Kering is the parent company of well-known brands such as Gucci , Saint Laurent, Bottega Veneta , BALENCIAGA and Alexander McQueen .

Rising tide lifts all ships

As a part of the Kering Group, the brand Pomellato adheres to the codes and standards set by Kering. The Kering Group has been recognised for its sustainability efforts by Vogue Business and the CDP (Carbon Disclosure Project).

While browsing the Pomellato website, I came across this intriguing statement: "The company has obtained RJC certification from the Responsible Jewellery Council (renewed at the end of 2019), and annually performs due diligence towards its commercial partners to verify any deviations from the OCSE guidelines, and has not identified risks to human rights along its supply chain."

In various marketing copy, Pomellato reference achieving the objective of guaranteeing gold supply is 100% sustainable, 100% responsibly sourced gold, Fairmined certified gold and pursuit of of sustainable silver sources, transparent and traceable sourcing of diamonds and coloured stones.

This level of transparency is uncommon. Luxury brands, particularly luxury watchmakers, are traditionally known for their lack of transparency, often to protect their intellectual property and for other reasons. However, this lack of transparency is no longer acceptable to consumers, investors, special interest groups, and governments.

The transparency displayed by Pomellato led me to ask a few questions of my own regarding human rights and the risks in their supply chain.

Human Rights and Gold Mining

Human Rights are a crucial aspect of the 'S' (Social) component in ESG, so I wanted to highlight human rights and the risks associated with supply chains involving gold mining.

Human Rights

The UN spells out the human rights promoted and protected by The International Covenant on Economic, Social and Cultural Rights which include:

• the right to work in just and favourable conditions;

• the right to social protection, to an adequate standard of living and to the highest attainable standards of physical and mental well-being;

• the right to education and the enjoyment of benefits of cultural freedom and scientific progress.

Gold Mining Risks

EARTHWORKS is a US based nonprofit organisation specialising in protecting communities and the environment from adverse effects of resource extraction. They share the impact of gold mining below.

...it can displace communities, contaminate drinking water, hurt workers, and destroy pristine environments. It pollutes water and land with mercury and cyanide, endangering the health of people and ecosystems. Producing gold for one wedding ring alone generates 20 tons of waste.

I wanted to show the relationship between the Top 20 Producing Gold countries and their documented Human Rights Index. You may spot some really obvious numbers in the leading producers, I was pleasantly surprised at the higher rankings of some of the African countries.

Our World in Data states that the numbers:

capture the extent to which people are free fromgovernment torture, political killings, and forced labor; they have property rights; and enjoy the freedoms ofmovement, religion, expression, and association. The variable ranges from 0 to 1 (most rights).

Given the high risks of impacting both people and the planet in the value chain, which may be beyond the control of luxury watch brands, it follows that the sector could benefit from adopting practices from leading brands. Resources will always be a constraint, as not all companies can invest in sustainability at the same level. An exploration of current profitability and cash flow numbers would give an indication of a brand's ability to execute an ambitious sustainability strategy. Unfortunately, in the luxury watch sector and others, sustainability often takes a backseat to profitability.

Sourcing ethical gold

What does ethical gold look like? I don't subscribe to the view that a mine can ever be a place with ethical working practices, given the impact on the environment, workers, and communities. These effects are well documented, and I hope to get a chance to look into how gold is certified. There is also the layered aspect of sourcing from places where human rights are respected, while balancing costs.

Sustainability should be a team effort. If a brand has achieved a certain level of excellence that benefits profit, people, and the planet, one would think open-sourcing this knowledge would be beneficial. However, sustainability is often seen as a competitive advantage, meaning that whichever brand can invest the most in their strategy to bolster their claims wins. Nevertheless, it is interesting to observe consumer attitudes in the Luxury Watch Sector and understand who they are and their motivations. While I don't cover who is buying luxury watches today, I capture some of the attitudes below.

Consumer Purchase Considerations

According to Deloitte research on consumer factors for consideration when purchasing a luxury watch, only French consumers cared about Sustainability/Environmental Impact, and a few more countries cared about Longevity/Circularity. For all countries studied, none of the consumers ranked Sustainability or Circularity as the most important factor in their purchase decision.

Greenwashing Regulation

When considering sustainable brands, there are four scenarios:

1. Brands driven by their consumers to change

2. Brands driven by purpose, mission, and impact

3. Brands driven by customer demands for change

4. Brands that don't think they need to change and will likely not survive in the long run

5. Brands that will be forced to change by regulation

Given the low transparency in the luxury watch sector and the fact that consumer choices may not be driven by sustainability, regulation steps in to usher change.

In January 2024, Members of the European Parliament (MEPs) voted to pass the Green Claim Directive, and in March 2024, the directive was formally signed off. As a leader, it's crucial to be aware of the shift in accelerating sustainability regulations because directives like this impact how sustainability is communicated and evidenced. As a result of the directive, there is a higher expectation for brands to improve. In the sustainability community, brands that have built their reputation through self-proclaimed sustainability features are now being scrutinised and called out.

Pinsent Masons 's Dr. Fabian Klein does an excellent job simplifying the directive (https://www.pinsentmasons.com/out-law/news/green-claims-directive-proposal-raises-bar-environmental-claims). Transparency comes with responsibility – greenwashing is no longer acceptable, whether intentional or not. Even before greenwashing legislation, companies were facing hefty fines and risking reputational damage as a consequence.

Transparency and Traceability

In the context of luxury watch raw materials, specifically gold, it naturally follows that if brands cannot source gold from the right countries, they cannot guarantee their sustainability credentials or end-to-end traceability. The Green Claim Directive and other emerging legislation mean that brands can no longer afford missteps, regardless of whether consumers care about their credentials or not.

I have discussed the level of transparency that exists in the luxury watch sector. In creating the insight report, I will examine transparency across luxury brands and share my findings.

For now, it's appropriate to clarify what Transparency and Traceability mean. The OECD - OCDE define the terms as follows:

Transparency relates directly to relevant information being made available to all elements of the value chain in a standardized way, which allows common

understanding, accessibility, clarity and comparison” (EC

2017)

Traceability is the process by which enterprises track materials and products and the conditions in which they were produced through the supply chain” (OECD, 2017)

Whilst I am still in the research phase, I am hoping I will find enough information to create insights in this space.

Trust

In a bid to be transparent you will find brands two types of disclosures when interacting with brands the dense sustainable reports and the sustainability marketing positioning.

In a bid to be transparent, you will find brands offering two types of disclosures: dense sustainability reports and sustainability marketing positioning. Brands are certified and ranked, giving them a hallmark of credibility to enhance their marketing and other efforts. In the case of Pomellato, these rankings can be obfuscated by being part of a large group with diverse brands and product categories. It can be unclear whether traceability carried out for precious metals for jewellery has also been rigourously applied to luxury watches for instance.

Even when brands and businesses are transparent about their actions, the question remains: Do we trust them?

Edelman addresses the question of business trust annually with their Trust Barometer. Some of this year's insights point to the following:

1. Government is seen as Far Less Competent and Ethical than Business

2. 10 year shift: Less Trust for Companies Headquartered in Global Powers

3. Marginally lower percentage of people worry less about business leaders trying to mislead them compared to government leaders, journalists and reporters.

4. Business Most Trusted to Integrate Innovation into Society over NGOs, Government and Media respectively.

I wonder if any of this resonates with readers, let me know your thoughts in the comments. I'm still formulating a view on this.

This post was first published on LinkedIn.