Cashmere Crisis: How Climate Change Threatens Luxury Products
How climate change and unsustainable herding practices threaten luxury brands' ability to product high-end cashmere products.
“Given the luxury sector’s reliance on high quality raw materials, we must understand the potential vulnerabilities that climate change will pose to them and be proactive in building resilience across our supply chains.”
– Marie-Claire Daveu, Chief Sustainability Officer, Kering
Designer brand house Kering, home to such high-end labels as Gucci, Alexander McQueen, and Balenciaga, employs over 38,000 people globally and generated over €11.5 billion in revenue in 2015 . As a portfolio of luxury brands, Kering relies on high-quality and precious raw materials to produce fashion garments and accessories. These raw materials – particularly cashmere, but also others such as cotton, leather, vicuña, and silk – are especially sensitive to climate change, presenting risks to the company’s future ability to source the inputs of the luxury goods they produce. Diversification across suppliers and materials will not be enough to protect Kering’s brands’ product lines and production processes from the effects of climate change.
Climate Changes & Production of Cashmere
Cashmere, a fiber material made from the winter undercoat of certain breeds of goats, is a prime example of a raw material in high demand that is greatly affected climate change-associated risk. Kering’s luxury brands seek out premium cashmere fibers from the neck region of Hircus goats from the Mongolian steppe region, historically the best source of materials to create the warmest and softest finished goods . The quality of cashmere fibers is highly reliant upon the growth of the goats’ winter coats, which in turn is largely determined by water availability and winter temperature levels. In recent years, climate change and over-grazing have increased the frequency of a natural disaster phenomenon unique to Mongolia known as a dzud, when a summer drought is followed by extremely cold and snowy winters, potentially resulting in the deaths of large swaths of the livestock supply . In response, Mongolian herders have been increasing the size of their herds, unintentionally further degrading the pasturelands and increasing the desertification of the steppe region . Between the weather fluctuations and human interference, the quantity and quality of cashmere supply has become unpredictably variable, yet Kering is still faced with trying to increase production of cashmere garments and accessories to meet growing consumer demand.
Introduction of an Environmental P&L
In an attempt to create visibility into sustainability issues, Kering introduced the concept of an Environmental P&L (EP&L) in 2011. They hoped the new reporting would allow the company to account financially for the impact of its activities on the environment and aid them in making more sustainable business decisions . They continue to publish such annual EP&Ls and have since open sourced the methodology to encourage other manufacturers to adopt the practice as well, believing that collaboration and cross-company scale are the only ways sustainability issues can realistically be solved . Kering hopes that quantification of environmental impacts within their supply chain will help them prioritize their sustainability efforts and be able to measure the impact of sustainability solutions they implement .
Partnering with BSR to Share Learnings & Propose Solutions
In 2015, Kering partnered with the non-profit Business for Social Responsibility (BSR) to publish a report entitled “Climate Change: Implications and Strategies for the Luxury Fashion Sector” on the risks to the industry of climate change and propose potential solutions to mitigate them. By making the information public, Kering hoped to inspire other luxury fashion companies to build out business plans more resilient to climate change risk .
Looking at future risks to cashmere supply, the BSR report proposes a number of long-term initiatives to reduce variation in and increase the sustainability of supply including:
- Working with collaborative initiatives such as the UK-Mongolian Sustainable Fibre Alliance to work across luxury brands to encourage animal welfare initiatives and improve fiber yields from goat herds 
- Educating livestock farmers about more sustainable grazing and herding practices to slow the further degradation of geographic regions suited to raising cashmere-producing goats 
- Investing in animal husbandry and cross-breeding research to ensure the survival of goat breeds more tolerant to present and future climate conditions .
Turning Reports into Action
To date, Kering has done an admirable job of shining light onto the risks posed by climate change to high quality raw materials like cashmere. Action on mitigating these risks, however, have been less clear. In the short term, the company continues to design and produce cashmere garments to meet customer demand, aware of and absorbing potentially higher costs for the raw inputs caused by variations in supply. The creation of EP&Ls has allowed Kering to document the significant environmental impacts (“losses”) of its business practices, but does not inherently create a pathway toward balancing the books such that environmental impact (“liabilities”) can be offset by sustainable business practices (“assets”).
 Kering Group, “About Kering,” http://www.kering.com/en/group/about-kering, Accessed November 2016.
 Joanna Chiu, “Climate change in Mongolia destroying pastures on which nomadic herders rely,” The Guardian, March 10, 2016, https://www.theguardian.com/global-development/2016/mar/10/climate-change-mongolia-destroying-pastures-nomadic-herders-dzud, Accessed November 2016.
 Kering Group, “Environmental P&L,” http://www.kering.com/en/sustainability/epl, Accessed November 2016.
 Kering Group, “E P&L Methodology,” http://www.kering.com/en/sustainability/methodology, Accessed November 2016.
 Kering, “Climate Change: Implications and Strategies for the Luxury Fashion Sector,” p. 3, http://www.kering.com/sites/default/files/document/bsr_kering_report_climate_change_implications_and_strategies_for_the_luxury_fashion_sector.pdf, Accessed November 2016.
 Ibid., p. 35.
 Ibid., p. 35.
 Ibid., p. 35.
General Motors, 2010 Annual Report, p. 118, [URL], accessed October 2011
Student comments on Cashmere Crisis: How Climate Change Threatens Luxury Products
@GLempres – I admire Kering for introducing an EP&L to hold themselves accountable for making sustainable business decisions, but agree with you that the mere action of doing this may not be the solution. Logging and publicizing this information is just the first step; I think it will require more than this to save the cashmere industry. In terms of other actions, I wondered whether Kering might consider getting its customers (who are often high profile or come from elite backgrounds) to help in its cause. Customers who can afford luxury products might be able to provide monetary support and/or public backing to help generate awareness of this cause.
You mentioned the negative impacts to Kering in terms of higher costs due to a lower supply of cashmere, but I think the ramifications to the people who work in this industry cannot be overlooked. Small-scale producers of these materials, who are often rural and poor, will be unable to continue the jobs that support them. Additionally, the goats at risk provide meat and milk that are critical to the herding population. While Kering seems to feel that it is imperative to fix this issue from a monetary standpoint, I believe it’s important to consider the impact these goats have on the larger community.
Fabulous article — I love the EP&L idea. I’m interested to know if other companies have implemented EP&Ls in Kering’s footsteps. If not, this might not be enough.
You highlight a great issue: how do companies continue to make their products when the raw materials aren’t sustainable? I think luxury brands should consider alternatives to cashmere, such as alpaca. This Quartz article “Why your next sweater should be alpaca, not cashmere” touches on some of the points you make and discusses some of the advantages of alpaca over cashmere. According to the article “Brands such as Louis Vuitton and Versace have already showcased the fiber on runways in Paris and Milan. Numbers on this year’s alpaca sales aren’t yet available, but some designers say their alpaca yarn orders are on wait lists.”
I found your post to be a refreshing take on sustainable luxury – such an interesting read! I agree with your conclusion that while EP&Ls are a step in the right direction, they do not have an impact in and of themselves. In other words, EP&Ls inform consumers and the broader community/industry of the costs of unsustainable goods but do not necessarily provide an action plan for solving the issue at stake.
I want to push back on one claim that you made that particularly stood out: “Diversification across suppliers and materials will not be enough to protect Kering’s brands’ product lines and production processes from the effects of climate change.” This statement relies on the idea that the raw materials needed for luxury goods are fixed, leaving little room for innovation/change. Some luxury firms with high visibility such as Loro Piana have recently shifted away from traditional cashmere and are instead using Alpaca in their products, which is much more sustainable. According to the Natural Resources Defense Council, “an alpaca drinks less water than a goat and can handily grow enough wool for four or five sweaters in a year. It takes four goats the same amount of time to produce sufficient cashmere for a single sweater”. (See website link below for full article). Additionally, Alpaca is more durable than cashmere, potentially reducing overall consumption over the lifetime of a customer.
As a luxury firm, if you decide to change traditional raw materials you might have to consider investing in a new marketing plan to manage reactions. If you look at Loro Piana’s website you can see that they are investing in informing the consumer about the quality of Alpaca, perhaps as a way to mitigate against misconceptions. Another action you could take would be to vertically integrate some of the Alpaca farms into your supply chain to ensure sustainability (because Alpaca is not a national resource you may face less risk in the form of country expropriations).
Grace – I absolutely love this post. I agree with you and Rafi that an EP&L is such out of the box thinking that will (hopefully) really have an impact.
However, I agree with Rafi and Maria though that the solution for Cashmere may be in finding alternative materials. For instance with silk (one of the other materials you mentioned as a luxury good item currently in crisis due to the changing weather conditions), many people are looking into alternative ways to produce the material that were previously thought impossible. For instance, Bolt threads is a startup focused on creating spider silk — rather than using silkworms — without using actual spiders. They do this by using proteins found in spider silk, which spiders spin from glands in their butt, but could produce this silk on a commercial scale using proprietary technology. While spider silk has been around for ages, there has never been a clear way to commercialize it and never before a real reason to invest a lot of money to determine how to do this before people feared that climate change could cause the silk industry to go extinct. This material provides the warmth and soft feel of conventional silk but is easier to wash and wear. http://fortune.com/2016/05/11/bolt-threads-patagonia/
I wonder if companies like Kering will try to do something similar, with producing cashmere a new way in labs, or will choose to use an alternative material like Alpaca, as Rafi and Maria suggested?
Grace – great work on this post. I never knew about the behind-the-scenes situation on cashmere and its ecological effects. I agree with Erica that changing the perception really starts at the customer. I am reminded of the shark fin crisis many Asian countries faced a few years ago, when celebrities like Jackie Chan and politicians came together to ban shark fin in restaurants. Shark fin soup is a delicacy in many Asian countries, in particular the Greater China region. But the ecological effects are devastating, not to mention unethical – fishermen kill the entire shark just to take the fins off. But despite grassroots uproar, it took high-profile individuals to embrace the situation to change it. And in regions where laws were not passed, celebrities helped make ordering this delicacy more of a taboo. We should encourage the same effort on the cashmere crisis. By doing so, hopefully we could educate consumers and the public to look at the entire system, rather than what comes off the rack.
Grace – I enjoyed reading more about the effects of climate change on the luxury garment industry. Similar to what Lawrence and Erica were saying, the EP&L, while a good measure to raise awareness, doesn’t seem to address the issue at all. It’s unclear to me how they are currently using it other than to drive the issue to the forefront and influence the farmers to institute more favorable grazing practices. There is no mention of the company, or consumer for that matter, working to reduce production or purchases of the material, or try other materials that may be in higher supply. Ultimately, their business seems at odds with fixing this problem. I want to suggest that they re-image the company as very sustainable and try to drive customers to buy clothes made from materials that are in high supply, but I can’t imagine that will be successful with their current client base.
Grace, this is a good post that gave me an insight into a strategy of a luxury brand that tries to fight the scarcity of a raw material. Like my classmates I don’t agree that introducing EP&L as the only measure is sufficient. I would also argue that Kering should look into using a new alternative raw material. I like Maria’s comment and the link she posted that suggest Alpacha could be the next big hit. But what happens when after a few years of stripping of Alpacha there is not enough of this animal out there? I believe luxury brands are responsible for educating the customer that climate change is a real threat. They could do that by launching a campaign that promotes clothes, shoes and bags made out of alternative non-animal materials as fashionable.