Why luxury brands should use blockchain to incorporate sustainability

According to a Nosto study, 20% of global water waste occurs due to the fashion industry. The study also indicates that 52% of consumers want the industry to become more sustainable.

The biggest demographic of concern here is Gen Z and Millennials (the main buyers of luxury brands). They are increasingly pushing for social change, especially in relation to the environment. In fact, according to McKinsey, nearly half of Gen Z fashion consumers (43%) actively seek out and choose brands that have a trusted reputation for sustainable practices.

It was only a few years ago that Burberry was called out for burning $37 million worth of goods instead of donating or recycling them. Meeting the standards of social and environmental responsibility continues to be a challenge for luxury brands, with many, such as Louis Vuitton, under scrutiny when it comes to environmental and social impact.

However, while sustainability in the luxury sector is recognized as a priority, there is still a lack of viable solutions that enable easy incorporation of sustainable practices and accountability into the existing model.

Sustainability in the luxury goods sector

Sustainability is mainly related to the environment, but also includes human rights, inclusion of diversity and responsible financial allocation. Brands that fail to incorporate sustainability may struggle with customer relations. Take H&M for example, which is suffering heavily from a PR campaign they ran, advertising their products as “The Conscious Choice”.

A class-action “greenwashing” lawsuit against H&M alleges that the company is “deceptively, unlawfully and deceptively” attempting to capitalize on green consumer trends. Customers were apparently tricked into buying products at a premium that were not “green” at all, which are still largely made of polyester or recycled plastic, which still have a negative impact on the environment.

Although H&M seems to be one of the worst offenders, many luxury retailers have been known to take advantage of these trends and greenwash their products, which are not at all eco-friendly. They have been known to mask cost-cutting initiatives with green ones.

How green products fit in with luxury brands

Lawsuits against H&M, as well as other retailers, highlight the need to truly go green and reverse a negative industry image. But there are genuine concerns that need to be addressed for luxury brand owners who really want to incorporate a sustainable model.

There is something of a paradox in combining luxury and sustainability. Luxury products are usually the result of resource- and labor-intensive practices, and build a perception of exclusivity and prestige. But the emphasis of environmental campaigns is on sustainability, inclusion and equality. This contrast can create image problems for luxury brands.

Another problem is related to the materials. Luxury goods are often not sustainable. Leather, ivory, hardwood, precious metals, oil – all of these are limited and non-renewable, but the production and supply of luxury goods has become dependent on many of these materials specifically. A brand may even have a proprietary process to produce watches or bags that work with specific materials.

Perhaps more clarity is needed in what actually are sustainable materials, where they come from and how they are used.

Solutions for luxury brand sustainability

Fortunately, as the sustainability debate has evolved, so has technology. A simple solution could help resolve the paradox of sustainability within the luxury brand sector. Digital product passports for luxury goods are increasingly being touted as a solution to enable full supply chain transparency.

With blockchain-based product passports, customers can specifically track where each item came from, what it was made of, in what proportions, where the materials were sourced, who made it, the cost of individual materials, manufacturing processes and more. All of this could be readily available on the blockchain, along with other data, and it would address a number of sustainability issues in one solution.

It would also tackle counterfeiting, as each luxury product can be associated with a unique NFT on the blockchain, creating a fully traceable and verifiable digital twin. The luxury brand sector is known to be hit by giant counterfeiting scams, a multi-billion dollar industry. And there is even less transparency around sustainable practices for retail products. A good counterargument would be that these fakes are not made from sustainable practices at all, and the profits are extracted by criminals who are unlikely to use it for humanitarian purposes. The sheer size of the luxury counterfeiting industry means that there is a huge level of waste and a gigantic surplus of fake, unnecessary products that are not renewable.

Blockchain is the best sustainability policy

Blockchain-powered solutions such as digital product passports can serve to tackle the sustainability problem of luxury brands almost entirely. From increased traceability of raw material sourcing and supplier processes to full transparency over a product’s life cycle and circular journey – the benefits for luxury brands and consumers are compelling.

In addition to this, the same solution can also reduce operating expenses for brands and solve the biggest problem to date – that of luxury brand counterfeiting, a trillion dollar industry that has proven impossible to control.

In 2023 and beyond, expect to see many big brands migrating to Web3 for sustainable solutions to existing problems.

There is no reason why profit and sustainability cannot go hand in hand.