Responsible growth in the luxury fashion business is not only one of the industry’s biggest trends, it’s increasingly supported by data. For example, the world’s top 100 luxury goods companies experienced substantial growth in 2023, recording a 13.5% year-over-year increase in composite sales, reinforcing their prominence and profitability. This coincides with an industry-wide push to promote environmentally responsible practices within the fashion space, according to the Global Powers of Luxury Goods 2023 report published by Deloitte in January – a report that underscores the growing integration of digital technology and artificial intelligence as catalysts for sustainability. 

Trailblazers for what is fashionable, both on and off the runway  

Major luxury brands are actively embracing the circular economy and prioritising sustainability in their core strategies and environmental, social and governance (ESG) criteria. Notably, Prada recently joined the Sustainable Markets Initiative’s Fashion Task Force, alongside other industry giants including Burberry, Brunello Cucinelli and Giorgio Armani. This coalition is dedicated to advancing sustainability initiatives in fashion, including the development of the Digital Product Passport (DPP), which provides consumers with transparency about a product’s origin, sustainability credentials, ownership history and recycling information. 

To their credit, luxury companies are diligently monitoring their sustainability commitments and objectives such as net-zero targets and supply chain traceability which are being increasingly driven by consumer awareness of ESG matters. This heightened sensitivity is influencing product offerings, prompting luxury brands to explore environmentally-friendly materials and adopt sustainable practices throughout the product lifecycle, epitomising the concept of ‘sustainable by design’.  

Leveraging AI and regulation for a greener luxury market 

AI’s use helps realise luxury brands’ sustainability goals. As the Deloitte report notes, technology will accelerate the ‘green’ transformation of the luxury market, from product creation and manufacture, through consumption. AI can enable luxury brands to optimise their supply chains and inventory management, reducing overproduction and waste. AI can also assist companies by comparing the environmental impact of – and sourcing – sustainable materials, allowing them to choose options that align with sustainability goals. From the consumer’s perspective, AI can provide customers with detailed information about a product’s source and production and its potential for recycling and repurposing. To be sure, all of these advances are in line with luxury brands moving towards a circular economic model and meeting the demands of the environmentally-conscious marketplace that drives revenue growth. 

Government regulations and reporting requirements are also shaping the sector’s transition to environmental responsibility. The proposed New York Fashion Sustainability and Social Accountability Act, for instance, would mandate companies with annual revenues exceeding $100m disclose global supply chain maps and chemical management details, with penalties for non-compliance. The European Union is also developing its own set of regulations which will hold fashion companies responsible for their environmental impacts.  

Challenges persist 

The fashion industry has long been criticised for the environmental impact of its production processes and consumption practices – and sceptics remain. The rise of instant fashion, characterised by “mobile commerce, AI, live shopping and real time, real-cheap product creation”, as dubbed by Harvard Business Review, poses environmental risks from increased carbon emissions and water contamination. Exhibit A: Shein, the instant-fashion leader and a company that thrives on an impulsive consumer base and a data-driven supply chain model that strives (and succeeds) at meeting its customers’ demands by offering products at rock-bottom prices and nearly instantaneous production. While surveys say consumers seek more environmentally-conscious products and fashion companies want to meet these demands through sustainability and related efforts, there has been little progress toward those ends, according to the Harvard Business Review article. So too, there is undeniable profitability in the Shein fast fashion model. Case in point, Shein doubled its profit last year to more than $2bn and awaits approval from US and Chinese regulators as it prepares for what is expected to be the biggest IPO of the year. 

Nevertheless, luxury brands are adapting to evolving consumer preferences by exploring avenues like the second-hand market to extend product lifecycles and appeal to environmentally-conscious consumers. These companies are discovering how the preowned category can help extend product lifetimes and increase the brand relevance among younger, more environmentally-conscious consumers. No doubt, investments in digitalisation and innovative business models, such as resale and rental, underscore the industry’s commitment to sustainability and resource efficiency.  

These transformations align with broader shifts in the luxury market, including younger generations driving consumption and online platforms emerging as primary channels for high-end purchases. Moreover, efforts to appeal to environmentally-conscious consumers are evident in the luxury industry’s focus on developing sustainable biomaterials and refining sustainable practices across the value chain. 

A more responsible future 

The likes of Shein notwithstanding, the shift in the fashion space towards sustainable practices, transparency and circular economy principles represents a straight line to a more responsible future. As luxury brands continue to adapt to regulatory pressures and consumer demands, the integration of sustainability into their core operations is crucial for their continued success and environmental stewardship. Of course, both inside and outside legal counsel can certainly assist by shining a bright light on the regulatory landscape to ensure that luxury’s business practices meet industry standards.  

Taken together, increased regulations, incorporation of AI, brands monitoring their environmental impact, and lawyers working to facilitate regulatory compliance, will pave the way for a transformation of the entire fashion industry.  

Warren Koshofer is a partner and Prachi Ajmera is counsel in the New York office of Michelman & Robinson, a national US law firm headquartered in Los Angeles, with additional locations in Irvine, San Francisco, Dallas, Houston and Chicago. As members of M&R’s commercial and business litigation practice group, Warren and Prachi are well-versed in sustainability, ESG and related environmental issues in the luxury goods and fashion industries, as well as the litigation risks arising out of intellectual property rights and the use of digital technology and AI. They can be contacted at 212-730-7700 or [email protected] and [email protected], respectively.