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Can 'Carbon Funds' Help Fashion Brands Tackle Their Environmental Impact?

This week, LVMH unveiled an unconventional approach to environmental sustainability. But a “carbon fund” alone won’t solve fashion companies’ eco-problems.
  • BoF Team

Later this month, around 100 world leaders and 40,000 delegates will gather in Paris for COP21, the UN’s climate summit, with the stated aim to reach a global, binding agreement on how the 195 countries represented will tackle climate change.

Fashion remains one of the most polluting industries in the world. According to the Danish Fashion Institute, fashion is the world's second most polluting industry, exceeded only by oil. Some companies have launched initiatives to reduce their environmental impact: Stella McCartney operates an animal product-free supply chain; Inditex has pledged to eliminate toxic chemicals from its supply chain by 2020; and H&M has launched a global clothing recycling programme.

This week, LVMH put forward an unusual approach to the issue, and one that merits further exploration. On Monday, the company announced that it has set up an internal “carbon fund,” a company-wide piggy-bank financed by contributions from its 70 subsidiary companies. From now on, each will pay into the fund at a rate of €15 per tonne of carbon that they produce. Starting in 2016, the money collected will finance projects at LVMH whose sole purpose is to reduce the company’s emissions — for example, more energy-efficient LED and cooling equipment.

It’s an interesting proposition. Carbon trading — whereby a company or individual pays money towards emissions-reducing projects in order to “offset” its own emissions — is a marketplace model for controlling climate change that began in earnest a decade ago. Currently, the EU Emission Trading Scheme is the largest greenhouse gas emissions trading scheme in the world, with 11,000 factories, power stations, and other installations “trading in” money that goes towards carbon-reducing ventures, to balance out the emissions they cannot reduce themselves.

For fashion companies, an internal carbon “fund” is an unconventional approach to sustainability — and one that raises two ideas that are key, if fashion is going to reduce the damage it does to the planet:

First, the fund creates an immediate business incentive for LVMH to become more sustainable. By effectively "taxing" itself for producing carbon, LVMH hands its fashion houses an incentive: the more sustainable they become, the less money they have to give up to the fund. The carbon fund lays out, transparently, how LVMH will raise the money it needs to invest in environmental initiatives. Few brands have been so open about where they'll find the cash to finance their sustainability programmes.

The second reason it's an interesting proposition is also to do with transparency. No brand can be 100 percent sustainable. By running factories, using raw materials, transporting goods around the world, a modern, global fashion company will inevitably have some environmental impact.

Those brands that do stick their neck out and launch sustainability policies face a serious amount of scrutiny and potential backlash. H&M and Zara — both of which have launched large-scale sustainability efforts — have faced criticism in the press for not doing enough, doing it wrong, or doing one thing at the expense of another.

An internal carbon fund acknowledges a company's impact on the environment. That's a big step. According to an LVMH press release: lighting, heating, air conditioning and production processes for LVMH's activities generated 370,000 metric tonnes in 2014. That's a huge amount of carbon — but it would have also translated to €5.55 million in the fund, going straight to projects that reduce those emissions. We need more brands to be transparent about their impact.

Still, a carbon fund alone is not a solution to companies producing emissions in the first place. It needs to be part of a wider set of initiatives to lower environmental impact — at LVMH, it feeds into the company’s LIFE (LVMH Initiatives For the Environment) programme, launched in 2013, that encompasses other eco-initiatives, like adding solar panels and recycling facilities to its production sites.

LVMH is also a sponsor of the COP21 event — a move that caused a ruckus amongst some campaigners who oppose corporate influence in policymaking. However, if the COP21 talks come off, and an agreement is reached, companies can expect to see governments driving a harder bargain on climate change, imposing stricter guidelines on their environmental impact, and potentially penalising those who pollute. In June this year, senators Sheldon Whitehouse and Brian Schatz went to the US's American Enterprise Institute to introduce the American Opportunity Carbon Fee Act, their proposal for a $45-per-tonne carbon tax which, they say, would reduce US CO2 emissions by more than 40 percent by 2025, and raise over $2 trillion in the process.

Companies need to reduce their environmental impact. And if they don’t take the initiative themselves, governments may soon start forcing them to do so.

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion.

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