Global law firm Baker McKenzie and Positive Luxury, the leading sustainability experts for the global luxury industry, today released the latest edition of their ESG Guide: "The Future of Sustainability Legislation for Luxury". With a new administration set to take office in the United States (US) early next year, the recent general election and new government in the United Kingdom (UK), and ongoing transition to a new European Commission in the European Union (EU), as well as global events like COP29 shaping the sustainability agenda, this guide provides a timely overview of the key changes in ESG legislation expected over the next few years in the US, EU and UK. The guide highlights the key issues business leaders in the luxury space need to be aware of to navigate upcoming sustainability-focused legislation.
Increasing ESG legislative and regulatory action
The ESG legislative landscape is evolving rapidly and the report highlights significant developments on the horizon:
• In the EU, the Green Deal continues to drive ambitious decarbonization efforts, aiming for carbon neutrality by 2050, supported by initiatives like the Circular Economy Action Plan and the Strategy for Sustainable and Circular Textiles. The Corporate Sustainability Due Diligence Directive (CSDDD) mandates comprehensive value chain due diligence and climate transition plans, while the new Directive on Empowering Consumers in the Green Transition and the proposed Green Claims Directive combat greenwashing by providing greater regulation around environmental claims.
• Both in the EU and UK, there are steps to tackle the problem of deforestation and forest degradation in the world’s precious forests. The EU’s Deforestation Regulation potentially covers a wide range of imported materials and ingredients used in EU manufacturing processes, with an updated proposal from the European Commission on implementation issued in October 2024. In addition, the UK is looking to adopt a Forest Risk Commodities regime via amendments to the Environment Act 2021.
• In the US, there is a plethora of developments around ESG. In New York State, there are a number of proposals including the proposed Fashion Workers Act, which is a groundbreaking piece of legislation designed to protect creatives in the fashion industry, including make-up artists, stylists, models and photographers. The Act is designed to improve labor protections and health and safety, and prevent exploitation. Further, the Fashion Sustainability and Social Accountability Act would require large fashion companies to map their supply chains and address human rights and environmental impacts, with various states introducing Extended Producer Responsibility laws for packaging and textiles, affecting luxury brands’ operations and supply chains.
Future ESG outlook for the luxury industry
The guide also examines what the next few years will bring for the luxury industry on the ESG front. Emerging trends include:
• The increasing emphasis on intra-sector collaboration and related competition/antitrust risks, with regulators like the European Commission and the UK’s Competition and Markets Authority providing guidance on sustainability agreements.
• The advantages and tensions of utilizing AI for sustainability, emphasizing the need for energy-efficient AI technologies and renewable energy integration to mitigate environmental impacts.
• The growing trend towards enhancing the sustainability and efficiency of retail spaces, as reflected in the UK’s Better Buildings Partnership’s updated Green Lease Toolkit.
• The significant rise in OECD complaints related to ESG issues, with a 400% increase in Specific Instances in 2023, underscoring the growing scrutiny on multinational enterprises and the importance of adhering to international guidelines.
Katia Boneva-Desmicht, Global Chair of Consumer Goods and Retail at Baker McKenzie, highlights the dynamic regulatory landscape and the increasing requirements for businesses: “The fast-evolving legislation across key geographies for luxury brands requires comprehensive due diligence, transparent reporting, and proactive adaptation to new standards. This guide is a helpful tool for luxury businesses to stay ahead of stringent ESG requirements and be prepared for significant changes, including stricter enforcement and higher penalties for non-compliance.”
Amy Nelson-Bennett, CEO at Positive Luxury, commented: “Upcoming global ESG regulations will be a catalyst for transformation within the luxury sector. Rather than seeing these as mere compliance hurdles, luxury brands should view them as opportunities to get ahead by embedding sustainability into their operations. Those that use this guide to embrace the shift will not only build stronger consumer trust but also position themselves competitively by demonstrating real change for people and nature.”
The report also provides key recommendations for luxury brands to adapt to ESG changes:
• Prioritize transparency: New EU legislation requires brands to be transparent throughout the product lifecycle, reassessing supply chains and meeting documentation requirements for ESG impacts.
• Climate transition plan: Brands must adopt a climate transition plan to align with the 1.5°C target of the Paris Agreement and the EU’s climate objectives.
• Verify green claims: With increasing scrutiny and greenwashing legislation, brands need to meticulously verify their ESG statements to ensure accuracy and compliance.
• Embrace innovation: Environmental strategies are driving innovations in eco-friendly materials, recycling capabilities and process improvements, opening new market opportunities.
• Align functions on ESG compliance: ESG issues affect all areas of a product’s lifecycle. Effective communication and alignment across departments are essential.
• Educate stakeholders: Educating both internal teams and the public about ESG obligations, new materials, processes and recycling methods is crucial for a brand’s ESG journey.