Evaluating a company's impact (the case of LVMH)

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You are reading Green Digest Impact, a weekly newsletter that provides in-depth analyses of companies’ environmental and social impact.

OUR APPROACH

Central to our narrative is the principle of double-materiality, which recognizes that a company's impact is twofold: it affects both the environment and society at large, and in turn, these external factors influence the company's financial and operational performance.

While traditional ESG assessments focus on the latter, we aim to examine companies' direct impacts on these factors. In pursuit of this, we introduce a unique scoring system that quantifies a company's impact.

The insights and analyses presented in Green Digest Impact are brought to you by a partnership between Green Digest and Impaakt, a Swiss-based impact data provider. Contact Impaakt here to explore how they can assist you.

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THIS WEEK’S COMPANY

LVMH

This week we dive deep into LVMH’s environmental and social impact.

LVMH is one of the largest luxury companies globally. Its product portfolio comprises clothing, fashion and leather goods, wines and spirits, perfumes and cosmetics, jewelry, and watches, marketed under brand names such as Louis Vuitton, Moët & Chandon, Hennessy, Sephora, Christian Dior, Givenchy, and many others.

Some interesting facts:

• The oldest brand within the LVMH portfolio is Château d’Yquem, a vineyard that dates back to 1593.

• Louis Vuitton is known for its expensive luxury products, such as the Louis Vuitton Urban Satchel, a handbag that was sold for $150,000.

COMPANY’S IMPACT

LVMH’s overall impact score

LVMH has a general impact score of -1.48 (on a scale from -5 to +5). Its impact is spread across 9 UN Sustainable Development Goals (SDGs) and 9 topics, split between positive and negative analyses.

In the socio-economic sphere,

the company holds a 20% market share of the global luxury goods market, making it the leading company in this sector with a retail network of over 6,000 stores worldwide. LVMH also holds approximately 8% of the global market share in luxury wine and spirits. The company’s exclusive fashion products give consumers confidence, empowerment, and self-expression, while its wines and spirits enhance enjoyment and facilitate social interaction. The company employs approximately 213,000 people (2023) and provides salaries above the industry and country average. It has also achieved gender parity (with over 40% women inclusion as per ILO standards) at all levels.

On the flip side, LVMH sells over 240 million bottles of wine and spirits annually, which despite having positive economic and cultural impacts, also has several negative social and health-related consequences. For example, WHO highlights that approximately 2.6 million deaths per year are attributable to alcohol consumption, accounting for 4.7% of all deaths. Some LVMH brands are also associated with Uyghur (a minority group in China) forced labor in their supply chains, particularly through cotton sourcing. Additionally, there are reports of child and forced labor in their mica supply chain, a key mineral in cosmetics, sourced from India and Madagascar. It is alleged that around 30,000 children work in illegal mica mines in these regions.

Environmentally,

LVMH emits over 7.4 million tonnes of CO₂ equivalent annually (2023), equal to the emissions of over 1.4 million homes’ electricity use for a year. The company also consumes over 11 million m³ of water annually, with 39% of it being in high or extremely high water-stressed areas. LVMH generates approximately 120,000 tonnes of waste every year, 95% of which it sustainably manages in the form of recycling, reusing, or waste to energy.

Additionally, it generates around 230,000 tonnes of packaging waste annually, approximately 79% of which it recovers. Further, the company sources over 70,000 tonnes of raw materials per year, which require tens of thousands of hectares of land. LVMH has also been linked to Amazon deforestation through its leather supply chain, with some of its suppliers deforesting thousands of hectares of land.

_{*The impact score is current as of June 2024 and may be subject to changes as it is continuously updated.
**You can find details about the scoring methodology here and the information sources here.}

ESG VS IMPACT SCORE

What is LVMH’s ESG rating?

For comparison, LVMH has an AA rating in MSCI's ESG evaluation.

However, ESG Ratings from MSCI ESG Research are designed to measure a company’s resilience to financially material ESG risks and they provide a window into one facet of risk to financial performance. They measure how effectively companies manage ESG risks, not their impact on these factors.

SCORES BY SDG

LVMH’s impact scores by SDG

Now, back to LVMH’s impact score:

Positively (and by weight), the company scores the highest in Good Health and Well-being SDG (+036), followed by Reduced Inequalities (+0.96), and Partnership for the Goals (+2.78).

Negatively, the company scores the worst in Decent Work and Economic Growth SDG (-1.70), followed by Responsible Consumption and Production (-2.96), and Life on Land (-3.56).

*the analysis takes into account the weight of the SDGs

LVMH also positively and negatively influences three SDGs (3 - Good Health and Well-being, 8 - Decent Work and Economic Growth, and 10 - Reduced Inequalities). For example, it has a positive impact on Good Health and Well-being as its products help millions of people with confidence and socializing. Negatively, because its wine and spirits have detrimental health impacts.

PEER GROUP COMPARISON

LVMH’s scores by ILG Theme and compared to its competitors

The Investment Leaders Group (ILG) is a global network of pension funds, insurers, and asset managers, with over $12 trillion under management. They came up with a framework to analyze impact that uses the SDGs as a reference point but with 6 broader themes, 3 of them related to Social (Basic Needs, Decent Work, Well-being), and the 3 others to Environmental (Climate Stability, Healthy Ecosystems, Resource Security). Each analysis is linked to one particular ILG Theme.

LVMH scores negatively in five of the 6 ILG themes. Compared to its competitors’ average, the company scores worse in four out of 6 ILG themes.

CONCLUSION

Final words

So, LVMH’s key social and environmental impact lies in …

its role in providing products that give confidence and self-expression, and enhance enjoyment for hundreds of millions of people worldwide. The company also provides hundreds of thousands of jobs, pays billions in taxes, and drives economic activity through its businesses.

Conversely, LVMH has a negative impact through its emissions, water usage, and waste production. The company has also been involved in forced and child labor, and deforestation through its supply chain.

Its negative -1.48 score is a balance of all of these factors and topics.

If you’d like to delve deeper into LVMH’s impact, you can explore it here.

Next week, we will analyze the impact of a pharmaceutical giant, Pfizer. 💊

If you'd like to learn more about the scoring methodology, you can do so here.

Do you have a specific company you'd like us to cover? Send your suggestions to [email protected]