In 2012, when Jean-Noël Kapferer and Vincent Bastien published the second edition of “The Luxury Strategy,” their much-admired, rule-breaking guide to building luxury brands, they devoted the closing chapter to sustainability.
“Luxury acts but does not talk,” they wrote. “Its business is that of creativity not of boasting about the efforts it makes in sustainable development. Luxury is like a theater: backstage work is secret.”
That, of course, was 10 years ago.
Today, luxury companies are grappling with growing pressure from activists, investors and consumers to disclose their sustainability efforts, including the sources of their raw materials and how their products’ journey to market has affected people and the planet.
Soon, in fact, most large companies that do business in the European Union, regardless of whether they are publicly listed or privately held, will no longer have a choice about providing that information. And among them will be many of the major players in the secretive world of high-end watchmaking.
This week, the European Parliament is expected to approve the Corporate Sustainability Reporting Directive, a wide-reaching piece of legislation designed to bring sustainability reporting on par with financial reporting. Aimed at companies that fulfill two of the following three criteria — 250 or more employees, net annual sales of at least 40 million euros ($39.4 million) and total assets of €20 million or more — the directive would force many luxury watchmakers to document their supply chains, in some cases for the first time.
“Maybe the watch industry is a little bit conservative, or not quite aware, but they will get a wake-up call, there’s no way around it,” Paul Roeland, a data and sustainability reporting expert with the Clean Clothes Campaign in Amsterdam, said on a recent video call.
“Saying, ‘We bought the gold at auction in Dubai, and we don’t know where it came from,’ is not going to be acceptable,” Mr. Roeland said. “The same goes for diamonds.”
Companies will face penalties for failing to comply with the reporting requirements, which will take effect as early as 2025 (based on fiscal year 2024 reports). In the most extreme cases, such businesses could be prohibited from selling their products in the European Union.
“If there is a credible accusation of forced labor somewhere in the supply chain, a company has two weeks to prove it didn’t happen, which means if you haven’t mapped your supply chain, you won’t do that in two weeks,” Mr. Roeland said. “If companies now say, ‘It’s not our problem,’ it will be.”
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Organizations that have reported on the watch industry’s human rights record stressed the importance of transparency in a company’s overall sustainability efforts, particularly concerning raw materials such as gold and diamonds.
“Reporting is one of the strongest ways of building trust among stakeholders,” Aruna Kashyap, the associate director in the economic justice and rights division of Human Rights Watch in London, said on a recent phone call.
“But reporting by itself is only going to change so much,” Ms. Kashyap added. “It’s the process of being able to collect the data, scrutinize the data and see what it shows about the company that can provide insights to leadership.”
For many watch executives, challenging the industry’s longstanding culture of secrecy is part of a broader recognition that sustainability management has become a top priority.
“Sustainability was not a part of our language three years ago,” Jean-Marc Pontroué, chief executive of Panerai, said on a recent phone call. “Today if we want to be credible with our stakeholders, with our communities, with our partners at UNESCO, we have to give numbers. Good intentions, nobody cares.”
Yet plenty of watchmakers, many of whom belong to large groups that centralize operations such as gold sourcing, have only just begun to scrutinize their suppliers. Iris Van der Veken, executive director of the Watch and Jewelry Initiative 2030, a campaign open to all jewelry and watch companies willing to commit to an ambitious set of environmental and social responsibility goals, said one of the biggest hurdles to transparency was the complex nature of most watchmakers’ supply chains.
“Understanding your supply chain takes time and is a process of continuous improvement,” Ms. Van der Veken wrote in an email.
“The more players ask questions of their supply chains and sourcing/material provenance etc., the better the reporting,” she wrote. “I see an accelerated movement driven by the brands. This is very encouraging.”
As of now, however, only a handful of watchmakers have made significant strides in disclosing the origin of their raw materials.
In late October, for example, Breitling released its second annual sustainability report, in which the brand detailed the sources of the gold and diamonds that went into making what it called its first “traceable” watch, the Super Chronomat Automatic 39 Origins.
The report specified where Breitling obtained the gold: the Touchstone mine in Colombia, a small-scale operation that meets the criteria of the Swiss Better Gold Association, a nonprofit that promotes responsible gold from artisanal and small-scale miners. And it named the Swiss refineries (MKS PAMP and Argor-Heraeus) where that gold was processed.
The company also identified the source of the lab-grown diamonds lining the watch’s bezel: Fenix Diamonds, a New York-based company with a factory in Gujarat, the epicenter of India’s diamond cutting industry.
Aurelia Figueroa, Breitling’s global head of sustainability, said the company first disclosed its gold suppliers, as well as the amount of gold it purchased from them, in its 2021 sustainability report, and that doing so felt “momentous.”
“It was one of the many points along our journey,” Ms. Figueroa said on a recent video call. “This is what we’re going to do. We’re going to speak openly about it.”
Most watchmakers, however, have not been that open. Of the dozen watch brands contacted for this article, including Audemars Piguet, Cartier, IWC, Rolex and Patek Philippe, most did not respond to questions about what changes the new regulation would require at their businesses, declined to be interviewed or provided off-the-record statements. Breitling was the only brand that named its suppliers.
For consumers anxious for assurances that the luxury watches they buy are not embellished with materials mined in conflict areas, the war in Ukraine has added unforeseen urgency to the Swiss watch industry’s transparency initiatives because Russia is the world’s largest supplier of small diamonds and second largest supplier of gold, following China.
“The war has certainly brought these thorny issues to the fore,” Juliane Kippenberg, a Berlin-based expert on mineral supply chains at Human Rights Watch, said on a recent phone call. “It has shown that all these places are totally interdependent, and when a jeweler makes a piece of jewelry or a watchmaker makes a watch, they can’t disregard what’s happening in the supply chain and whether they are contributing to abuses.
“But it has not solved the problem, or prompted people to be totally transparent,” she added.
Some watchmakers say they hope that technology can help them. In April 2021, a cohort of luxury brands, including LVMH Moët Hennessy Louis Vuitton, Prada Group and Cartier, joined forces to create the Aura Blockchain Consortium, a nonprofit association of 30 member brands exploring how blockchain technology can be used to, among other things, shed light on their supply chains.
Daniela Ott, the consortium’s general secretary, said that the technology allowed brands to input data from the start of their supply chain — a diamond mine, for example — all the way through to the finished product.
“The brands collaborate with their suppliers in gathering the data during the diamond transformation journey and upload it directly to the Aura Blockchain platform, making it immutable and storing it in one common ledger in a highly secure manner,” Ms. Ott wrote in an email. “Thanks to this traceability, brands can be more transparent in front of their clients and enhance their storytelling going back to the origins of the diamond.”
But when it comes to sustainability data, it’s not just customers that brands need to worry about.
“There is already a widespread recognition that corporate sustainability reporting is becoming increasingly a prerequisite to access loans or investments or public funds for transformational activities,” Susanna Arus, communications and E.U. public affairs manager at the Brussels-based law firm Frank Bold, wrote in an email.
At Vontobel, a private banking and investment management group based in Zurich, a company’s E.S.G. (environmental, social and governance) efforts factor into its value.
Jean-Philippe Bertschy, a luxury goods analyst at the firm, said that over the next five years, sustainability reporting would likely become second nature for many companies, even those that haven’t made any strides in that direction.
“The pressure is huge,” Mr. Bertschy said on a recent phone call.
“Right now, you have some companies disclosing their carbon emissions, but it’s just a number, a self-declaration,” he added. “When you have auditors checking what they do, things will change.”