Previously, we wrote about the Italian government investigating LVMH, owner of luxury brands Dior Group and Armani, based on alleged human rights violations of suppliers. The situation has heated up as Italy’s competition authority took on its own investigation, alleging that Armani and Dior misled consumers about how their products were made. CNN reports on the investigation stating:
“Italy’s competition authority said Armani and Dior ’emphasized craftsmanship and quality,’ while using supplies from factories ’employing workers who would receive inadequate wages.’ In some cases, workers are also forced to work long hours under ‘inadequate health and safety conditions.’”
Dior since stated that it will cut ties with the Chinese owned suppliers accused of exploiting workers. Armani on the other hand denied all allegations, while stating that it will cooperate with the investigation.
Not long ago, we wrote about LVMH CEO’s stance that “the average customer doesn’t care terribly much about sustainability.” This quote takes on new importance in light of this investigation and reveals that LVMH’s CEO has too narrow a view of sustainability. Maybe luxury consumers don’t care if a product uses sustainable energy or materials, but they do care if craftsmanship, quality and luxury on which the brands are built are actually illusion and sweatshops. Supply chain and human rights are sustainability issues, and in line with the competition authority’s claims that LVMH misled consumers, they do care quite a lot about sustainability.
This is another great example of how one set of actions can result in numerous types of litigation and regulatory enforcement. In this case, labor violations by the companies’ suppliers runs afoul of Italy’s supply chain due diligence standards. At the same time, groundwork may be laid for the competition authority to bring a case against the companies for misleading their consumers about how their goods are produced. ESG issues often share this type of overlap and it’s not uncommon to see a poorly managed ESG issue result in enforcement from multiple regulators and even private litigants as well. It’s important – albeit perhaps not easy – to think about all the possible dimensions of litigation risk, not just the obvious ones.
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Photo credit: Florence Piot – stock.adobe.com
