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Zegna Group is taking a bold stance on climate. New ESG commitments will be overseen by the board of directors and executive bonuses, including for the CEO, will be linked to achieving those targets.
It’s a rare move for fashion. Nike is among the only other high-profile fashion businesses to link executive bonuses to ESG targets.
The climate commitment doesn’t mean sales growth is off the agenda for Zegna. The group announced its new mid-term target to surpass €2 billion in annual revenues, from €1.3 billion in 2021. Five months after the Italian luxury company went public combining with a special purpose acquisition company, Gildo Zegna, chief executive officer and third-generation family member said the ESG targets announced today “reaffirm our commitment to a path of responsible growth and take us boldly to the future. We have rooted our financial goals in our values, which makes me confident in our ability to deliver against the ambitions set out in our business strategy.”
Sustainability experts largely welcomed the move but warned ESG targets are complicated and the path to meeting them cannot rely on simply allowing for more executive pay. “ESG targets can be helpful in encouraging a focus on non-financial factors that will affect long-term value but may conflict with short-term profit. But also, particularly with long-term goals such as net-zero commitments, including targets in executive pay, can prove a catalyst for breaking those long-term targets down into shorter-term goals,” says Tom Gosling, executive fellow in the department of finance at London Business School.
Fashion’s sustainability goals are often opaque, without much visibility of whether brands set targets ambitious enough to adequately address the urgency of climate change. Linking executive pay does not necessarily help to close that loophole, says Gosling. “Targets are difficult to calibrate as it's hard to know what a tough target is. In this context, boards will generally set pay targets in line with a strategy they fully expect to meet. So, there's a risk that ESG targets in pay lead to more pay, not more ESG.”
Zegna’s commitments include producing the majority of the goods in Italy and plans to trace the origin of over half of “top priority” raw materials by 2026. “The three big commitments are part of who we are and something we have been doing since the early 1900s from our grandfather,” said Edoardo Zegna, chief marketing and sustainability officer.
The group also committed to appointing a new diversity officer by 2023, submitting greenhouse gas reduction targets in line with the Science Based Targets initiative by this year and adding an open digital platform to allow suppliers to share their energy sources, water, chemical, emissions data as well as product certifications covering at least 30 per cent of its supply volume by 2024, according to the company. Zegna will shift to renewable sources of electricity in Europe and the US by 2024.
So far this year, Zegna has “managed pretty well across the ups and downs of the luxury business. There is a sense of energy and discipline, which I have never seen in my career at Zegna,” Gildo Zegna said in a briefing to reporters from Oasi Zegna in Trivero, Piedmont, where Zegna was founded 112 years ago. Zegna rebranded from Ermenegildo Zegna Group in December 2021, is focusing on footwear and, at Thom Browne, which the group acquired in 2018, is pushing women’s wear and direct to consumer approach to reach the €2 billion mark.
“Organic growth is the way to go both for Zegna and for Thom Browne,” Zegna said. In the first quarter, Zegna sales grew 25 per cent, led by the US and Europe, the company reported on 5 May. Sales growth excluding China rose 48 per cent, according to Zegna CFO and COO Gianluca Tagliabue. The company reiterated its guidance for 2022, with the assumption that disruptions in China will continue until the end of the third quarter.
Zegna first annual results as a public company on the New York Stock Exchange, prompted a spike in the share price
Thom Browne plans to double its revenue in the medium term from €264 million in 2021 by focusing on women’s wear (which went from 10 per cent of the brand’s revenues in 2015 to 40 per cent of the brand’s revenues in 2021) and on the direct-to-consumer channel, according to CEO Rodrigo Bazan. The brand plans to go from 51 directly operated stores in 2021 to between 90-100 stores in five years; and from 92 points of sale to 150. Asked about further acquisitions following Thom Browne, Zegna said “nothing for the time being”.
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