Watches of Switzerland trials AI to enforce ESG targets

Luxury watch and jewellery retailer Watches of Switzerland Group has said it will take part in a UK government-funded pilot scheme led by an artificial intelligence company to devise AI tools that can help meet ambitious sustainability targets.

The tools are being developed by Sevva AI, a UK company specialising in sustainability assessment. They will enable the Swiss group to track the environment, social and governance (ESG) profile of its suppliers and retail brand partners, which include Rolex and Patek Philippe, and to monitor its own sustainability initiatives.

The £1mn project began earlier this month and is set to run into 2025. The first AI tools are expected to be available in April and will use data made public by the group’s partners to assess its ESG profile, as well as third-party reports published by organisations such as the environmental charity WWF.

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According to Sevva AI’s founder and chief executive, Emanuela Vartolomei, the tools will offer a “customised and fully automated ESG workflow designed to keep humans in the loop and automate the low-level, time-consuming tasks [involved in reporting ESG]”.

The Watches of Switzerland group was selected as a project partner by Sevva AI, which recently won a £500,000 grant from Innovate UK, a government-funded agency tasked with increasing growth and productivity through innovation. The grant is intended to part-fund the development of generative AI tools for sustainability assessment. Sevva AI is funding the other half of the project.

Vartolomei says Watches of Switzerland is one of several UK-based financial and retail companies selected to take part in the project, and was chosen for its “ambitious ESG strategy”. The group — which also owns the Mappin & Webb and Goldsmiths chains in the UK, as well as the Mayors chain in Florida — is not contributing to the cost of the project and has said it will decide whether to enter into a commercial arrangement with Sevva AI at its conclusion.

“The consumer, particularly the younger consumer, is increasingly interested in sustainability,” notes Brian Duffy, Watches of Switzerland’s chief executive. Duffy points to a recent watch industry study produced by Deloitte that identifies “sustainability and environmental impact”, and “longevity and circularity” as some of the most important factors determining luxury watch purchases in 12 of the largest markets for Swiss watches. “These AI tools are going to lead to better documentation and understanding,” he explains.

Last year, Watches of Switzerland outlined its ambitious ESG targets in its ESG Partner Standards guide. In the guide, the group stated an intention to halve its Scope 1 and Scope 2 emissions by 2030 compared with its base year of 2019-20, and its Scope 3 emissions — those produced by its supply chain — by 42 per cent. According to the group, 76 per cent of its total carbon emissions are accounted for by “purchased goods and services”, meaning that achieving its targets will place huge demands on its network of 49 watch and jewellery brand partners — among them, household names such as Omega, Cartier, Bulgari and Fope. It also pledged to achieve net zero emissions by 2050, in line with the Paris Agreement.

Duffy says he is confident the group’s participation in the project will be aligned with the industry. “There’s a real recognition and sensitivity to the need to move in an environmentally friendly direction,” he says. But the group will not publish a brand-by-brand breakdown of Sevva AI’s findings, he adds.

According to Vartolomei, Sevva AI chose to partner with Watches of Switzerland because it was “an early adopter” and “very open about understanding how it can improve its sustainability footprint”. She felt it wanted “proper engagement” with its supply chain. “If you have ambition to go beyond your peer group, you need a boost from AI,” argues Vartolomei.

Without AI, she says, companies will find it increasingly difficult to hit lofty ESG targets because many suppliers are reluctant to assess their own greenhouse gas emissions or to communicate their findings to clients.

If you have ambition to go beyond your peer group, you need a boost from AI

Watches of Switzerland operates 211 showrooms across the UK, US and Europe and reported revenues of £1.54bn in its last full financial year, making it one of the world’s largest stockists of luxury watches. Last week, however, it saw its shares plunge by more than 30 per cent after it issued a profit warning primarily due to a slump in high-end consumer spending.

Some of the brands retailed by the group have invested heavily in sustainability and produce publicly available ESG reports. They include IWC, Breitling and Oris, while others such as LVMH’s Tag Heuer and Richemont’s Cartier rely on ESG reports produced by their parent companies. But, according to a report released by the WWF in November, the industry’s “overall sustainability performance still leaves much to be desired”.

In the UK, listed companies and some large private companies are required to provide climate-related financial disclosures in their strategic reports under the Companies Act of 2006. However, at present, the same regulations do not apply to privately held companies in Switzerland, such as Rolex and Patek Philippe. The WWF, which rated a sample of 21 watch and jewellery brands, labelled Patek Philippe as “non-transparent”. Furthermore, Deloitte reported in its study that 15 per cent of Swiss watch companies that replied to its survey “saw no need to publish a sustainability report”. Last year, Rolex opened a “sustainable development” channel on its website and began reporting some of its ESG policies.

Vartolomei says her AI tools should be welcomed by brands that have yet to communicate their ESG strategies. “Any disclosure will be a good thing,” she says. “At the moment, because of the lack of information, you assume they don’t have an ESG plan and there isn’t anything in place.”

While some brands have been slow to report their ESG profile, industry-related bodies such as the Responsible Jewellery Council, the Kimberley Process, and the Kering and Cartier-led Watch & Jewellery Initiative 2030 offer a wide range of ESG standards for brands and retailers to use as a framework. Watches of Switzerland Group listed 30 such environmental standards in its ESG Partner Profile and said that its partners were “encouraged to align” with them.

Vartolomei suggests her company’s AI tools could monitor sustainability data “in real time and across 70,000 listed companies”, using 2tn AI inferences — an industry term that describes the process of running live data through trained AI models to make predictions and solve tasks. She says the tools would benefit both the group and its brand partners.

Watches of Switzerland’s head of ESG and sustainability, Kesah Trowell, says reports generated by the AI tools will be shared with the group’s partners. “At the very least, we ask our partners to commit to reducing their emissions and to set reduction targets,” she explains. “We can do this because we’re not alone. Global requirements to report direct and indirect greenhouse gas emissions means businesses up and down our value chain are asking each other the same questions.”

Trowell adds that the introduction of AI sustainability assessment tools into the business will save time. “Monitoring hundreds of frameworks, reporting requirements and indicators across ESG is a big task, which takes time and distracts from the real work — which is implementing initiatives that make a real, tangible difference.”

The results of its sustainability programme will matter to Watches of Switzerland, which has said it is using sustainability-linked loans. In September, the group announced on its own website that it had added a “sustainability component” into its £225mn revolving credit facility, thereby “tying its financing costs to the achievement of its group’s sustainability strategy”. Trowell says that the group would benefit from a “margin discount” if it met its targets and be subject to a “margin premium” if it missed them.

Experts welcome the development of the new AI tools, but strike a note of caution. “To create an AI and to report better is great,” says Diana Verde Nieto, co-founder of the luxury sustainability consultancy Positive Luxury and author of Reimagining Luxury.

“But only if we assume that the data the AI is reading is accurate. The reality is there are still a lot of data gaps and proxy data out there and the machines won’t understand the difference between proxy data and non-proxy data. And, ultimately, the value in AI will only be if you create better, faster solutions for brands and businesses to become more sustainable.”