From fashion catwalk to courtroom: what does the Loro Piana controversy reveal?

© ILO/Aaron Santos

At a time when tariffs driven by Donald Trump are soaring, trade flows are reshaping, bringing new migration patterns in their wake. With them, the risks of human rights violations in supply chains are multiplying. What are the consequences for the luxury sector?

When discussing violations of workers' rights, fast fashion remains the most cited example. Produced at low cost in Southeast Asia, this region still concentrated 55% of global textile and clothing exports in 2019, in a context marked by weak social protections.

Luxury, on the other hand, seems to keep its distance from these practices. Far from the factories of Dhaka or Phnom Penh, it claims local production and artisanal roots. Italy, with its historical expertise, concentrates nearly half of the world's luxury clothing and leather goods.

But behind this showcase, several investigations targeting LVMH and other houses reveal a darker reality: opaque subcontracting, precarious work, and potential violations of fundamental rights at the heart of Europe.

How can we understand these controversies, measure their scope, and assess their consequences on a sector where image is paramount?

That’s the ambition behind AlphaYoda’s new series, Anatomy of a Controversy.

In each article, we’ll dive deep into a headline case, and put it under the microscope: breaking down its severity score, following its lifecycle, and unpacking the risks that matter most for investors.

Thanks to our proprietary methodology, where AI meets human expertise, you’ll get a clear framework to navigate controversies, compare cases, and anticipate their impact.

1. $4,000 Jackets, $5 Wages: the hidden price of Italian luxury

a. What's the controversy?

In mid-July, Italian authorities placed LVMH-owned cashmere brand Loro Piana under judicial administration after uncovering severe labor abuses in its supply chain. Investigators found workers in subcontracted workshops forced to work up to 90 hours a week for less than $5 (€4) an hour, often sleeping on site in illegal conditions, with several undocumented immigrants among them. The abuses were uncovered through layers of subcontracting, where front companies with no manufacturing capacity outsourced production to sweatshops later shut down by police. While Loro Piana condemned the practices and pledged compliance with labor standards, the case raises serious questions about oversight in the luxury supply chain, where jackets retailing above $4,000 but produced for as little as $137 to $149 (€118–128), how much responsibility does the luxury giant bear for what happens deeper in its supply chain?

Figure 1 - Loro Piana's controversy lifecycle

b. Breaking down the risk

AlphaYoda evaluates the severity of a controversy through four variables:

• Irremediability: The irremediable character refers to any limits on the ability to restore the individuals or environment affected to a situation equivalent to their situation before the adverse impact.

• Demographic and geographic vulnerability: This dimension assesses the particular fragility of the populations or territories affected by the controversy, taking into account their capacity to cope with and recover from adverse impacts.

• Scope: This concerns the reach of the impact, for example, the number of individuals that are or will be affected or the extent of environmental damage.

  
  

• Double materiality: This evaluates whether the controversy is linked to a topic that is materially or highly material to the company, considering both the impact on the company and the company's impact on society and the environment.

Applied to the case of Loro Piana, the results are striking.

• Irremediability weighs heavily. According to the UN Environment Program, forced labor (ESRS S2 standard) is by nature an irremediable violation: once dignity and freedom are taken away, no restitution can truly return victims to their prior state.

• The demographic profile of those affected amplifies the severity. Migrant workers, often undocumented, represent one of the most vulnerable groups in global supply chains, with limited protection or redress. From a geographic perspective, the picture is paradoxical. Italy is generally rated low-risk by labor rights indices, yet this case exposes how violations flourish in the heart of European luxury production. This reveals a critical gap: while Italy scores low geographically, worker vulnerability creates exceptionally high risk exposure.

• The scope extends beyond Milan and is rated medium risk. While the investigation centered on a single workshop, it raises broader questions about the entire "Made in Italy" model, casting doubt on the integrity of national supply chains.

• Double materiality: In our database, this issue ranks as highly material. Multiple benchmarks agree, from the OECD’s guidance for responsible garment and footwear supply chains to the UNEP FI materiality matrix, along with a dozen other sector standards. The reason is structural: fashion’s supply chains are vast, opaque, and under constant pressure. Layers of manufacturers, raw material providers, contractors, and subcontractors form a network so complex that keeping track of every link is close to impossible. And where oversight fades, risks multiply.

Taken together, these factors point to a controversy of high severity (out of 4 scale, low, medium, high, very high).

Figure 2 - Loro Piana's severity score

In addition to the severity score, AlphaYoda evaluates:

• The controversy status, which indicates the progression of the controversy (ongoing, partially concluded, or concluded) through its lifecycle. The status matters because it indicates the level of risk still associated with a company.

  
  

• In our case, this controversy is classified as ongoing, since Loro Piana has been placed under judicial administration for a year. During this period, a court-appointed administrator will oversee the brand’s operations to ensure compliance with labor laws. Importantly, the company itself is not facing a criminal investigation, and the order could be lifted early if it demonstrates full compliance before the 12-month deadline. 

  
  

• What would it take for this case to move from “ongoing” to “concluded”? 

  The answer lies in the court’s final verdict and, above all, in whether Loro Piana implements real, lasting corrective measures. Otherwise, especially if new controversies emerge on the same issue, the ongoing status remains.

Figure 3 - Loro Piana's status conclusion

2. The bigger picture

a. Patterns, not exceptions: what Milan’s sweatshops reveal about luxury?

We shouldn't make the mistake of looking at this case alone. It’s never just one scandal.

• First question: Has the brand itself been here before?

• Second: What about the group behind it, LVMH? Clean record, or déjà vu?

• And finally: the big picture. Is this an industry glitch… or an industry habit?

Because that’s the real story. Not just sweatshops in Milan. But patterns. Repetition. Systemic cracks in the façade of luxury.

And if you don’t connect the dots, you’ll never see the whole picture.

At the company level.

This isn’t Loro Piana’s first brush with controversy.

Last year, a Bloomberg investigation alleged the brand underpaid Indigenous Peruvian workers who harvest vicuña wool, one of the rarest and most expensive fibres in the world. Loro Piana denied the claims, but the episode remains on record.

At the group level.

Zoom out to LVMH.

Just last year, Italy’s competition authority opened a probe into Dior Italy, after reports of workers being exploited by subcontractors. The case didn’t confirm violations,  but Dior still paid €2 million to support labor abuse victims.

At the sector level.

Here’s where the picture darkens further.

Bain estimates that half of all luxury production worldwide relies on thousands of small workshops in Italy. Prosecutors have already targeted Dior, Valentino, Armani, and others in a wave of probes since 2023. 

The findings? Repeated failures to prevent illegal working conditions in supply chains. Not isolated scandals, but symptoms of a deeper, systemic problem.

And that’s the heart of the matter. These aren’t just stains on individual brands. They threaten the credibility of “Made in Italy” itself, once a badge of excellence, now shadowed by questions of exploitation. 

The cost? Reputational damage that could undermine the very value luxury seeks to sell.

Zoom: Subcontracting issue, an inconvenient truth

At the center of all these investigations lies subcontracting. Loro Piana never signed contracts with the offending workshops. Instead, it used two intermediary “front” companies with no manufacturing capacity, which in turn subcontracted to multiple firms now targeted by prosecutors.

Luxury brands often claim their value chains are fundamentally different from those of fast fashion. In reality, both share structural similarities: volatility, pressure for ever-faster deliveries, and a constant rotation of collections and product lines. These dynamics make subcontracting not an exception, but a built-in feature of the industry.

The problem is not new. The Rana Plaza disaster in 2013, where more than 1,100 garment workers died, revealed how hidden layers of subcontracting can conceal exploitative practices. Twelve years later, the same patterns are resurfacing in luxury, even if stakeholders sometimes choose to look away.

The OECD Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector identifies subcontracting as a critical risk factor: “The use of subcontracting reduces visibility into labor standards, thereby increasing the risk of child labor and forced labor.”

b. What’s the cost? 

Controversies carry a price tag. And right now, the timing couldn’t be worse.

Trade tensions are escalating, markets are volatile, and the luxury sector is already slowing. Investigations into labor abuse add extra pressure, especially as reputation is one of the seven key drivers of value in this industry.

At the same time, price hikes are testing consumer tolerance. According to HSBC, luxury prices in Europe are now 52% higher than in 2019. Many consumers question whether products, often produced at a fraction of their retail price,  are still worth it. Complaints about quality only reinforce this perception.

In the past, scandals had little impact on luxury demand. But this time may be different. Supply chain scrutiny now coincides with doubts about price and quality.

This is why controversies must be assessed not only by their severity, but also by their financial impact. AlphaYoda’s methodology quantifies these risks, for example, by measuring how controversies, such as shifts in customer sentiment, weaken the reputation premium and ultimately affect valuations. This gives investors and stakeholders the tools to anticipate what’s next.

3. What's next?

a. National momentum: a global patchwork

Over the past decade, governments around the world have moved from voluntary guidelines to binding rules on human rights and environmental due diligence. The evidence is clear: self-regulation has not been enough to address forced labor, poor working conditions, or environmental harm deep down their supply chains.

As a result, a new generation of laws is reshaping the regulatory landscape, holding companies responsible for what happens not only in their own operations, but all the way down their supply chains.

A growing list of countries has already adopted laws targeting labor and environmental abuses in supply chains:

Table 1 - Human Rights due diligence regulatory landscape *Selected examples, not exhaustive

These frameworks vary in scope and enforcement, but they all converge on a core expectation: companies must take responsibility for human rights and environmental impacts, even when abuses occur through indirect suppliers.

Civil society groups have consistently stressed that effective rules must:

• cover all businesses and their entire global value chains,

• guarantee safe and meaningful stakeholder engagement,

• move beyond audits to tackle purchasing practices and governance,

• and include robust liability mechanisms.

But the political climate is shifting. In Europe, concerns over competitiveness have triggered a backlash. 

b. Europe’s backlash: accountability under pressure

Over the past few years, the EU has launched a series of landmark regulations to anchor sustainability into corporate practice, from the CSRD on sustainability reporting, to the CSDDD on due diligence, to the EU Taxonomy defining sustainable activities. But in February 2025, the Omnibus package was introduced, proposing amendments to several of these laws. Marketed as a “simplification,” it in reality risks weakening the very architecture Europe had just built.

The Omnibus would:

• strip back obligations to prevent human rights abuses,

• dilute climate transition plan requirements,

• and water down transparency rules.

Supporters of the rollback argue it is necessary to protect Europe’s competitiveness against rivals like the U.S. and China. Critics,  from NGOs to researchers to parts of the business community, warn that this is a dangerous step backward. For sectors like fashion, due diligence is not bureaucratic red tape but a risk management roadmap: it helps companies detect abuses early, protect reputations, and manage investor exposure before scandals erupt.

The legislative process remains open: the Omnibus has advanced, but the European Parliament is not expected to finalize its position until October.

Meanwhile, Europe already has a regulatory corpus that will shape the landscape:

• CSDDD: Despite being watered down, it will still change how brands manage supply chains.

  
  

• CSRD: already in force, it obliges companies to disclose audited data on exposure to environmental and social risks, from raw material sourcing to labor practices.

• EU Conflict Minerals Regulation (2021): restricts tin, tungsten, coltan, and gold sourced from conflict regions, to prevent the financing of violence and human rights abuses.

  
  

• EU Battery Regulation (2023): obliges producers to implement due diligence policies, verified and periodically audited by third parties, to reduce environmental and human rights impacts.

  
  

• EU Deforestation Regulation (2023, will be delayed for a second time, to December 2026): requires due diligence on cattle, cocoa, coffee, palm oil, rubber, soy, and wood, ensuring they are not linked to deforestation.

  
  

• EU Critical Raw Materials Act (2024): secures the availability of 34 strategic raw materials, with explicit requirements to avoid adverse impacts on human rights, labor conditions, and the environment.

  
  

• EU Forced Labor Regulation (2027): will ban goods linked to forced or child labor from the EU market. It does not mandate formal due diligence but will effectively force companies to clean up supply chains or lose market access.

  
  

Conclusion

This first chapter of Anatomy of a Controversy highlights how the Loro Piana case is more than an isolated scandal; it exposes structural weaknesses in the luxury industry’s supply chains that were previously hidden. Subcontracting layers, opacity, and relentless pressure for speed create fertile ground for exploitation, even at the heart of Europe’s most prestigious brands.

With scrutiny from regulators, courts, and consumers intensifying, reactive damage control is no longer enough. Companies must embed due diligence into governance and supplier management if they are to prevent small cracks from becoming systemic risks. Governments are already moving toward regimes that extend liability beyond global brands to their local contractors, tightening the net of accountability.

For investors, the warning is clear. “Made in Italy” has been marketed as a seal of exclusivity and craftsmanship, but repeated investigations threaten more than operating margins; they erode the trust premium that underpins luxury valuations.

That’s why AlphaYoda created Anatomy of a Controversy: to help investors look beyond the headlines and assess what’s truly at stake. Follow us to stay ahead of the controversies shaping tomorrow’s markets.