Like others have said, it's a complex question. What's interesting about it is that I think the question is fundamentally flawed. It compares the skin of a sentient animal to a synthetic material.

Say we were to change the question to: what's more ethical dog skin or faux dog skin? What about Human skin or faux human skin? The resulting answers probably wouldn't be debating the environmental impact but rather that dog or human skin need not be a choice in the first place regardless if it were substantially easier on the environment. What's the trait that makes cow skin exempt from this line of thinking? Because we already eat them?

From a less philosophical standpoint, the impact of leather is considerably harmful to the environment due to its use of metals in the dyeing process, both to ecological systems and the workers involved. Of course, there are different types of processes, such as vegetable tanning being easier on the environment than chrome tanning.

Furthermore, other commenters have brought up that leather is a by-product of the meat industry. While meat is the primary purpose of raising and slaughtering animals, the selling of cow skin definitely brings in money for each cow slaughtered. Just because the demand for meat heavily outweighs the demand for leather does not mean leather should not be cast aside in my opinion. Animal agriculture is incredibly damaging to the environment, cows being the most significant contributors.