2021 UNIVERSAL REGISTRATION DOCUMENT

3. Risk factors and control environment

Major risks to which the Group believes it is exposed
    Residual importance
Business risks Business risks

 

Sanitary crisis*
Business risksResidual importance

Significant

 

 

 

Information and cybersecurity systems*

 

Residual importance

Significant

 

 

 

Geographic presence and economic and political environment*

 

Residual importance

Significant

 

 

 

Crisis management

 

Residual importance

Moderate

 

 

 

Data

 

Residual importance

Moderate

 

 

 

Market and Innovation

 

Residual importance

Moderate

 

 

 

Business ethics

 

Residual importance

Moderate

 

 

 

Sales distribution networks

 

Residual importance

Moderate

 

 

 

Human Resources risk

 

Residual importance

Limited

 

 

 

Product quality and safety

 

Residual importance

Limited

 

 

 

Safety of people and property

 

Residual importance

Limited

Industrial and environmental risks Industrial and environmental risks

 

Product availability*
Industrial and environmental risksResidual importance

Significant

 

 

 

Climate change

 

Residual importance

Significant

 

 

 

Environment and safety

 

Residual importance

Limited

Legal and regulatory risks Legal and regulatory risks

 

Risk of non-conformity*
Legal and regulatory risksResidual importance

Moderate

 

 

 

Intellectual property: trademarks, designs & models, domain names, patents

 

Residual importance

Limited

 

 

 

Product claims

 

Residual importance

Limited

Financial and market risks Financial and market risks

 

Currency risk*
Financial and market risksResidual importance

Limited

 

 

 

Risk on financial equity interests

 

Residual importance

Limited

 

 

 

Risk relating to the impairment of intangible assets

 

Residual importance

Limited

*Most material risks in each category.

3.5.3.1.  Business risks
Business risks/Sanitary crisis
Risk identification Risk management

Because of its global presence, L’Oréal is exposed to epidemics or other public sanitary crises in the 80 countries in which it operates.

The primary risks identified cover different segments of the Group’s operations:

  • impairment of the health, safety and security of employees in the context of their duties and their business travel, and confinement of the population that prevents employees from entering their work site, particularly at the manufacturing and distribution sites;
  • difficulties for the Company to operate normally because of the restrictive measures established by the authorities, which restrict employee access to the Group’s sites, or as a result of the unavailability of individual protective equipment necessary to protect them;
  • supply difficulties, unavailability or increased prices of raw materials and components, and limited capacities to produce and distribute products related to the restrictive health measures established by the authorities of the country in which the Group operates;
  • reductions in product demand related to the impact of the measures to restrict movement on access to physical points of sale, particularly in the Travel Retail network that is particularly sensitive to sanitary crises;
  • financial difficulties for suppliers and clients as a result of a drastic reduction in their levels of business.

Thus 2021 was marked by the impacts of the Covid-19 health crisis that has spread around the world and has affected a number of geographic zones in which the Group operates.

Depending on its duration, geographic expansion and the result in geconomic and social consequences, a sanitary crisis may have a material impact on the Group’s activities, its performance and its reputation.

L’Oréal has set up a crisis management process led by a unit at Group level that can prevent and limit the impacts of undesirable events on all its entities.

Facing a sanitary crisis, the Group’s priority is to protect the health, safety and security of its employees. The Group responds through compliance with the directives of the authorities in the countries in which it operates, the application and adaptation of its worldwide, high management standards for health and safety at its operational sites and in business travel situations.

The Group’s information systems allow large-scale development of flexible and remote work methods and are the subject of adequate safety protection processes (see section 4.3.2.4. “Creating conditions for a stimulating and attractive work environment” of this document).

The policies to manage supply chain and inventories, and the business continuity plans of the industrial and logistics sites, allow the Group to anticipate the actions necessary to manage disturbances. The long-term relations with the Group’s strategic suppliers, the policies to diversify sources, and operational continuity plans limit the impacts of these crises.

The Group’s presence in all distribution channels, particularly online sales capacities developed with diversified partners (owned sites, e-retailers, pure players), as well as its expertise in digitised consumer relations, help to maximise development opportunities in disturbed contexts.

Finally, the Group’s worldwide and balanced presence in terms of geographic areas, product categories and distribution channels, the very high responsiveness and capacity for adaptation of its teams through its strategically concentrated and operationally decentralised organisational model, as well as its robust financial position, contribute to its ability to face the economic consequences of these crises.