| Industrial and environmental risks/Product availability | |
|---|---|
| Risk identification | Risk management |
| In the context of a globalised supply chain and the increased geographic concentration of certain supply sources, the failure of an external supplier to deliver raw materials, filling and packing components or finished products, whether resulting from operational difficulties or significant non-compliance with ethical commitments, along with a major interruption of operations in a L’Oréal industrial unit or shipping hub, could impact the Group’s sales because of the unavailability of products that could result from this. In 2021, Group purchases related to production totalled €5.01 billion. |
L’Oréal regularly revises its inventory policies, reserves capacities with its suppliers and negotiates long-term contracts. Likewise, there are business continuity plans for each operational site. The Group is currently deploying a single methodology of business continuity plans at all its factories and distribution centres. These plans aim to anticipate supply chain disruption and ensure a timely business continuity. L’Oréal also looks for alternative sourcing of its raw materials, duplicates packaging moulds for its strategic products, implements operational continuity plans with its suppliers and reviews, if required, the design of its formulas and finished products. The main suppliers and subcontractors are asked to comply with the Letter of Mutual Ethical Commitment, which covers, in particular, Human Rights, working conditions, environmental protection and integrity. |
| Industrial and environmental risks/Climate change | |
|---|---|
| Risk identification | Risk management |
|
As for any company, the Group’s activities are exposed to the physical and transition risks related to climate change. The increase in risks of natural origin, both extreme and chronic, the loss of biodiversity, and the increased pressure on water resources could impact the availability of finished products by disturbing the Group’s operations and supply chain. The scarcity of resources and the implementation of the transition towards a low-carbon economy could also increase production costs. In addition, insufficient consideration of these impacts related to the usage phase during product design could represent a risk for sales in certain areas of the world affected by water stress or the lack of adapted infrastructures to collect and treat waste and wastewater. Lastly, consumer choices could be increasingly influenced by the impact associated with the use of a product (its carbon footprint, its water footprint, its impact on biodiversity) and by the Group’s overall environmental performance. As a result, if the Group did not sufficiently anticipate all these impact sand did not initiate a voluntary process to adapt to climate change, its financial performance and reputation could be impacted. |
Taking into environmental challenges into account, particularly efforts to combat climate change, is an integral part of L’Oréal’s business model. Capitalising on its previous achievements, the Group has announced a second generation of particularly ambitious and specific objectives for 2030 as part of its new sustainable development programme, “L’Oréal for the Future”, announced in June 2020. These objectives cover all impacts associated with L’Oréal’s value chain in order to reduce the impact not only of its production and distribution sites, but also of its supply chains, as well as the impacts associated with the use of products by consumers (see Chapter 4 of this document, including in particular the information published in the Non-Financial Performance Statement, which includes recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD)). The Group has defined its climate objectives in accordance with the Science-Based Targets (SBT) approach, which encourages companies to commit voluntarily to a transition towards a low carbon economy and to set objectives that correspond to what the latest scientific climate data considers necessary to track the +1.5 °C trajectory for 2050. These commitments were validated from 2017 by the SBT initiative:
L’Oréal also announced that by 2030 all water used in the Group’s industrial processes would be recycled and reused in a loop on its sites. Deployment of the necessary equipment will be prioritised according to the water situation of the drainage basins in which L’Oréal operates. Management of potential consequences of extreme events is described in the section on “product availability” risk. In addition, by relying on recent scientific developments, particularly in the area of biotechnology, the Group also initiated a Green Sciences programme to drive change in its portfolio of raw materials through the development of ingredients with a favorable environmental profile, by minimising the environmental impacts linked to the cultivation of plants that are the source of these ingredients (deforestation, soil depletion, and consequences for biodiversity, for example), and by relying on eco-friendly transformation procedures that prevent upstream pollution. To inform its consumers and enable them to make more sustainable consumer choices, the Group is developing an environmental and social display system for its products, with a rating ranging from A to E, which takes into account 14 factors of impact for the planet, including greenhouse gas emissions. This display is communicated for hair and skincare by the Garnier brand in several European countries. It is now extended to skin care for the La Roche Po say, Vichy and Biotherm brands in France and will be gradually rolled out in new markets and in new categories. |
