As with any production, distribution, research and general administration activity, L’Oréal is exposed to a variety of industrial risks that may impact the environment and safety: fires, explosions, technical failure of facilities, safety system installations, or even human failure in the operation of existing facilities (such as those dedicated to the treatment of wastewater and/or their discharge), or when managing exceptional works. These events can generate accidental pollution (surface and underground water, air, soils, etc.) that may have consequences inside or outside the sites, which are sometimes located near an in habited area.
The Group is exposed to risks of natural origin in many countries. Risks of natural origin are those related to the occurrence of extreme weather events such as cyclones or floods, or those resulting from long-term climate change such as the rise in average temperatures, noticeable change in precipitation levels and the reduction of available water. The increase in these risks could impact the availability of finished products by disturbing the Group’s operations and/or supply chain. To be sold, the products manufactured by the Group must be available on the market on the dates scheduled to respect consumer demands and launch plans, in a cosmetics market where the need for responsiveness is growing constantly. A major stoppage of activity at a factory or distribution centre could therefore have an adverse effect on the achievement of commercial objectives.
These risks may impact the Group directly on its sites, or indirectly via the sites of suppliers and subcontractors, thereby reducing the availability of raw materials or filling and packing components necessary to manufacture products. For instance, an exceptionally steep rise in the price of basic raw materials because of their scarcity, or in the energy costs necessary for their production due to carbon taxation, or even their total unavailability or the resulting failure of suppliers, could affect the Group’s performance.
The use of cosmetics and their disposal after use by consumers and professional customers (mainly hairdressers and beauticians) generate environmental impacts. So-called “rinsed” formulas (shampoos in particular) require water for their use, and the ingredients used in their composition can be found after use in domestic wastewater, the treatment of which is dependent on existing sanitation systems in place in the relevant geographic areas. Insufficient consideration of these impacts related to the usage phase during the design of L’Oréal products could represent a risk in certain areas of the world affected by water stress or the lack of adapted infrastructures for the collection and treatment of wastewater. Similarly, the use of predominantly plastic containers may represent an environmental risk with regard to the disposal of plastic waste, depending largely on the collection and treatment channels available.
The Group anticipates that the choices made by certain categories of consumers could increasingly be influenced by the impact associated with using a product (its carbon footprint, water footprint and impact on biodiversity) and the global environmental performance of industrial producers.If the Group is unable to anticipate changes in such behaviours, meet stakeholders’ expectations, overcome major environmental and social challenges and respond in particular with appropriate product innovation, a significant contribution in the transition towards a low carbon economy and the preservation of water, natural resources and biodiversity within its value chain, the Group’s performance and reputation could be affected.
L’Oréal operates through subsidiaries located in many countries. Like any international business, L’Oréal is subject to a wide range of constantly changing local laws and regulations in the areas of safety and environment, including fight against climate change, and the preservation of water resources, biodiversity and natural resources. This exposes it to the risk of regulatory non-compliance of higher compliance costs for its activities in a global context of increasingly diverse norms.
Given L’Oréal’s activities, particularly its industrial operations, the risk of occupational injuries or illnesses could become a reality.
One of the keys to L’Oréal’s success lies in the talent of its employees to ensure its growth. This is all the more true as L’Oréal is changing within a complex, highly competitive, and rapidly changing environment (globalisation, diversity and inclusion challenges, sustainable development issues, acceleration of the digital transformation, etc.) that requires specific expertise. The labour market is characterised by major changes related to the Covid-19 pandemic, particularly to the hybrid organisation mode, both in-person and remote. If L’Oréal fails to identify, attract, retain and train competent and involved employees who behave responsibly, the development of its activities and its results could be affected.
Following an initial analysis conducted in 2017, the Group wanted to expand its mapping in 2020, by identifying the potential salient Human Rights risks. To do so, L’Oréal relied on the reporting framework of the Guiding Principles on Business and Human Rights (UNGP Reporting Framework). This identification process takes into consideration the severity, scale and remediability, as well as the likely hood of its impacts for people throughout its value chain. The identification process at the global level and in 27 markets was finalised in 2021. This study was conducted with an NGO specialised in the area, providing independent analysis.
The following list of the main risks results from the 2017 risk analysis, complemented by the work to identify the detected salient risks in 2021:
Another risk identified concerns the Human Rights of communities potentially impacted by the Group’s activities (respect for the environment, right of access to water, consideration of Human Rights in the choice of raw materials, and in particular, the right of access of local populations to their land and respect for their traditional knowledge under the Nagoya Protocol).
