Every year, the L’Oréal Board of Directors determines the Group’s strategic directions, which integrate the challenges of climate change and, more generally, the issues of sustainable development.
The Chief Corporate Responsibility Officer, who is a member of the Executive Committee, reports directly to the Chief Executive Officer and reports on the Group’s activities every year to the Board of Directors or to the Strategy and Sustainability Committee.
The Chief Corporate Sustainability Officer is responsible for the formulation and implementation of the sustainable development strategy, assesses and manages the climate-related risks and opportunities Group wide, through the action plans of the sustainability programmes (Sharing Beauty with All and since 2020 L’Oréal for the Future). She leads an internal sustainability committee, which includes experts responsible for the rollout of the sustainability programme within Operations, Research, Public Affairs, Communication, Divisions, and Brands. She guarantees the implementation of the orientations and decisions adopted by this Committee. She also defines and deploys annual targets across L’Oréal’s value chain, and assesses the level of commitment of all the Brands, Country Managers and subsidiaries in implementing the sustainable development strategy. This implementation determines a portion of the variable remuneration of the Brand and Country Managers.
The mission of the Sustainable Finance Department, created in 2020, is to integrate the climate challenges from a financial standpoint. This Department, which reports to the Chief Administrative and Financial Officer and to the Chief Corporate Responsibility Officer, aims at developing and directing Sustainable Finance actions. This means, in particular, building a new income statement model that includes sustainable development elements and allows the Group to measure its efforts, especially concerning the carbon impact, coordinate finance actions, and continue to incorporate sustainable development in its decisions on investing and acquisitions.
For the main environmental risks, the concept of risk covers both risks related to the impact of the Group’s business activities on its ecosystem and the risks of the impact of climate change in the short and medium-term on its business model, activity, and financial performance.
The Group has identified seven principal risks and six opportunities relating to climate change that have potential consequences for its activities and the development of its strategy.
In-depth analyses of climate risks were conducted: identification and a dynamic approach to the risks, assessment of their impact using scenarios developed on two assumptions based on the 2° C and 4° C paths, assumptions that also integrate political, economic, social, technological, environmental and legal trends (PESTEL analysis).
These L’Oréal scenarios integrate pre-existing scenarios or assumptions based on scientific content as input data, particularly the RCP2.6 and RCP8.5 scenarios (Representative Concentration Pathways (RCP) – AR5) of the IPCC (Intergovernmental Panel on Climate Change) to assess the physical risks for the governed transition and disorganised transition respectively.
More specifically, studies of the impact of climate change on plant-based raw materials sourcing were also conducted. Assumptions have also been made on the paths of carbon pricing and consumer preferences, the main factors in L’Oréal’s exposure to climate-related transition risks. This work will allow the Group to adapt policies and define its strategic goals.
Two timeframes were considered: a medium-term 2030 timeframe, aligned with scientific targets, and a long-term 2050 time frame, to detect significant trends in the physical climate variables.
The entire value chain was considered in the analysis of L’Oréal’s scenarios.
The two scenarios resulted in differentiated assessments of the impact of the risks identified and favoured the prioritisation of the policies implemented and the determination of the related programmes and action plans to reduce these impacts. They contributed to the development of the sustainability programme, L’Oréal for the Future, for 2030.
The Group’s risk review includes physical risks and transition risks associated with changes in its value chain and ecosystem. Risks as diverse as those associated with extreme weather events on the Group’s infrastructures, or the risks inherent in the supply chain, those inherent in the scarcity of resources, carbon pricing (taxes, emissions trading schemes) and their financial impacts, or those related to the Group’s reputation and consumer expectations, are analysed, resulting in the preparation of impact scenarios as part of the scenarios constructed, and strategic orientations are defined.
