2022 Universal Registration Document

4.3.1.4.4. Alignment with the European Taxonomy

The European Taxonomy primarily targets sectors that have a strong potential for contributing to the adaptation to or mitigation of climate change, in which L’Oréal is not included.

Reminder of the regulatory environment and the L’Oréal sustainable development strategy

Pursuant to the European “Taxonomy” Regulation, L’Oréal is required to publish indicators for the 2022 financial year highlighting, since 2021, the eligible share, and from 2022,the aligned share of its turnover investments and operating expenses considered sustainable within the meaning of this Regulation. To date, it only covers the first two objectives of the Taxonomy Regulation: climate change mitigation and adaptation to climate change. To do this, the Finance and Legal, Operations, Real Estate, CSR, Research & Innovation Departments have jointly conducted a detailed analysis of all the Group’s activities within the consolidated entities.

Eligible activities and their level of alignment with the Taxonomy Regulation have been identified in accordance with the instructions of the Delegated Acts by verifying whether they contribute substantially to climate change, whether any of the five other objectives set by the Taxonomy Regulation ⁽¹⁾ have not been met and whether they comply with the minimum guarantees.

In its classification system, the European Commission prioritises business sectors with a strong potential for contributing to the adaptation or mitigation of climate change. Within the meaning of the Taxonomy Regulation, activities carried out by L’Oréal that are dedicated to beauty care are not considered to make a significant contribution to these initial climate targets. The low level of eligibility and alignment of the Group’s Taxonomy indicators does not reflect the environmental pillar of the L’Oréal sustainable development strategy or its strong commitment to combating climate change, which it has demonstrated for many years.

The goals of L’Oréal for the Future and the 2022 results are described in greater detail in sections 4.3.1 and 4.4.

Presentation of the eligibility and alignment results for 2022

Sales indicator: as was the case for 2021, the Group has not identified any eligible turnover L’Oréal is dedicated solely to the beauty industry and, as such, its activities are not considered, within the meaning of the Taxonomy, as making a significant contribution to these initial climate targets or as a priority sector targeted by the Taxonomy. In particular, its industrial activities in the production of raw materials are not covered by the Taxonomy Regulation under the heading“Manufacture of organic basic chemicals”.

Investment indicator: as there were no eligible turnover there were no investments corresponding to activities related to sales that could be classified as eligible. As a result, the various measures implemented to reduce the carbon footprint of the Group’s products have not been taken into account in the indicators relating to investments. Likewise, all investments used to reduce the carbon footprint of the entire product production value chain are classified as ineligible by the Taxonomy Regulation.

It should be noted that these investments do not include the amount of €100 million allocated to Impact Investing funds intended to finance the regeneration of damaged natural ecosystems and the fight against climate change. Investments made in funds are not considered eligible expenditure under the Taxonomy Regulation.

The eligibility analysis of the investments was therefore focused on “individual measures” to reduce the Group’s emissions, which explains why the eligible amounts are low compared to all Group investments, a significant portion of which is dedicated to implementing the sustainable development strategy.

The eligible investments identified mainly correspond to:

• Capitalised leases on buildings and vehicles according to IFRS 16 (89%);
• Expenditure on construction and renovation of buildings designed to improve their energy efficiency and mitigate greenhouse gas emissions; and
• Installation and repair of equipment that promotes energy efficiency.

In 2022, eligible investments totalled to €434 million (including€387 million related to long-term capitalised leases on buildings and vehicles according to IFRS 16), compared to total investments of €2,011 million as defined by the Taxonomy Regulation.

In 2021, the amount of eligible Capex (2) stood at €405 million. The change in the eligible balance in 2022 compared to the2021 financial year is primarily the result of the frequency of lease renewals. As a result, it does not correlate with the Group’s investment policy on actions to adapt to or mitigate climate change.

Aligned investments in 2022 totalled €180 million.

The alignment level for the 2022 financial year was classified with care and using the currently accepted marketplace practices in order to validate the three conditions required for alignment:

• Substantial contribution and DNSH⁽³⁾ criteria: The Group’s property policy incorporates high standards in terms of energy consumption and building labelling. The Group will continue to update and ensure the implementation of the Purchasing Charter and the Sustainable Design and Construction Guide for construction and leasing projects, in order to best address the climate issues described in the Taxonomy.
• Compliance with the minimum safeguards: The Group meets the requirements on minimum safeguards listed in the Platform on Sustainable Finance’s (PSF) report. The four themes are specified in other sections:
  • L’Oréal has implemented a Group-wide Code of Ethics as well as the L’Oréal Vigilance Plan, which contains reasonable due diligence measures intended to prevent the risk of serious adverse impacts on Human Rights and Fundamental Freedoms, as well as health, safety and the environment within the framework of a best efforts obligation (see sections 3.4.4.1. and 3.4.5.1.);