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 systems, or even human failure in the operation of existing facilities (such as those dedicated to wastewater treatment and/or discharge), or when managing exceptional works. These events can generate accidental pollution (surface and underground water, air, soils etc.) and have consequences inside or outside the sites, which are sometimes located near an inhabited area. Given its industrial activity, L’Oréal is also exposed to risks associated with greenhouse gas emissions resulting from its own operations (Scopes 1 and 2 under the GHG Protocol) or generated within its value chain, particularly from production by its suppliers of the raw materials or packaging components required to manufacture its products (Scope 3 upstream) and from the transportation and subsequent use of its products by consumers (Scope 3 downstream).
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 and subsequent disposal of cosmetic products by consumers and professional customers (mainly hairdressers and beauticians) generate environmental impacts. This mainly concerns the use of water and plastic. 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 this water is dependent on existing sanitation systems in the relevant geographic zones. Insufficient consideration of these usage-phase impacts during product design could represent a risk in certain areas of the world affected by water stress or the lack of adapted infrastructures for wastewater collection and treatment. 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 choices made by certain categories of consumers may 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, particularly in terms of reducing its CO2 emissions in all Scopes. If the Group is unable to anticipate changes in such behaviours, meet stakeholders’ expectations, overcome major environmental and social challenges and respond 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 the environment. This mainly concerns efforts to combat climate change, and the preservation of water resources, biodiversity and natural resources. This exposes it to the risk of regulatory non-conformity or higher compliance costs for its activities in a global context of increasingly diverse standards.
Given L’Oréal’s activities, particularly its industrial operations, there could be a risk of occupational injuries or illnesses. Psychosocial risks may affect employees’ mental health. This could also have an adverse impact on their commitment and, consequently, on the Group’s performance.
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 evolving within a complex, highly competitive and rapidly changing environment (globalisation, diversity and inclusion challenges, sustainability issues, acceleration of the digital transformation etc.) that requires specific expertise. The Covid-19 health crisis has had a significant impact on the job market, with new employee expectations, particularly with the introduction of a sustainable hybrid mode, alternating between on-site and remote working. If L’Oréal fails to identify, attract, recruit, retain and develop competent and involved employees who behave responsibly within diverse teams, the development of its activities and its results could be affected.
