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Evaluating a company's impact (the case of L'Oréal)

A deep dive into L'Oréal's environmental and social impact

This week’s read time: 3 minutes

You are reading Green Digest Impact, a weekly newsletter that provides in-depth analyses of companies’ environmental and social impact.

OUR APPROACH

Central to our narrative is the principle of double-materiality, which recognizes that a company's impact is twofold: it affects both the environment and society at large, and in turn, these external factors influence the company's financial and operational performance.

While traditional ESG assessments focus on the latter, we aim to examine companies' direct impacts on these factors. In pursuit of this, we introduce a unique scoring system that quantifies a company's impact.

The insights and analyses presented in Green Digest Impact are brought to you by a partnership between Green Digest and Impaakt, a Swiss-based impact data provider. Contact Impaakt here to explore how they can assist you.

THIS WEEK’S COMPANY

L’Oréal

This week we dive deep into L’Oréal’s environmental and social impact.

L’Oréal is the world’s largest cosmetics company. With a diverse portfolio of 37 global brands, including Garnier, Maybelline, Armani Beauty, and Lancôme, it offers a wide range of beauty products spanning skincare, haircare, makeup, hair colorants, perfumes, and hygiene goods.

Some interesting facts:

  • L’Oréal started in 1909 when its founder, Eugène Schueller, created the first-ever synthetic hair dye, marking the beginning of modern hair coloring.

  • L’Oréal was among the first to ban animal testing for its products in 1989, 14 years before it was legally required in the European Union.

COMPANY’S IMPACT

L’Oréal’s overall impact score

L’Oréal has a general impact score of -0.92 (on a scale from -5 to +5). Its impact is spread across 11 UN Sustainable Development Goals (SDGs) and 11 topics, split between positive and negative analyses.

In the socio-economic sphere,

L'Oréal is the No.1 beauty brand worldwide with an extensive global presence in 150 countries. It provides around 7 billion products to over 1 billion customers annually. The company provides a diverse portfolio of skincare, haircare, makeup, perfumes, and other cosmetics that support personal hygiene, self-care routines, and individual expression, enhancing people’s confidence and contributing to overall well-being. The company employs over 94,600 people globally and works with over 50,000 suppliers worldwide, supporting local economies by contributing to job creation and economic activity in the regions where its suppliers operate.

However, L’Oréal has faced significant allegations concerning the use of harmful chemicals in its products, potentially affecting an estimated 700 million customers. Investigations uncovered toxic substances, including lead, formaldehyde-releasing agents, PFAS, and other potential carcinogens, raising concerns about product safety. Additionally, the company has also been criticized for sourcing raw materials from regions associated with child labor, forced labor, and exploitative working conditions.

Environmentally,

L’Oréal has an annual carbon footprint of around 11.5 million tonnes of CO2 equivalent, comparable to the annual electricity usage of approximately 2.4 million homes. It generates around 93,500 tonnes of operational waste, including 88,000 tonnes at industrial sites. 97% of this industrial waste is recovered through reuse, recycling, or energy recovery. The company also uses around 170,800 tonnes of plastic packaging, with 44% being recyclable, reusable, and/or compostable. Despite this, a major 56% of its packaging remains non-recyclable. Additionally, L'Oréal consumes over 1 million m3 of water annually, with around 33% being drawn from water-stress regions

*The impact score is current as of December 2024 and may be subject to changes as it is continuously updated.
**You can find details about the scoring methodology here and the information sources here.

ESG VS IMPACT SCORE

What is L’Oréal’s ESG rating?

For comparison, L’Oréal has an AA rating in MSCI's ESG evaluation.

However, ESG Ratings from MSCI ESG Research are designed to measure a company’s resilience to financially material ESG risks and they provide a window into one facet of risk to financial performance. They measure how effectively companies manage ESG risks, not their impact on these factors.

SCORES BY SDG

L’Oréal’s impact scores by SDG

Positively (and by weight), the company scores the highest in No Poverty SDG (+3.01), followed by Partnership for the Goals (+2.88).

Negatively, the company scores the worst in Good Health and Well-being SDG (-0.21), followed by Responsible Consumption and Production (-2.32) and Decent Work and Economic Growth (-1.49).

*the analysis takes into account the weight of the SDGs

L’Oréal impacts SDG 3 – Good Health and Wellbeing positively by providing products that support personal hygiene, self-care, and confidence, contributing to overall well-being. However, it also impacts it negatively due to cases of harmful chemicals in its products, such as lead and PFAS, which raise concerns about consumer safety and health risks.

CONCLUSION

Materiality Map & Final Words

So, L’Oréal’s key social and environmental impact lies in …

its position as the world’s leading beauty brand, serving over 1 billion customers annually with products that support hygiene, self-care, and individual expression. Through its global workforce of over 94,600 employees and partnerships with 50,000 suppliers, L’Oréal contributes to economic activity and job creation, fostering local development in regions where it operates.

However, cases of harmful chemicals in its products, including toxic substances like lead and PFAS, have raised serious concerns about consumer safety, potentially affecting hundreds of millions of customers. Criticism regarding sourcing practices tied to regions associated with child and forced labor highlights gaps in supply chain oversight. Environmentally, while L’Oréal demonstrates strong efforts in waste recovery and packaging innovation, significant challenges remain, including its reliance on non-recyclable materials, substantial CO2 emissions, and water usage, particularly in water-stressed regions.

L’Oréal’s overall impact score of -0.92 reflects a balance between its significant contributions to global beauty and well-being and the critical ethical and environmental issues the company must address.

If you’d like to delve deeper into L’Oréal’s impact, you can explore it here.

If you'd like to learn more about the scoring methodology, you can do so here.

Do you have a specific company you'd like us to cover? Send your suggestions to [email protected]

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