Between 2013 and 2016, L’Oreal decreased carbon emissions by 67% while increasing production by 26%. One of the greatest paradoxes for modern society is that we need to foster human development while limiting global climate change. Conventional wisdom states that you cannot develop economically while reducing emissions. However, L’Oreal, the world’s largest beauty brand, is proving that not only can a company grow while reducing emissions, it can use climate change as an innovation engine to drive sales and profitability.
In 2013, L’Oreal launched “Sharing Beauty with All”, their campaign to make sustainability a core company value. Climate change has been thrust upon L’Oreal because of their unique supply chain which depends on both petrochemicals and agricultural ingredients []. On the petrochemical side, as the realities of climate change become more real, consumers and investors are rapidly increasing pressure to shift product formulations away from petroleum based materials. This presents a key top line risk for companies who continue to rely on petrochemicals while providing an opportunity for those who innovate sustainable products. []
On the other hand, the beauty industry also relies on natural materials like palm oil which are threatened by deforestation caused by environmentally destructive farming techniques and rising global temperatures.  Therefore, due to the revenue and supply chain risks, as well as a sense of moral duty, L’Oreal decided that it had a responsibility to lead the industry away from practices which worsen climate change and towards practices that take a holistic approach to sustainability.
Their plan tackles sustainability on four fronts, each of which is tied to a series of short-term and long-term goals. First, they will reformulate their products to have an “improved environmental or social profile” with a goal of 100% of products reformulated by 2020. Second, they reduced carbon emissions and energy usage throughout their supply chain from refining through consumer purchase, achieving 67% reduction in 2016. Third, they’re assessing their impact on the local communities in which they work from both economic and environmental perspectives. Finally, they’re working to change consumer behaviors through education around product usage and their own employees’ behaviors. []
Their approach can be summarized in Exhibit 1, which captures various initiatives:
Since launching in 2013, L’Oreal has made significant improvements on their initiatives. Simultaneously, the company has achieved a record operating margin of 16.7% and increased sales by 5.5% annually in the same time period. [] In contrast, the beauty industry collectively grew at 2.1% annually in the same time period and had average operating margins of 14.7% .
While the results to date are impressive, L’Oreal needs to focus more heavily on product development and follow through on their efforts to reduce the climate impact of their farming supply chain. In the long-term, they also need to focus on consumer education.
On product development, L’Oreal stated in their 2016 Sustainability Report that 82% of brands have been reformulated in some way to be more sustainable, but the brand does not explain exactly how impactful those changes are. In fact, 60% of L’Oreal’s raw materials still rely heavily on petrochemicals.[] Therefore, L’Oreal needs to start integrating truly sustainable, carbon-neutral materials into every aspect of their products. In addition, the largest source of L’Oreal’s tangential carbon use is in their product sourcing, representing 23% of indirect emissions.[] For example, for palm oil, a raw material present in products which account for 24% of L’Oreal’s revenues , is farmed using destructive techniques which accelerate deforestation and climate change. As a result, L’Oreal recently completed a detailed review of their suppliers with traceability to the local villages in which the product is farmed. Over the next 3-5 years, they need to implement those systems to prove that their purchasing power can create real supply chain change.
In the long-term, the success of sustainable products depends on consumer demand as much as product innovation. To be able to have the pull that L’Oreal needs to influence supply chain change, they need to have consumers demanding it. It is L’Oreal’s responsibility to create that demand through consumer education. To achieve their vision, they need to bring along the consumer.
Finally, as L’Oreal moves to more natural formulations, I would ask them to consider their land use and whether those products and land could be used better for food production rather than beauty production.
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 [Global Cosmetic Market Report], IBISWorld, accessed November 2017.
 “Revenues in jeopardy as companies reliant on commodities linked to deforestation underestimate risk.”, press release, Dec 5, 2016, on CDP website, https://www.cdp.net/es/articles/media/press-release-revenues-in-jeopardy-as-companies-reliant-on-commodities-linked-to-deforestation-underestimate-risk, accessed November 2017.
 L’Oreal, 2016 Sustainability Report, p 6 – 7. https://sharingbeautywithall.loreal.com/sites/default/files/cms/sbwa-progress-report-2016_english.pdf.pdf, accessed November 2017.
 L’Oreal, 2016 Annual Report, http://www.loreal-finance.com/en/annual-report-2016/key-figures, accessed November 2017.
 L’Oreal. “Evaluating the Environmental Safety of Our Products”, http://www.loreal.com/sustainability/l’or%C3%A9al-answers/product—ingredient-safety/evaluating-the-environmental-safety-of-our-products, accessed November 2017.
 L’Oreal. “L’Oreal Greenhouse Gas Emissions 2017”, https://sharingbeautywithall.loreal.com/sites/default/files/cms/loreal_greenhouse_gas_emissions_2015.pdf, accessed November 2017.