L’Oreal’s Quest to Beautify Their Carbon Footprint
This piece explores L'Oreal's decision to make reducing their impact on climate change a core company value, their current plan as they take a holistic look at sustainability and recommendations for their next steps.
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.
Word Count: 794 words
 [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.
Student comments on L’Oreal’s Quest to Beautify Their Carbon Footprint
Cool subject! Would never have thought that L’Oreal would be interested in combating climate change. I am a bit concerned that the cosmetic products are using petrochemicals, especially if we are using them on our faces 🙂 I applaud the company’s efforts to build more sustainability in its supply chain. However, won’t these reformulation changes increase prices for L’Oreal’s products? The company’s mainstream products are often on the cheaper side of the cosmetics spectrum. Products that use more natural ingredients are often priced higher and consumers are willing to pay higher prices because they know that the brand stands for sustainability (e.g., Origins, Aveda). Will consumers know about the change, aside from L’Oreal’s namesake organics brand (The Body Shop)?
Bridget, thank you for shedding light on how a large corporation is making strides to reduce its carbon footprint (while growing its manufacturing footprint)!
I respectfully disagree with your assessment that L’Oreal should consider land use and how that may be better used for food vs. beauty production. How are they supposed to manufacture their products (by using natural ingredients) without relying on the underlying farmland and natural factors of production? I am not sure how that is possible.
Furthermore, I really appreciate how much research you’ve done into their efforts to-date. Digging further, I found out that L’Oreal makes a big difference in the lives of the farmers. By supporting 500 small farm-owners / farmers in Malaysia, they are creating jobs and putting people to work. The article is here:
Isn’t that a form of sustainability in and of itself? If people continue to demand L’Oreal products and they are able to support farmers around the world, shouldn’t we applaud that? I wonder why it would be a better use of the farmland to generate a source of food vs. cosmetic products if (1) consumers also demand cosmetic products, (2) the companies are doing this in a sustainable way, and (3) jobs are being created as a result.
It is interesting you mention that L’oreal has a responsibility to move its’ consumers to demand more environmentally-friendly products. As mentioned above, I am wary of the practicality of maintaining the company’s current price points and simultaneously moving to more environmentally friendly ingredients. Personally I think that L’oreal should focus its’ consumer education efforts on educating broadly about the issues of climate change. The company has significant brand recognition power to do so. Digging into this we see that this year the company has become a partner of the new “Women4Climate” global initiative. As part of the initiative the company will mentor young women to empower them to develop climate change solutions and support gender-specific research related to climate change. 
Very interesting essay but I am not convinced that sustainability is a realistic goal for L’Oreal. My primary concern is with this statement: “In the long-term, the success of sustainable products depends on consumer demand as much as product innovation. It is L’Oreal’s responsibility to create that demand through consumer education. To achieve their vision, they need to bring along the consumer.”
I don’t believe that the focus here should lie on getting consumers to demand eco-friendly products. The larger and more important challenge to L’Oreal being able to do this is operationalizing it at their scale. L’Oreal is a mass-market cosmetics company. To the point above, it is typically difficult to source more environmentally friendly raw materials and maintain your price advantage. To expand on this point, I’ll compare L’Oreal to Tarte, an eco-friendly cosmetics company. Tarte started as an eco-friendly company, and thus, were able to operationalize their eco-friendly sourcing at a much smaller scale. Tarte’s 2013 revenues were $68 million . That is a fraction of L’Oreal’s $20 billion + in revenue + , not to mention the multiple brands and SKUs L’Oreal has to manage. Even just starting with a making a few L’Oreal products more eco-friendly will be difficult, given the volume they are moving.
Additionally, despite the hype, there is not a lot of evidence that cosmetics consumers make decisions based primarily on the eco-friendliness of products. When I try to find information about this shift online, it seems like people say they care more, but still make decisions based on price (the data is all over the place, though, and it seems like more rigorous studies need to be published). It’s unclear if enough people would pay more for eco-friendly products. My hypothesis is that if L’Oreal wants to do this, they are going to have to make the economics work on the cost side and introduce it as an added benefit to a core product that is still affordable.