L’Oreal SA is the holding company for the L’Oreal Group and manages the company’s operations in over 130 countries. The Group specializes in the personal care sector, primarily in the sale of cosmetics, however it also owns and operates The Body Shop chain of stores.
Global demand for organic personal care products totaled $7.6 billion in 2012 and is expected to reach $13.2 billion by 2018, growing at a cumulative annual growth rate of 9.6% from 2012 to 20181. Companies that utilize responsibly sourced ingredients in their products, including organic or other certifications, could have a competitive advantage over industry peers.
Approximately 250 of L’Oreal’s raw materials have organic certification. All of the company’s palm oil and palm oil derivatives are certified by the Roundtable on Sustainable Palm Oil and 100% of its shea butter supplies come from fair-trade sources. In 2013, 18% of L’Oreal’s new raw materials complied with the principles of green chemistry. Additionally, L’Oreal has committed to achieving zero deforestation from the sourcing of raw materials by the year 2020.
Consumers and regulators are putting greater pressure on personal products companies to increase ingredient transparency and eliminate or reduce controversial ingredients in formulas. As a result, the main environmental risk, and subsequent opportunity, revolves around reformulating products to minimize or remove controversial ingredients with the potential for future chemical restrictions.
L’Oreal does not use triclosan, siloxane D4, nitromusks, or secondary amines in any of its formulations. In 2007 the company ceased the use of long-chain parabens due to their potential role as endocrine disrupters. The company only uses one kind of phthalate (diethylphtalate) as a solvent and alcohol denaturant in fragrances.
Packaging plays an important role in the environmental impact of personal products. Packaging that minimizes the use of materials or contains recyclable or post-consumer recycled content gives companies the opportunity to reduce their environmental footprint by reducing their waste output. Companies that introduce eco-friendly packaging in their products will be at an advantage in mitigating their environmental impact.
L’Oreal’s packaging strategy relies on utilizing paper and paperboard supplied from sustainable sources. In 2012, 97% of the paperboard utilized by the company was certified by the Forest Stewardship Council or the Programme for the Endorsement of Forest Certification. Additionally, the company has set the objective of using only certified paper and paperboard in its packaging by 2020.
L’Oreal is currently working to eliminate or reduce the use of toxic chemicals in its products, such as phthalates, long-chain parabens, secondary amines, triclosan, nitrated musk, siloxane D4, and heavy metals, but the company does not provide annual progress updates on other questionable raw materials. Portfolio 21 would like to see the company regularly disclose its progress in this area.
In the past, L’Oreal has tracked its energy consumption in relation to its production as well as the percentage that is obtained from renewable sources. Unfortunately, the company did not establish a target for this aspect in its 2020 ambitions. Portfolio 21 believes that the creation of a specific target would allow the company to better manage its efforts to minimize its environmental impact.
To the best of our knowledge the above information is accurate and was obtained from sources we believe to be reliable. Neither the information presented above nor any opinion expressed shall be construed as an offer to sell or a solicitation to buy the security. The views expressed are those of portfolio management as of 7/31/14 and may not reflect current opinions or subsequent events.