L'Oréal - 2018 Registration Document

2 Corporate Governance

RISK FACTORS AND CONTROL ENVIRONMENT

LEGAL RISKS \ REGULATORY CHANGES Risk identification

Risk management

L’Oréal is involved in an ongoing dialogue with national or regional authorities in charge of specifically regulating products in its industrial sector, via the professional associations in which it is a member, in order to anticipate and manage any risks that may arise from changes in the regulatory landscape. L’Oréal communicates proactively with its European suppliers in order to ensure a consistent supply of compliant raw materials. It also plays an active role in the process for increasing the safety of the chemical products manufactured or imported by its European legal entities. Within the framework of national and European associations, L’Oréal helps analyse and draft practical guides for the implementation of changes to these regulations.

The diversity of applicable local laws and regulations and their constant evolution expose the Group to a risk of non-compliance or increased compliance costs.

The European REACH (Registration, Evaluation and Authorisation of Chemicals) and CLP (Classification, Labelling and Packaging) regulations aimed at increasing the safety of chemicals for humans and the environment, require that all user companies prove that they have implemented appropriate risk management measures. May 2018 was the last deadline for registering substances sold in Europe, primarily impacting many SMEs that supply the Group’s industry. This date also marks the starting point for the review of these regulations. L’Oréal is also subject in Europe to the European Cosmetics Directive on animal testing of cosmetic ingredients which has been amended several times.

An action plan has been drawn up at L’Oréal in order to improve the design and methods used to assess the safety of raw materials. This plan was implemented on an accelerated basis in order to prepare as thoroughly as possible for the full application of these regulations in 2018. It led to the end of testing finished products on animals in 1989 (14 years before it became a legal obligation in Europe) and the development of predictive evaluation strategies to meet European regulations which prohibit the offering for sale of products containing any ingredient that has been tested on animals after 11 March 2013. L’Oréal has put in place a compliance programme aimed at ensuring that the entities in its Group comply with the regulations applicable to them with regard to embargoes and economic sanctions.

Certain countries are, moreover, subject to export restrictions, embargoes, economic sanctions or other forms of trade restrictions levied by the European Union, the United States and other countries or organisations.

LEGAL RISKS \ OTHER LEGAL RISKS AND LITIGATION Risk identification In the ordinary course of its business, the Group will potentially be involved in legal actions and is subject to tax, customs and administrative audits. The potential exposure to significant litigation is described in note 13.2. of the Consolidated Financial Statements, chapter 4.

Risk management

The Legal Charter reaffirms the obligation to comply with local legislation and notably sets out the internal principles for signature, the general and specific rules relating to contracts, trademark law, intellectual property law, company law and competition law and the protection of personal data. Furthermore, the Group’s Legal Department has set up a training programme on competition law for the employees concerned. It also distributes practical guides concerning the issues related to competition law and participation in professional associations which define the principles to be complied with and provide operational answers to any questions which employees may have in this area. Training on personal data protection destined for all employees was also implemented in 2018. A provision is set aside in the parent company and consolidated financial statements whenever the Group has an obligation towards a third party likely to involve an outflow of economic resources whose cost can be reliably estimated. The Company has no knowledge of any governmental procedures, legal or arbitration proceedings, which are pending or threatened, that may have, or have had over the last 12 months, material effects on the financial position or profitability of the Company and/or the Group, other than those described in note 12.2. to the Consolidated Financial Statements. The main legal risks are reported to the General Management and presented to the Audit Committee.

REGISTRATION DOCUMENT / L'ORÉAL 2018

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