L'Oréal - 2018 Registration Document

L’Oréal’s corporate social, environmental and societal responsibility MAIN NON-FINANCIAL RISKS

Main environmental risks Industrial risks

As with any production, distribution, research and general administration activity, L’Oréal is exposed to safety and environmental issues: fire, explosion, technical failure of facilities or their operation (such as those dedicated to the treatment of effluents and/or their discharge, or when managing work carried out on its sites for instance). Even though the cosmetics industry has a limited industrial risk profile, events of this nature can result in accidental pollution (surface and groundwater, air, soil), within or outside the Group’s sites. The risk of pollution cannot be totally eliminated. Risks of natural origin The Group is exposed to risks of natural origin in many countries. Risks of natural origin are those related to the occurrence of extreme weather events such as cyclones or floods, or those resulting from long-term climate change such as the rise in average temperatures, noticeable change in precipitation and the reduction of available water. To be sold, the products manufactured by the Group must be available on the market on the dates scheduled so as to respect customer requests and launch plans, in a cosmetics market where the need for responsiveness is growing constantly. A major stoppage of activity at a plant or distribution centre could therefore have an adverse effect on the achievement of commercial objectives. These risks may impact the Group directly on its sites, or indirectly via the sites of suppliers and subcontractors, thereby reducing the availability of raw materials or packaging necessary to manufacture products. For instance, an exceptionally steep rise in the price of basic raw materials because of their scarcity, or in the energy costs necessary for their production due to carbon taxes, or even their total unavailability or the resulting failure of suppliers, could affect the Group’s performance. Risks related to the use and end of life of products The use of cosmetics and their disposal after use by consumers and professional customers (mainly hairdressers and beauticians) generate environmental impacts. So-called “rinsed” formulas (shampoos in particular) require water for their use, and the ingredients used in their composition can be found after use in domestic wastewater, the treatment of which is dependent on existing sanitation systems in place in the relevant geographies. Insufficient consideration of these impacts related to the use phase during the design of L’Oréal products could represent a risk for sales in certain areas of the world where access to water is difficult (water stress, quality of drinking water, etc.). Similarly, the use of predominantly plastic containers may represent an environmental risk resulting from the disposal of plastic waste, depending largely on the collection and treatment channels available. Risk related to changing stakeholder expectations in terms of environmental and social performance The Group expects consumer choices to be increasingly influenced by the carbon impact of products and the overall environmental performance of manufacturers, with certain categories of consumers becoming increasingly mindful of the impact of their purchasing decisions. If the Group is unable to anticipate change in such behaviours, to meet stakeholders’ expectations, to overcome the major environmental and social challenges, and to respond notably by the innovative adaptation of its products, a significant contribution to a low carbon economy and by the preservation of water and natural resources, its performance and reputation could be affected. Risk of regulatory non-compliance L’Oréal operates through subsidiaries located in many countries. Like any business, L’Oréal is subject to a wide range of constantly changing local laws and regulations in the areas of safety and the environment, including efforts to fight against climate change, and the preservation of water resources and biodiversity. This exposes it to the risk of regulatory non-compliance or higher compliance costs for its activities in a broad context of increasingly stringent standards.

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Main social risks Employee health and safety risk

The protection of employees’ health and safety is one of L’Oréal’s priorities and is an integral part of the Environment, Health and Safety (EHS) policy and the Group’s Human Resources and Social policy. Nevertheless, the risk of accidents at the workplace or occupational diseases cannot be entirely ruled out.

Human Resources management risk One of the keys to L’Oréal’s success lies in the talent of its staff. If L’Oréal fails to identify, attract, retain and train competent employees who behave responsibly, particularly within the context of digital transformation, the development of its activities and its results could be affected. Human Resources management notably covers the recruitment, development, collective commitment, remuneration, diversity and inclusion of Group employees.

REGISTRATION DOCUMENT / L'ORÉAL 2018

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