This story is Part 1 of a three-part series on how L’Oréal USA is adjusting its internal business to focus on sustainability, consumer technology and employee equality, in the name of modernization.
L’Oréal USA is on a mission to modernize, with a leading initiative to become more environmentally friendly and sustainable, achieving complete carbon neutrality by 2019 for all 21 of its U.S. manufacturing and distribution facilities.
Corporate sustainability is undoubtedly more important than ever, and L’Oréal — which made over $30 billion in sales in 2017 — has the resources to create an impact across its supply chain. L’Oréal began its move toward sustainability in 2005, and also created its Sharing Beauty With All program in 2013 to further modernize the brand. L’Oréal has already surpassed its goal of 60 percent reduction in carbon emissions by 2020 when it reached 84 percent reduction in 2017. It has also developed a financially sustainable approach to carbon neutrality, created a Sustainable Product Optimization Tool (SPOT) to help product developers, and hired Danielle Azoulay as head of corporate social responsibility and sustainability to oversee all related L’Oréal USA initiatives. Azoulay, who was hired in May 2017, has undertaken a top-down approach to understand where and how the 109-year-old company can cut down its environmental waste.
In addition to saving the environment, these initiatives are primed to help the business in terms of long-term cost-saving operations, and in the short term, they’ll work to align it with today’s consumer values. A 2017 study from Unilever showed that 33 percent of international consumers prefer to buy from a brand that is doing social and environmental good. And as product information becomes widely accessible and consumers are hungry for information, brands have to show more granular authenticity, especially around their corporate values.
Azoulay’s role primarily deals in acting as a conduit between employees and the executive board around sustainability, she said. Because L’Oréal has a matrix organization structure, the reporting relationships are set up as a grid, or matrix, rather than in the traditional hierarchy. In other words, employees have dual reporting relationships, and this means, to a certain degree, that everyone’s job now includes sustainability. For example, Azoulay engaged with the head of plastics purchasing to understand how he could integrate sustainability into his job, she said. Overall, there are between 40 and 50 people within the U.S. organization who are working on some aspect of social responsibility.
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“We are looking at transforming our company and remain competitive, and continue to set the standard for what corporate responsibility looks like,” Azoulay said, adding that it requires a full transformation of every employee’s role, “from interns to the CEO.”
So far, as of last year, the company has been able to reduce its carbon emissions from its plants and distribution centers by 84 percent for L’Oréal USA (and 73 percent, globally). Part of this has been directly achieved through the use of renewable natural gas (RNG) at its 21 U.S. manufacturing and distribution centers. L’Oréal pre-purchased 15-years worth of RNG, which was the key underwriting component to building a processing plant in Kentucky in March and currently has 17 renewable energy installations, including solar panel farms in Arkansas, New Jersey and Kentucky, and wind turbines in Texas.
“We are looking to leverage sustainability as a new way of doing business that makes things more cost-effective,” she said, adding that the return on investment may take years to be seen, but the long-term benefits outweigh any upfront costs.
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In order for the rest of the organization to understand the outcome these ground-level changes have on product sustainability, L’Oréal also introduced the SPOT tool last year, which helps anyone within the L’Oréal organization assess the overall impact — both environmental and social — of all of L’Oréal’s products. The tool, which is really a software program, was developed in coordination with Ernst & Young and Quantis to build out the methodology and functionality of the tool, which ranks various criteria, like how much water is used in production, on a scale of zero to 10.
“It’s the key tool we use to develop our products and measure the improvements of our products so we know we can quantify our [impact],” Azoulay said. “It also gives us insight into the next time we renovate or improve the product, and what kind of improvements we can make on sustainability.”
But with all these internal changes taking place, there are challenges in trying to communicate this to consumers who cannot see it themselves. It’s a fundamental challenge of engaging in the sustainable granularity that a customer desires, Azoulay said. Because of this, the brand has worked with third-party organizations like Cradle to Cradle to make sustainability efforts feel more tangible to consumers. Cradle to Cradle is a non-profit organization that determines the impact a brand or product has on renewable energy and carbon management, social fairness and more. L’Oréal has received certification for brands Biolage R.A.W., Kiehl’s and Garnier so far.
“[The Sustainability initiatives] may translate or not to consumers, but ultimately, the program is so big that it’s a big challenge to make it come to life for our consumers,” she said.
By moving the company toward sustainability, in addition to making those initiatives come to life, L’Oréal is positioning itself in the long term as a brand that is hospitable toward natural beauty, which is likely to reach almost $16 billion by 2020, according to Grand View Research.
In April, L’Oréal introduced its first incubated brand, Seed Phytonutrients, which was created by four L’Oréal employees and relies on a family-run organic farm that plants and harvest ingredients exclusively for the brand. Seed Phytonutrients serves as a model for sustainable natural beauty within L’Oréal, and Azoulay said that by “baking” the sustainable concept into the brand, more employees and outside brands will be interested in working with L’Oréal on natural beauty in the future.
“[L’Oréal] wants people who have these ideas to foster them and develop the brands of the future that are going to be a standard bearer for what sustainable products are,” she said. “I think that is something that puts us in a unique position to not only change our supply chain but also to create the brands of the future.”
