2024 universal registration document

3. Risk factors and management

Business risks/Business ethics  Moderate
Risk identification Risk management
As L’Oréal is a worldwide group of over 90,000 employees, which operates in 77 countries at some 400 sites (excluding stores and point-of-sales outlets of distributor customers), it cannot exclude potential breaches of its ethical commitments (Code of Ethics based on the four Ethical Principles of Integrity, Respect, Courage and Transparency, its Human Rights policy, support of the United Nations Global Compact and the United Nations Sustainable Development Goals, etc.), whether directly by its employees, or indirectly because of the activities of its partners, particularly its suppliers and subcontractors. In addition, civil society is expressing higher expectations with regard to companies’ integrity and transparency and the way they manage scientific and technological innovations. These expectations may, for example, relate to the responsible use of artificial intelligence. Such failures to comply with its commitments or the lack of a response to new ethical questions could have an adverse impact on the Group’s reputation and expose it to criminal or administrative sanctions.

The Group’s policies on sustainability, social and societal responsibility, compliance and philanthropy are based on these Ethical Principles. The role and the resources assigned to the Chief Ethics Officer set him up for success in his work, to which end he may call on all the Group's teams and resources (see section 3.2.1.). Specific training for management teams, regular dialogue with stakeholders and the establishment of internal working groups underpin the inclusion of Ethics in the Group’s new policies and strategic decisions. The ethical risks are mapped and regularly updated, including for suppliers and subcontractors (see section 3.5.5.2). The circulation of the Code of Ethics and specific complementary policies throughout the Group, mandatory specific e-learning and ongoing communication campaigns via an Ethics Day ensure that employees are aware of the ethical standards. A network of 80 Ethics Correspondents around the world and regular contact between the Chief Ethics Officer and the Countries ensure close relationships with employees.

Compliance with the Code of Ethics is taken into account each year when evaluating the overall performance of employees.

Potential breaches are managed through regular audits of the Group’s sites and those of its suppliers and subcontractors (see section 3.5), Speak Up, the Group’s whistleblowing system (www.lorealspeakup.com) which launched in 2018 and is accessible to all Group stakeholders, and through a procedure to collect and process reports.

L'Oréal has drawn up a set of Principles for Trusted Artificial Intelligence, which were incorporated into the 2023 update of the Group’s Code of Ethics.
Business risks/Developments in sales channels  Moderate
Risk identification Risk management

To market its products, L’Oréal leverages not only traditional independent distribution channels and the development of direct- to-consumer distribution for certain brands (directly owned stores and e-commerce), but also social media. For example:

  • by developing networks of Group brand ambassadors and communities to be part of the conversation around brands and products (partnerships with relevant influencers, advocacy marketing, etc.); and
  • by promoting social selling to better target the needs and expectations of consumers who are increasingly turning to these channels.

The impact of the risk could be amplified, in particular by the emergence of social beauty, which is connected and shared, and by the role of influencers as opinion leaders with a significant following and/or subscribers.

Undisclosed adverts or posts that materially mislead consumers or cause serious or widespread offence by an influencer on one of the brands in the Group’s portfolio, or neglecting the importance of new sales and marketing strategies on social networks, could impact results.

See also the "Reputational crisis management" risk.

  • The presence of the Group’s brands in all types of distribution channels allows the Group to offer its products and services, whatever the consumer practices. The departments concerned anticipate trends to adapt to these changes and, in particular, have steadily developed online sales with diversified partners (e- distributors, platforms, and market places). A policy called The Way We Compete is applicable Group-wide and sets out the competition law principles to be respected when working with different types of distribution channels.

    The Group has set up a solid internal control system, including the rollout of certain guidelines:

    • a Code of Good Practice for the Use of Social Media for its employees;
    • an Influencer Values Charter and a Social Selling Values Charter that each influencer or social seller with whom L’Oréal collaborates undertakes to respect; and
    • the Group’s principles and the operational processes to be applied in relation to partnerships with influencers and social sellers, circulated worldwide to all employees involved in advocacy marketing. The Group seeks to work with influencers and social sellers who share its values and Ethical Principles. Depending on the nature of the relationship, the Group reserves the right to pursue due diligence by way of reviewing information already in the public domain. These documents effectively complement the rules of conduct set out in the Group’s Code of Ethics.