1.3.6 Internal control and risk management system

The Group operates in a constantly changing environment.Like any company, L’Oréal is necessarily exposed to riskswhich, if they were to materialise, could have a negativeimpact on its business activities, its financial position and itsassets, particularly in terms of reputation and image.

In order to ensure the sustainability of its development andthe achievement of its objectives, the Group strives toanticipate and manage the risks to which it is exposed in itsdifferent areas of activity.

L’Oréal’s risk management consists of identifying, assessingand controlling risks that may affect the smooth running of theCompany. It also participates in the Group’s development bypromoting the good use of resources to minimise the impact ofnegative events and maximise the realisation of opportunities.

By contributing to preventing and managing the risks to whichthe Group is exposed, the purpose of the Internal Control systemis to enable the Group’s manufacturing and economicdevelopment to take place in a steady and sustainable manner ina control environment appropriate for the Group’s businesses.

Internal Control is a system that applies to the Company andits consolidated subsidiaries and aims at ensuring that:

• economic and financial targets are achieved in compliancewith the laws and regulations in force and the Group’sEthical Principles and standards;
• the orientations set by General Management are followed;
• the Group’s assets and reputation are valued andprotected; and
• the Group’s financial and accounting information is reliableand provides true and fair statements.

The control environment, which is critical to the InternalControl system, good risk management and the application ofprocedures, is based on behaviour, the organisationalstructure and employees. At L’Oréal, it forms part of a cultureof rigour and commitment communicated by seniormanagement and in line with the Group’s strategic choices.

Risk management and Internal Control is everyone’s business,from the governance bodies to all employees.

The Internal Control system is the subject of ongoingsupervision in order to verify whether it is relevant and meetsthe Group’s objectives and addresses its issues.

Chapter 3 provides detailed information on identifying andmanaging the most significant risks from the point of view ofinvestment decision-making, within the meaning of theregulations. These risks are listed in the table below.

Major risks to which the Group believes it is exposed

exclude		Residual importance
Business risks	Geographic presence and economic and political environment*Most material risks in each category.
	Information systems and cybersecurity*Most material risks in each category.
	Health crisis*Most material risks in each category.
	Reputational crisis management
	Data
	Beauty market and innovation
	Business ethics
	Developments in sales channels
	Human resources and organisational risk
	Product quality and safety
	Safety of people and property
Industrial and environmental risks	Product availability*Most material risks in each category.
	Climate change
	Environment and safety
Legal and regulatory risks	Non-compliance*Most material risks in each category.
	Legal disputes
	Intellectual property: trademarks, designs & models, domain names, patents
Financial and market risks	Inflation and currency risk*Most material risks in each category.
	Financial equity risk
	Risk relating to the impairment of intangible assets