4.1.3 Double materiality assessment: mapping impacts, risks and opportunities
4.1.3.1 Methodology
In preparation for the implementation of the CSRD, L'Oréal updated its double materiality assessment together with its stakeholders. This process, informed by regular dialogue over many years (see section 4.1.3.2) and based on in-depth interviews, enabled the Group to incorporate different points of view and better identify and prioritise material topics.
The scope of the analysis covers the entire L'Oréal Groupe, i.e., all its entities and activities with no exceptions. Following the acquisition of Aēsop in the third quarter of 2023, L'Oréal has integrated the new brand based on a comparison with the double materiality assessment performed prior to its acquisition.
The double materiality assessment is based on two dimensions:
- Impact materiality: analysis of the positive or negative gross impacts of the Group's operations and value chain on the environment and people, taking into account the severity, scope and likelihood of remediation. L'Oréal's dependency on natural, human and social resources is also assessed in this context to understand the potential origin of impacts;
- Financial materiality: reflects the sustainability-related gross risks and opportunities and their potential impact on financial performance in the short, medium and long term, taking into account the effects on costs, revenues and access to finance. An analysis of dependency on natural, human and social resources is included in this dimension. Each dependency is systematically analysed to determine whether it represents a risk (exposure to potential disruptions) or an opportunity (stimulating innovation and developing sustainable solutions to improve financial performance).
The double materiality assessment was conducted using the five-step methodology set out below. Note that this process of identifying and assessing sustainability risks in accordance with GOV-5 is integrated into the Group's overall risk management process (see section 3.4).
- Documentary analysis: review of internal (previous single and double materiality assessments, sustainability strategy, risk map assessment) and external documents (the European Sustainability Reporting Standards [ESRS], industry analysis, non-financial ratings, consumer and employee surveys, etc.) in order to understand the risks and opportunities related to L'Oréal's activity and their impact.
- Identification of impacts, risks and opportunities (IROs): working with a specialist consultancy, L'Oréal identified and defined the positive and negative impacts, dependencies, risks and opportunities related to its operations and value chain. It then categorised them based on the ESRS framework and fine-tuned them in consultation with internal and external experts.
- Assessment and rating: a robust quantitative rating methodology was used to assess the materiality of each impact, risk and opportunity, considering various time horizons (short-term: 1 to 3 years; medium-term: 3 to 5 years; and long-term: beyond 5 years). A materiality threshold was used to identify the most important issues.
- Stakeholder consultation: the preliminary findings of the double materiality assessment were dry run with more than 45 external stakeholders (investors, NGOs, distributors, industry associations, suppliers, etc.) and internal experts (e.g., top management, sustainability experts, etc.) in dedicated interviews. These discussions enabled the findings to be validated, gain an outside-in perspective on the issues and identify areas for improvement, as well as ensuring that different points of view were taken into account.
- Validation and reporting: the final results, including the materiality threshold and the list of relevant topics, were validated by the project governance bodies, including:
- the Steering Committee, made up of key executives that monitored and directed the materiality assessment,
- the Management Committee, a multidisciplinary committee that facilitated the comprehensive and exhaustive approach to identifying material matters,
- Executive Management, including representatives of the sustainability, finance, legal, innovation, operations and human relations functions, which validated the final assessment, including the materiality thresholds, and
- the Board of Directors, through the Audit Committee, which reviewed the materiality assessment, ensured that it was consistent with L'Oréal's overall strategy and gave account to the Board.
The TCFD (Task Force on Climate-related Financial Disclosures) and TNFD (Taskforce on Nature-related Financial Disclosures) framework methodologies were used to carry out in-depth analyses on climate-related and nature-related issues, respectively, to perform a more detailed assessment of their materiality.
