Author: Auriane Bodivit

In brief:

• Over the past four decades, the cosmetics industry has increasingly moved towards natural products, following the success of trailblazing brands in the natural beauty space. As the demand for products with natural ingredients grows, companies are increasingly replacing chemical- and animal-based ingredients with plant-based molecules, allowing brands to position themselves as “natural” among consumers. 

• The cosmetics industry’s shift to nature-derived ingredients exacerbates environmental and operational risk exposures. In order to thrive, cosmetics companies must now actively manage their nature impacts and dependencies. 

• Market conditions have changed, with extreme weather, shrinking land availability and stricter regulations all impacting supply. Further, beauty brands risk damaging their image if their value chain impacts contradict their claims.  

• With the industry’s future at stake, cosmetics companies can no longer afford to ignore nature. It must become a pillar of the business strategy, carrying just as much weight as other priorities and KPIs.  

• By embedding nature across the organization and establishing incentive frameworks, cosmetics companies can ignite the transformation of their value chains and business models for a resilient future. 

Despite the ongoing cost-of-living crisis and slow economic recovery post-pandemic, the cosmetics market is enjoying steady growth. While not necessarily recession-proof, the industry is finding innovative ways to connect with customers and drive sales. 

One trend that has proven particularly beneficial to the industry is the steady rise in demand for products perceived by consumers as “cleaner”, since they’re derived from natural ingredients. However, by increasing pressures on ecosystems, this move can also affect the availability of natural resources and services within the industry’s supply chains. And that ought to be keeping executives up at night. 

The cosmetics sector depends heavily on natural ingredients to develop its products, including essential oils, and plant extracts. And with more consumers seeking natural ingredients, the need for bio-based feedstocks has exploded.  

Some ingredients, such as essential oils, are also linked to more industrialized cultivation practices. And in Europe alone, imports of plant-based oils for the cosmetics industry grew by 12% per year in value between 2018 and 2022. A lot is at stake – not just for the planet, but for companies, too. With the accelerating environmental crisis comes lower yields, decreased water availability, pollination decline and a myriad of risks to the sector’s ability to secure supply. 

Now, the solution isn’t as simple as switching to synthetic sources, which come with their own set of impacts and challenges. The bottom line: if cosmetics companies are to safeguard the business, nature is an issue they can’t afford to ignore. 

Navigating the interdependence of nature and cosmetics 

Ecosystem changes brought about by the climate and nature crises are affecting the growth conditions for many natural ingredients. For example, the decline of mangrove forests – which play a crucial role in protecting coastal areas and provide essential ecosystem services – directly affects the availability of certain ingredients commonly used in cosmetics. Extreme weather events, shifts in climate zones and increased frequency of droughts and floods can affect productivity, disrupting supply chains and increasing price volatility. Poor olive oil harvests in Southern Europe caused by extreme heatwaves and droughts have led to a 25% increase in the price of olive oil derived squalane – an ingredient in high demand for skin care.  

With the industry’s future dependent on thriving ecosystems, there’s a significant opportunity for companies to seize if they anticipate, adapt and mitigate their pressures on nature and transform their business models for resilience. If companies and governments are to stand any chance of bridging the gap to meet net zero ambitions, we need to account for nature alongside greenhouse gas emissions, since climate and nature are two sides of the same coin. 

The push for transparency and environmental accountability in cosmetics  

Cosmetics brands face heightened scrutiny when it comes to value chain practices and responsible sourcing. Consumers want to know what they’re putting on their bodies. They’re paying more attention to the ingredient lists on the products they use, looking at where and how they have been sourced. Further, nature loss, like water shortages, is often more visible and feels more immediately impactful than the broader effects of climate change. This enhanced interest – not only from consumers, but from civil society organizations and investors, too – makes addressing the environmental impact of cosmetics products (whether ingredients are synthetic or natural) all the more pressing. Brands with actions that contradict their claims when it comes to nature risk damaging their image. 

Guided by the global Kunming-Montreal Global Biodiversity Framework – adopted by UN Parties to collectively reverse biodiversity loss by 2030 – incoming regulation to tackle nature-based topics will help to focus corporate minds. The Corporate Sustainability Reporting Directive (CSRD), which requires all listed companies active in the European Union to disclose more robust social and environmental information, goes beyond climate to include biodiversity assessment requirements. Though the work doesn’t end at reporting – and companies shouldn’t divert resources from the actual efforts to implement initiatives and bring down environmental impacts. 

In parallel, new frameworks are being developed to support companies in bridging science and business decision making, and to help them understand what aligning with planetary boundaries means for their company. The recently launched science-based targets for nature by the Science Based Targets Network (SBTN) will enable firms to set more ambitious and measurable targets on both climate and nature in tandem. And the Taskforce on Nature-related Financial Disclosures (TNFD) offers guidance for reporting and acting on nature-related dependencies, impacts, risks and opportunities. 

So far, progress has been slow across all industries. The vast majority of companies aren’t measuring nature impacts at all. According to the latest data from the World Benchmarking Alliance, of the more than 800 large businesses across 20 industries it analyzed, just 5% of them assess and disclose how their operations impact nature. While 29% of firms report water use reductions or disclose water usage from water-stressed areas, only 15% are reporting metrics on discharged pollutants, and just 4% have set targets to reduce them.

Cosmetics brands can no longer ignore nature

But for the cosmetics industry, ignoring nature is no longer an option. A few industry leaders have understood what’s at stake and are taking it seriously, but it’s time for all companies to ensure nature is at the heart of their growth strategies. 

Ultimately, they need to understand, identify, anticipate, adapt to and mitigate nature-related impacts and risks. This requires concrete and strategic action plans and roadmaps based on ambitious science-based targets that go way beyond simply reporting and disclosure. Full engagement around moving to a sustainable business model, both internally and along the value chain, including with partners, suppliers and customers, will help set a company on a path of transformation. 

Identify critical nature dependencies and vulnerabilities of your company and products. This involves mapping out the supply chains and understanding where the dependencies lie, such as the reliance on specific natural ingredients or water-intensive processes. Recognizing these dependencies is crucial for developing targeted strategies to address them. Almond, for instance, is a common ingredient in skin care formulas, with 85% of global production located in California. But demand for almond is starting to exceed supply as dairy companies launch more plant-based “milks”. Without enough bees to pollinate the almond trees and increased pressure on water resources in the area, companies will face significant supply issues.   

Reporting alone is insufficient; companies must make nature part of the overall business strategy and action plan. To drive resilience, companies must not only acknowledge their impacts and dependencies on nature but work proactively to address them. They need comprehensive action plans that prioritize the preservation of biodiversity and natural resources in the supply chain — and these plans should be embedded into the company’s broader business objectives, ensuring that protecting and restoring nature is a fundamental aspect of decision-making processes across all levels of the organization. 

Develop action plans to mitigate identified risks and reduce dependencies, particularly by supporting changes to practices across the supply chain. In a recent assessment of a global cosmetics company’s nature dependencies, Quantis identified three plant-based ingredients with no existing natural substitutes, which are vulnerable to environmental challenges and represent 20% of the company’s sales. Once vulnerabilities like these are identified, companies should create detailed action plans aimed at mitigating these risks. A priority should be supporting shifts in practices along the value chain to increase supply chain resiliency instead of sourcing from a different location (which could simply transfer impacts to another region). This might look like enabling the adoption of regenerative agriculture, for instance.

To further safeguard against environmental risks, implement risk mitigation strategies recommended by environmental organizations like UNEP. This includes diversifying sourcing regions to avoid overexploitation of specific areas and investing in climate-resilient crops that can withstand changing climatic conditions. Such strategies not only protect the company from supply disruptions but also promote sustainable agricultural practices. 

Engage internal stakeholders across departments to understand priority actions and levers. Internal engagement is critical for driving the company-wide adoption of sustainability. By involving various departments such as procurement, operations, finance and local sites, companies can ensure that sustainability becomes a shared responsibility.  

Initiate open conversations to establish stakeholder transparency. Establishing transparent and open dialogue with all stakeholders, including customers, regulators, and business partners, is essential for building trust and accountability. This transparency can also foster collaborative efforts towards sustainability. 

Align product portfolios with local operating and consuming conditions and revisit your business model. In the face of growing environmental concerns, cosmetics companies need to return to their core purpose by offering products that are not only innovative but also sustainable. This means developing product portfolios that are in harmony with the local operating conditions and planetary boundaries. But the work doesn’t end here. Cosmetics companies must think “big picture” when it comes to their business models, exploring ways to decouple growth from resource use and shifting consumer demand. 

As consumer preferences continue to gravitate towards transparent, sustainability-minded brands, it’s up to the cosmetics industry to start working with — not against — nature. Embedding nature at the heart of their business strategies is the only way the industry can effectively enhance its resilience in the face of both a climate and nature crisis and ensure sustainability in the long run.