Sustainability & Circular Economy – Cosmetics Industry

Expert Profile

Section 1: Current Strategy

1.1. How important is sustainability in your business?

Actually it’s critical. There are multiple facets to this thing. One is from the consumer market perspective, especially when we’re dealing with a premium brand, a prestige brand that’s out on the market. When consumer consciousness is raised towards a certain direction from a marketing standpoint, and a brand positioning standpoint within that market, that movement becomes key and critical. So, it’s the primary driver. The customers will actually drive these types of initiatives that are out there. The customer basically wants to be more sustainable, more eco-friendly, more green friendly, and moving forward that way.

Second of all, it is basically the federal and international regulations. Whether it’s basically the FDA, EPA, and European REACH that basically driving the initiatives with regards to that, and also the federal governments, whether it be in the EU or in the USA, or globally, that are setting the tone on this.

The third aspect of this is what’s the priority going forward into the future. Sustainability will probably be the most economical, feasible direction going forward. A primary concern is that if you go back to 2008, when you actually had the petroleum crisis. When petroleum was $120 a barrel, all the petrochemicals that were being made, the plastics that were coming out of this, the surfactants, and all the other petrochemicals, or chemicals that are based on petroleum, all the prices were increasing.

Now, the question comes up is what happens when the situation arises, where you actually come back to that and $120 a barrel will become the new normal. What do you do then? Best thing is to be proactive with regards to this. And it’s basically not only from pricing, but also the supply chain aspects of it, whether or not you will be able to basically acquire the chemicals that you would need, because if petroleum goes into this direction, energy wise, the petroleum will be basically directed for energy consumption, not necessarily chemical manufacturing, this will be for personal care manufacturing, that’s going to be on the bottom of the list, with regards to supply chain availability.

So that’s the problem that you’re actually facing with regards to all of us. So out of those three aspects, it’s all these things are being played together in that we have to move towards a sustainable direction. So, from the customer basis, from the market landscape, from the government standpoint, regulatory standpoint, and also from a supply chain standpoint.

1.1.1. How do you define sustainability?

Sustainability was defined in Estée Lauder in two aspects. This is when you look under the Estée Lauder product, you have the formula, the product that’s actually applied to your skin and to your hair. The other one is the packaging that goes behind it, or what is basically contained within the product, and basically shipped to the customer. The sustainability basically will be considered to be recycling, especially from the packaging standpoint, bio source, sustainably sourced. It’s basically bio sourcing using biological materials to make the products, or the materials themselves. Also, you have to be sustainably derived so you’re not chopping down the rainforest to get the sustainable materials and basically leaving a wasteland behind it.

1.2. What are your current sustainability priorities?

We’re looking at setting goal limits for recyclable materials and using sustainable materials in our products, and reach those goals by 2025. So, it’s the form itself and also the packaging itself and that’s on a weighted basis. From a packaging standpoint, that means the container, the box itself, and the wrapping that goes around the products, will be at a certain level being recyclable, or sustainably derived, and having a low carbon footprint with regards to a manufacturer.

1.2.1. How are these being monitored/measured?

The tracking is being conducted yearly, quarterly most of the time, and the pandemic basically put a damper on us, because it was hard to get everyone together initially. Annually, yes, because we have a five-year target, so the annual review occurs there, but with regards to the operations of actually doing this. This is basically monitored on a monthly to quarterly basis, and moving forward with regards to this, whether using replacement materials, more recycled based materials, the technologies behind that, making sure that they’re sustainable, and also from a regulatory standpoint, to maintain the traceability of the materials, to prove that they are sustainable, so they’re recycled, bio-sourced material, so on.

1.3. Who are the key internal & external stakeholders to engage with?

The internal stakeholders are basically at the corporate level. People sitting in the C-suite are the ones that basically are the final stakeholders. The owner of the company, has a stake in this, because it basically maintains the presence and image of Estée Lauder brands through global consumer marketplace. It’s effectively the same as not using animal testing for our products. That is a corporate standard that we actually hold on to.

With regards to external. The only ones that we actually had that are external are the federal governments, federal agencies, because they are the ones that basically set the regulatory mandate with regards to this. Especially for something like biodegradable plastics, which hasn’t been defined yet. The end customers are the ones who define what this means and are setting the standards. And that’s a difficult aspect of this, because at this point there is some regulatory rules that have to be followed, but in the end, it’s basically on your own. You actually have to define the targets yourself.

What you’re hoping for is that your targets will somehow align with future regulatory laws, and requirements going forward. That’s not necessarily the case, but you are hedging your bets and doing this, so that’s where you’d be starting. Looking at sustainability movements tends to be a very nebulous, but a very broad front movement as no one is necessarily sure what the governments will actually mandate as being sustainable. It’s like France, maybe two years ago, where they literally banned polystyrene in products and packaging anywhere across the board.

That means the EU can’t use it because you can’t sell it to the French market. In the US that’s been carried over because now the EU is following suit, and you lose your European market if you have a polystyrene in your packaging, or in your products, so that has to go. That’s the cascade effect. No one really knows what will happen. What’s the next development? This is why everyone is being proactive with regards to this, especially in the US because what’s driving this is the US brands, the US companies do not want to lose the European market, just because the European region, the EU decide that they’re banning certain plastics, or they’re putting tighter restrictions on their compositions and maybe being more sustainable, because if the US doesn’t do it, they lose the European market completely. They can’t sell their products there.

1.4. What are your current sustainability initiatives?

We are actually looking at plastic in two ways. One is recycling. At this point, the current industry standard is like 5-10% of material by weight in a plastic body is actually recycled material. The balance is basically virgin plastic material that’s being used for the first time. We need to get that up to about 40%, and we’re moving towards that direction. 40% or maybe 60% of the plastic body will be recycled material.

The other one is actually using bio source plastics, so bio-plastics. Whether it’s PLA, PHA, or any of the other new technologies and chemistries that are coming online with regards to this. The other ones is actually using more of the bio-polymers themselves. Using more starch, or cellulose, plant based derived polymers to actually fill in into the plastic bodies. Moving to paper or fiber, basically wood-based materials, or basically using sustainable recycled wood, and paper, cardboard, so on, so forth. And then basically moving away from plastics to other materials that we could use.

And sort of using polypropylene and polyethylene films, we go back to what they were using back in the ’40s and ’50s, when they were using cellophane, which is a cellular-based material mixed with a bio-source. With regards to the formulary, we are moving away from petrochemicals, moving to more natural based materials that are sustainably sourced. That’s the key thing. So basically, you could be using palm oil, but it can’t be conflict palm oil in your formulary.

Section 2: Future Strategy & Challenges

2.1. What changes will be made to the operational model to further sustainability?

It means moving the whole organization to a more sustainable, a low carbon footprint presence, basically from manufacturing, but also with regards to consumer consciousness. Effectively going out there, and sending the message with regards to recycling the materials that you actually have in the packaging. Basically saying that, yes, the material that you have in your hands, when you buy a Estée Lauder product, is a sustainable product, in regards to recycling, bio-sourced materials, sustainably sourced materials, so on and so forth, but you have to do your part in actually contributing to this so that the packaging gets re-sourced. And, the formulas that you actually use are basically disposed of in the proper way, so on and so forth with regards to that.

But corporate consciousness is basically running into how much air travel we are using. The pandemic actually helped. Travel by air is basically then cut down almost by 90%. Operations outside of manufacturing, have minimized our carbon footprint, and energy consumption and so on and so forth. It was basically very interconnected, holistic type of campaign.

2.1.1. What resources will be needed to motivate this change?

It’s an internal and external marketing campaign, and Estée Lauder is good at that. Effectively it’s raising the consciousness with regards to this, because with regards to mitigating energy consumption, and basically carbon footprint, or carbon emissions standards, it’s similar to what they did in the seventies in the US during the oil crisis. The coined term of ‘save a lot of electricity,’ by turning off the lights when you don’t need them, minimizing travel, all of that and recycling the paper.

It’s raising the consciousness that way, and then projecting this marketing aspect of it to the consumer marketplace, for two reasons. One is to make them conscious of it, and basically show the consumer market that yes, we are on path with regards to the strategy to becoming more sustainable. So, everyone’s falling in line with us. Within any industry, you can see it at Unilever where they actually made that mandate with regards to using sustainable materials, like 80, 90% for all products, including packaging within about five, 10 years. L’Oreal Paris, the same thing, especially they’re very overt campaign against conflict palm oil. We’re doing the same thing.

2.2. How will technology such as IoT, AI/ML, product innovation help move towards a circular economy?

It’s primarily chemistries, because if you start looking at what sustainability is, and what is the ugliest culprit with regards to sustainability, it’s petroleum. It’s petrochemicals that are in there. Nearly all the plastics that are being used are petrochemical based. Most of the formulary that you actually have use petrochemical based chemicals as well.

It’s basically moving away from petroleum. Making the substitute chemistries and technologies from petroleum, because once you move from that is you basically moving to more of a natural based chemistries. Even if there’s synthetic chemistries, the raw materials that you’re using for those chemistries are naturally sourced. So, you basically moved away from petroleum. That’s sort of the key technology move that needs to happen, and actually is happening right now. Everything else from that, it’s basically energy consumption it’s basically how would you generate energy.

Whether it’s from wind solar, thermal, and maybe push to shove, it might be ugly, but basically going nuclear. Those are the key technologies that actually need from a circular sustainable economy. The other aspect to this is logistically the recycling technology. Yes, you have plastics. You’re not going to phase plastics out. It’s not going to happen overnight. The only way to handle it is actually to recycle those plastic materials and to purify those plastic materials, so that the plastic that you have at the end of it, operates at the same performance level as virgin plastic material that’s being used for the first time.

That’s the key thing, because what happens with recycled plastics, why people say recycled, but they kind of cringe about it, is that the performance, the ingenuity performance envelope for recycled plastics is not as high as virgin material. If you hold a plastic bottle, that’s, let’s say 100% recycled, it may have a tendency of cracking if you squeeze it a little too hard. People don’t want that, or like that with regards to basically consumer products, or personal care products. When you squeeze your shampoo bottle, you’re not expecting this thing to crack, or shatter on you. That could happen with a fully recycled material. You actually have to process that recycled material to purify it. That’s the technology.

2.3. What would be the impact of achieving targets?

The first impact is the marketing position of that brand, of Estée Lauder brands within the marketplace, because it’s already happening in Europe, and US is following suit with regards to this. The consumers will be expecting the products to be sustainable, and that’s going to be the driver. And could be a purchase decision as to which brands, they actually will buy and support and which ones they won’t.

Second aspect with regards to the sustainability part is from a supply chain concern, is how long are we going to be able to operate in a very free wheel type of scenario where we can get any type of raw material chemical at an affordable economic price that we can actually use? Not necessarily at random, but without constraint. We can consume and basically use anything and everything that we want at any quantity that we want, at any expense to the environment, and to nature, and earth, and everything else like that. That is going to be a problem from a supply chain standpoint, because, there’s only X amount of raw material that actually exists on the planet. If you consume it all completely, you’re not going to have it anymore. And before that, when it becomes a little bit more scarce, the prices are going to be going up, because the demand is still going to be there, and it becomes economically or business unsustainable.

That’s the other aspect of it. It’s like I mentioned, with regards to petroleum once it becomes scarce. It’s not that there’s not going to be any gasoline out in the world anymore. If gasoline is going to be priced in the US at $6 a gallon, that’s not economically sustainable. That becomes a major problem. So what do you do then? You have to be proactive before that type of scenario happens.

2.4. What are they key challenges for developing a circular economy?

There are multiple challenges and it exists at different levels; from a technical level; on the government level; and on the consumer, or the general population level. The technology level is where you have to get the technologies to create the sustainable materials, and the sustainable process that have a low carbon footprint, the energy sources. All of that integrated together in tandem fairly quickly because global warming is not stopping.

Now, the question comes up, is the strategy going forward, how do you go about doing this? Because if you look at the scenario right now, everyone knows where the targets should be, right? It’s the path getting there, and everyone’s doing this pseudo independently, because there’s no real government or federal strategy moving forward. Industrial strategy, or the industry strategy is basically depending on what part of the industry you’re sitting in, and the philosophy. That becomes a problem, because some companies are resistant, moving into a sustainable economy, or circular economy.

Other ones are, but there is no overall arching strategy moving forward. Everyone’s sort of doing this pseudo independently and getting there. Will we get there? Yes. It’s going to be like a random walk in the sense that you will get there, but it may take longer because we’re trying out all of these other technologies, trying to pull it together to create something. This is going to take a little bit longer, because there’s no overall strategy or plan how to get there. The other aspect behind this, and this is why everyone’s wandering around and doing this very broad scope aspect of this, is no one knows what the federal regulations are going to be.

The French government banning polystyrene was a bombshell, and no one knows what’s going to be happening. If you look at Italy. Italy has a federal law stating that garbage bags have to be sustainable and biodegradable. They’re actually putting starch inside their plastic material to make it more bio sustainable and biodegradable. That happened within one year, and that was like in 2019. That’s the problem, and issue that you’re facing, because now the governments can easily jump up and say, we’re doing this. So, you have one year to do it, and you have to be ready for that. That’s the other dimension or problem that we have. Because there’s no overall strategic picture as to how to get there.

The customer base is also the same thing. It’s basically, you have to get everyone on board. It’s not just so people talking about it, because talk is cheap. Is everyone doing it? So actually being sustainable to create that economy, because you can have industry onboard, you can have the federal government on board, but if the customers are still not onboard, and they’re basically throwing out their plastics, dumping them into the ocean, rather than recycling, it’s kind of counterproductive. You have to get everyone, literally everyone globally doing this.

The thing is, is that, you’re going to be doing this. US will follow doing this, but if Asia doesn’t do this, then it’s counter productive as they say. Because you have parts of the world that are doing it, but you have the region that has the largest global population, Asia is not following suit, then basically it’s like a drop in the bucket. That’s the other problem or challenge that you’re looking at. So those are the three levels that you’re actually looking at. Industry, government, and the general population.

2.4.1. How quickly can cosmetics companies react to regulatory changes?

The governments can make the regulations and laws, but you have to have the technology in place to do this. That’s the key problem because, with regards to purifying recycling plastics. You have PureCycle and other new startups, new venture organizations that are doing this. It’s going to take time for them to get up to speed. That’s the problem and issues that you’re running into.

If the governments slap on laws and regulations, you only wait to comply with all of this right here is you’re going to have to go through a retrograde move over things in packaging. You’re going to be looking at packaging design that looks like it came from the ’40s, ’50s, and ’60s. All the chic presentations that you have in packaging that you currently see now are going to vanish.

And going back to what your grandmother was dealing with back in the ’40s, ’50s, and ’60s. That’s what’s going to happen if you have a government that slaps on the laws and regulations down immediately, and basically says, you have a year, year and a half to comply. We can always do the 1940s, but the consumers are going to have to basically understand that, yes, this is what you wanted, and this is where we’re going to go. Technology is not in place yet to have your creature comforts, and what your expectation levels are, and desire levels are. You’re going to have to sacrifice, and that basically means, your packaging is not going to look as sexy as it did before.