The beauty industry is one of the biggest and most constantly adapting industries in the U.S., generating $511 billion dollars in 2021. Following the COVID-19 pandemic, we’ve begun to see investor interest in beauty shift toward valuing business resilience over bottom-line profits. The need for a more sustainable beauty industry is now more important than ever, and consumer expectations are driving this change in big beauty brand companies.
Consumers are becoming increasingly aware of brand ethics and sustainable practices when purchasing goods, often not even buying from a brand that lacks these values. As demand increases for sustainable products, beauty brands are starting to recognize the economic and social opportunities stemming from sustainability.
Secondly, there is increasing investor interest in environmentally ethical brands because of the growing consumer demand. This is where ESG (Environmental, Social and Governance) evaluation comes into play. ESG is the process of looking at non-financial internal and external components of a business. High ESG companies will be successful in things like sustainable practices, employee benefits, diversity, and customer satisfaction. Since consumers are demanding more ethical practices in companies, investor interest will grow in highly ranked ESG businesses, too.
The need to meet consumer expectations and demands, coupled with investor appeal for highly ranked ESG businesses, are significant factors in the shift to a more sustainable beauty industry.
Start of the Transition
The beauty industry produces over 120 billion units of packaging every year, with only 9% of plastics being recycled, resulting in beauty product-filled landfills. However, packaging is not the only culprit. Microplastic, like glitter and exfoliants, fill our oceans, and hair sprays and fragrances contribute to VOC pollutants leading to smog. Easily stated, the beauty industry is not sustainable and heavily contributes to our pollution problems.
While we’ve seen a recent shift in increased consumer-demanded sustainability, smaller companies have been leaning into sustainability for decades. The popularization of the smaller brands led to the realization that there was economic opportunity for beauty superpowers in sustainability. For example, a UK study says that more than 40% of women would pay more for a product if the packaging was eco-friendly. With this realization, big beauty brands started to slowly get more involved. Recently, Colgate-Palmolive, Johnson and Johnson Consumer, Unilever, and L’Oréal have committed to making all their plastic packaging reusable, compostable, or recyclable by 2025.
With this increased focus from consumers toward sustainable brands, there’s been an increase in ESG investment, too. Companies with programs toward decreasing carbon emissions, deforestation, waste management, and air and water pollution are given more points on the ESG scale – and a high ESG score can benefit business by establishing the company’s success in social responsibility performance.
This recognition is attractive to investors because it means that the company does well at retaining good employees and maximizing productivity. Some successful beauty companies in the recent ESG rankings include Kao, P&G beauty, and Estee Lauder. Highly ranked ESG companies drive business through investment, teaching companies that sustainability can not only meet consumer expectations, but it can also lead to increased revenue and support from investors.
Sustainable Manufacturing and Packaging
What does this industry shift toward sustainability look like from a manufacturing standpoint? The three main environmental goals of the beauty industry are incorporating natural ingredients, using biodegradable or recyclable packaging, and relying on renewable energy for manufacturing. The transition into sustainable manufacturing practices, while important, is going to require investment and innovation.
Although renewable energy is cleaner and cheaper, the transition to renewable energy is going to be expensive. Building infrastructure that generates renewable energy is going to require a significant amount of money upfront. However, renewable energy is more cost effective than non-renewable energy, so, the investment should pay off in the long term.
The same concept applies to switching to sustainable packaging. The switch to eco-friendly packaging can cost a company 25% more than traditional packaging plus it may struggle with durability in the distribution process. Barbara Paldus, founder of Codex Beauty Labs, says, “It takes great force of will to make sustainable packaging.”
There are also a number of benefits to switching to eco-friendly packing other than just environmental. For example, the guarantee that there will be consumer demand – specifically, consumers that only purchase eco-friendly products – can drive brand loyalty. Moreover, the switch to eco-friendly packaging can also lead to an expansion of the market base, as consumers are willing to spend extra on an eco-friendly product.
Moving Forward with Sustainability in the Beauty Industry
As companies transition into more sustainable beauty practices, they’ll need to be strategic in their approach to ensure long-term success and profitability. Only now, there is not just an intrinsic motivation to help the environment, but there are profitable opportunities in sustainability. Time and money will need to be invested to implement new systems and discover innovative solutions. Despite the cost of upfront investment, not engaging in sustainable practices could be more expensive in the long term.
As new companies experiment with moving into sustainability, they need to assess their strengths and weaknesses within manufacturing and distribution process. Businesses will maximize productivity through ethical business practices, which involves improving your business internally. Working toward sustainability will influence your company’s role in the betterment of our environment and culture.
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Contributions by Leah Harding