Q&A: Navigating environmental risks and market shifts in the cosmetics industry

As consumer demand for natural and sustainable products continues to rise, the cosmetics industry faces increasing pressure to balance environmental stewardship with operational stability, and must navigate a complex landscape of risks.

In this CosmeticsDesign Q&A, Auriane Bodivit, Sustainability Consultant, and Emmanuel Hembert, Global Head of Cosmetics, Personal Care & Pharma at Quantis Consulting explore the challenges and offer strategies to ensure resilience and sustainability in ingredient sourcing and business practices.

CDU: How does the cosmetics industry's growing demand for nature-derived ingredients heighten environmental and operational risks, and could you provide specific examples of how companies might experience this? ​ 

Emmanuel Hembert (EH)​: Over the past five years, cosmetics companies have faced multiple crises related to ingredient availability, leading to sharp price increases, supply disruptions, and sales losses. The industry is already grappling with operational risks like supply chain disruptions and price volatility due to droughts, floods, and other environmental factors.

However, the growing demand for nature-derived ingredients exacerbates these challenges, as environmental degradation and climate change lead to changes in yields, shifts in optimal production zones, and potential increased exposure to extreme events, all of which threaten the stability of company operations. 

Almond, for instance, is a common ingredient in skin care formulas, with the majority of global production located in California. But demand for almond is starting to exceed supply as dairy companies enter the plant-based market. Without enough bees to pollinate the almond trees and increased pressure on water resources in the area, companies will face significant supply issues.    

CDU: What strategies or best practices should cosmetics companies implement to mitigate these risks while maintaining their commitment to natural ingredients?​ 

EH​: To mitigate nature-related risks, here are a few examples of actions companies could take: 

• Conduct nature risk assessments​: Identify environmental hotpots and vulnerable areas in their supply chains to tackle as a priority and drive action. 
• Diversify sourcing​: Review sourcing portfolio to support the shifting of practices in high-risk geographies, reduce reliance on high-risk ingredients, identifying potential alternatives where possible and relevant. 
• Ecodesign and reformulation​: Redesign products to either substitute high-risk ingredients or remove them from low-performing products. Decomplexify recipes where possible. Optimize packaging to product ratio to reduce packaging raw materials. 
• Increase traceability​: Engage internal procurement teams and suppliers to identify the means to increase traceability across commodity value chains and better understand sourcing practices and sustainability impacts. 
• Supplier engagement​: Collaborate with key suppliers, support regenerative agriculture, and implement strict certification and auditing.  
• Scenario planning​: Assess supply chain exposure to environmental change under different future scenarios. 

CDU: How are extreme weather events, shrinking land availability, and tightening regulations impacting the supply chain for plant-based ingredients? ​ 

EH​: Extreme weather events and shrinking land availability are affecting both the production of raw materials — by reducing yields, shifting areas of production, and impacting availability — and disrupting supply chain logistics. This is compounded by competition with other industries, such as food, for the same resources.

For instance, recent droughts in the Panama Canal and floods in Southeast Asia have caused significant trade disruptions, just as the Rhine traffic slowdown in 2022 impacted the transportation of essential raw materials. 

Tightening regulations are driving companies to improve traceability, often requiring certified sources. However, certified supply may not always meet demand, necessitating better supply chain planning, diversification and resilience-building to manage these risks. 

CDU: How do you see companies adjusting to these challenges, and what innovative solutions are emerging to ensure stable ingredient sourcing?​ 

Auriane Bodivit (AB)​: Following the example of leaders in the food industry, some cosmetics companies are adopting regenerative agriculture practices. This approach helps regenerate soil health, increases biodiversity, optimizes water cycles, and builds soil resilience against environmental fluctuations, ensuring more sustainable natural ingredient sourcing. 

CDU: With the growing reliance on bio-based feedstocks, essential oils, and plant extracts, how do you foresee the sector coping with potential shortages or price fluctuations of these materials? ​ 

AB​: With the growing reliance on bio-based feedstocks, essential oils, and plant extracts, Cosmetics companies may need to absorb short term price increases, but supply shortages pose a greater threat, impacting production and sales. To cope, companies are increasingly launching programs to identify natural substitutes or redesign products to eliminate high-risk ingredients. 

CDU: What role could alternative bio-based feedstocks or synthetic biology play in securing sustainable supplies of nature-derived ingredients for the cosmetics industry?​ 

AB​: Alternative bio-based feedstocks and synthetic biology could help secure sustainable supplies, but neither offers a straightforward solution. Bio-based feedstocks face competition with higher-priority industries like food, creating potential trade-offs.

For synthetic biology, consumer acceptance and regulatory hurdles remain uncertain, especially in regions like Europe, where, for example, there has been strong resistance to GMOs. 

The key is not simply switching feedstocks but developing a comprehensive strategy. This includes improving practices across the value chain, anticipating future risks, and diversifying ingredient sourcing with a focus on agricultural practices. These efforts are essential for ensuring long-term sustainability while carefully balancing nature-related trade-offs. 

CDU: Why is it critical for companies to incorporate nature as a core component of their business strategies, on par with traditional KPIs? ​ 

EH​: Incorporating nature as a core component of companies’ business strategies is critical because the evolving nature crisis is no longer just a risk – it's becoming a concrete business constraint that cannot be ignored. With the cosmetics industry’s embrace of “natural beauty”, nature has become an integral input into the business model.

As such, environmental sustainability must be prioritized alongside traditional KPIs.  

Investors are increasingly scrutinizing companies’ environmental impacts, dependencies, and how they disclose and manage related risks. What might seem like short-term costs to companies are, in fact, long-term investments in resilience, compliance with regulations, and meeting investor expectations for sustainable practices. And the cost of inaction is increasing. 

CDU: Could you provide examples of specific key performance indicators (KPIs) that cosmetics companies should adopt to measure their impact on nature and sustainability efforts?​ 

AB​: Cosmetics companies can adopt the following KPIs to measure their impact on nature and sustainability efforts: 

• Water use​: Monitor water withdrawals (m³) at both company and supplier sites. 
• Water pollution​: Monitor the quantity and use of hazardous substances and substances of concern. 
• Land use and land-use change​: Measure the area (m²) occupied at company sites and suppliers’ locations, as well as any land converted since 2020. 
• Evaluate the share of commodities in the high-impact commodities list. 
• Define the share of suppliers implementing regenerative agriculture practices. 

CDU: How do you see regulations around the use of natural ingredients evolving in the next few years, and what should cosmetics companies do now to stay ahead of stricter environmental and operational standards?​ 

EH​: Regulations around natural ingredients are likely to tighten in the coming years, focusing on sustainability, traceability, and environmental impact. Beyond compliance, reputation is also at stake.

To stay ahead, cosmetics companies should adopt the highest global standards now, even in regions where regulations are still developing. Leading companies are already proactively mapping regulatory landscapes, updating their practices to ensure compliance, and safeguarding operational continuity, minimizing the risk of reputational damage and business disruption.