Natural capital simply refers to the parts of nature that produce the resources, materials and ‘services’ (for example crop pollination and water filtration), which underpin the success of our societies and the health of our economies.
All industries depend on raw materials and ecosystem services, and the cosmetics sector is no different. In fact, due to their reliance on cultivated flora – sometimes rare or largely uncommercial varieties – they can be particularly at risk.
Take the example of Chanel No 5. Each bottle contains around 1,000 jasmine flowers. To ensure a high quality flower, Chanel and their growers depend on healthy soil, unpolluted water, a climate that brings regular rains, and insects that pollinate plants. They also depend on habitats to sustain these pollinating insects, landscapes that filter water, organisms and processes that cycle nutrients back into their fields, and so on.
The raw materials found in cosmetics can be highly specialised and localised. The jasmine that goes into Chanel No 5 for instance, comes in its entirety from a single farm. Essential oils commonly used to make fragrances such as jasmine, rose, iris, vanilla, sandalwood and lavender cannot be created in labs, and no man-made alternatives exist. The same is true of many other natural ingredients used in the production of cosmetics. In this way, the success of many of these organisations is deeply entwined with the health of the ecosystems that produce their rare and exceptional ingredients.
The risk to the industry continues to grow as the environments on which they depend continue to dwindle and degrade. Both the quality and the cost of these materials are deeply sensitive to changes in agriculture, climate, weather, pest species populations and disease. As products become scarcer, luxury brands in particular can also find themselves competing for rare or exotic materials, driving up prices and incentivising the rapid and unsustainable depletion of remaining stocks.
To combat this, some companies are racing to understanding the relationships between nature (natural capital), their businesses and the communities (social and human capital) they rely on to cultivate and purchase their products.
Haiti for example produces half the world’s supply of vetiver. Vetiver roots yield an essential oil with a unique dry fragrance which Haitians call the “essence of tranquillity”. In 2012, companies worked with producers to refurbish equipment and develop sustainable practices with 160 farmers across three Haitian villages. These villagers have now formed a cooperative and receive a guaranteed minimum price. In this way, a steady supply (and price) is maintained for manufacturers, Vetiver is cultivated sustainably with minimised environmental damage, and the farmers livelihoods are secured.
While companies have of course always been aware of similar risks, they have been steadily growing since the 1970s, and we’re now at a critical juncture. According to the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), land degradation through human activities is now undermining the well-being of at least 3.2 billion people. Between 1970 and 2012, the index of the average population size of wild land-based species of vertebrates that are critical to maintaining the ecosystems that allow for the cultivation of raw materials dropped by 38%, and freshwater species by 81%.
Businesses are quickly realising that through a better understanding of the way that they depend on nature and its complex systems, they are able to avoid risks and identify opportunities for efficiency, resilience and innovation.
It’s not just cosmetics that are derived from rare natural ingredients, or cultivated in unstable or developing nations that producers should be concerned with.
Consumers (especially those in the most lucrative developed markets) are ever more concerned with the ingredients (especially the use of artificial chemicals), packaging (especially the use of plastics), growing practices and supply chain policies of beauty and cosmetics companies.
One example of this in action is the recent consumer-led ban on plastic micro-beads in cosmetic products. Companies are noticing that leaders who commit early to changes are more successful in the long run as regulation and legislation is tightened. When the ban on micro-beads was announced, those who were listening to their customers’ concerns already had plans in place to phase them out. Organizations such as Johnson & Johnson, Unilever, and Procter & Gamble took smaller hits (and gained reputational advantages), while those that lagged found themselves scrambling to keep up and develop sustainable alternatives to minimise reputational damage and avoid losing market share.
As the global consensus continues to strengthen, and the public and private sectors alike strive to achieve the targets of the Paris Climate Accord and the UN Sustainable Development Goals, those organizations that fail to understand their relationship with nature will have a much larger challenge in weathering the storm.