PCHi 2024: Spotlighting ESG integration in China’s personal care sector

19 Mar 2024 --- Ahead of Personal Care & Home Ingredients (PCHi) 2024 at the Shanghai World Expo Exhibition & Convention Center in China, Personal Care Insights explores some of the sessions on the industry’s macro trends. 

This year, PCHi will showcase global and Asian launches from industry heavyweights such as dsm-firmenich, Givaudan, Lucas Meyer Cosmetics, Symrise and DSM.

Notable releases include a skin-illuminating serum, a natural and regenerative antioxidant and a 100% recombinant human elastin protein, shares the event provider. Over 50 new products will be displayed in areas like the New Product Showcase and Beauté Gourmet.

The conference will include nearly 200 presentations, including keynote and breakout sessions on policies and regulations, market trends, clinical dermatology, formulation R&D, hair and scalp care and efficacy evaluation. The Plenary Session will be delivered in Chinese and English.

Wen Li, the head of the Research Institute of the China Alliance of Social Value Investment (Shenzhen) from the Plenary Sessions, talks to us about how “ESG Facilitates the Sustainable Development of China’s Cosmetics Industry.” Li is an expert in ESG rating, sustainable finance and corporate social responsibility

How does the conversation about ESG in Asia differ from that in the West?
Li: ESG has become an international discourse but is always intertwined with different regions’ economic, political and cultural contexts. In Asian societies, particularly in East Asia, specific characteristics have emerged in the current stage, such as:According to Li, the sustainability shift is caused by changes in the regulatory environment, attention from responsible investors and a shift in purchase decision-making.

• Localization of ESG concerns: There is a greater emphasis on local and visible ESG issues. Local concerns take precedence when addressing sustainability matters.
• Pragmatism in dealing with trade-offs: Most people practicing sustainable principles cannot accept compromising the functionality and quality of the products.
• Pursuance over real-world impact: Priority is given to issues that can genuinely have environmental and social effects. There is generally limited acceptance for purely conceptual matters that lack practical application.

How does ESG help China’s cosmetics industry develop sustainably, and what are the key drivers of this shift?
Li: The domestic and international cosmetics industry has witnessed a growing awareness of sustainability over the past decades. It is now experiencing strong momentum in transitioning the business toward a more sustainable one. This shift, I hold, can be attributed to three major driving factors that work together to accelerate this industry trend. 

• The change in regulatory environment. Each aspect of the cosmetics industry, including development, production, transportation and sales, impacts the environment and society. In the past decade, the continuous introduction of global ESG-related policies has further regulated the development of the cosmetics sector and promoted its operation more sustainably.
• The attention from responsible investors. With the popularity of sustainable finance and ESG investing worldwide, numerous domestic and international investors, lenders and creditors have incorporated ESG assessments into their investing and financing processes. Banks have also introduced sustainable-themed financing instruments with favorable interest rates. Companies with better ESG performance now enjoy an advantage in the financial market.
• The shift in purchase decision-making. An increasing number of downstream manufacturers and distributors consider suppliers’ environmental, social, and governance performance as one of the evaluation criteria. Consumers’ preference for sustainable-labeled and environment-friendly products is also a vital driving force.

What are upcoming initiatives to integrate ESG principles into the cosmetics industry supply chain and operations?
Li: To integrate ESG considerations into business practices within the cosmetic industry, I’d like to emphasize the following key points as my advice:

• Enhance governance and accountability: ESG requires the commitment and support of top management. Establishing a formal ESG management structure is essential to embracing the concept. Individuals involved in this structure should assume responsibilities and fulfill their duties related to ESG issues.
• Integrate ESG into core business functions: ESG issues can have financial implications for a company regarding risks and opportunities. It is important to avoid perceiving ESG solely as acts of charity or brand marketing. Instead, a comprehensive business-oriented approach should be taken when formulating ESG strategies.
• Focus on value creation: The scope and emphasis of ESG strategies should be on creating value. Companies, regardless of their size, have specific organizational goals yet own limited resources. It is more legitimate to address key ESG issues and strive to generate economic, social or environmental value from them rather than dispersing resources excessively or investing in areas with little impact.
• Establish KPIs and targets: While ESG issues may seem intangible, they can be measured. To implement ESG strategies effectively, companies need to define specific indicators for assessing, monitoring and reviewing performance. Setting short- and long-term targets that align with the company’s ESG-related vision is also essential.

How is consumer awareness driving the adoption of ESG practices within the cosmetics sector in China?
Li: Consumer acceptance and active pursuit of sustainability are crucial drivers for the Chinese cosmetics industry to adopt ESG practices.PCHi will include nearly 200 presentations.

We have witnessed that after decades of rapid economic development, Chinese consumers no longer measure the value of goods solely based on price and functionality. Instead, increasing consumers view consumption as a way to showcase and practice their values. This trend is particularly evident in the cosmetics sector, which deals with every day but non-essential consumer goods. Market surveys indicate that approximately half of Chinese Millennial and Gen-Z consumers are willing to make additional payments for sustainability. 

The changing landscape of the demand side undoubtedly drives the transformation of the supply side, and we can’t wait to see more cosmetics companies sharing their sustainability stories in the future. 

In an upcoming report this week, Personal Care Insights will interview breakout session speakers from Pola Chemical Industries and LG H&H Co. about NAD+’s skin anti-aging efficacy and the impact of LINC00942 on cellular aging.

By Venya Patel