LOREAL_Registration_Document_2017

Corporate governance * RISK FACTORS AND CONTROL ENVIRONMENT

RISK FACTORS AND CONTROL ENVIRONMENT 2.8.

At the request of the Chairman and Chief Executive Officer and the Board of Directors, the Administration and Finance Division compiled the information contained in this Document based on the different types of work carried out by departments working on Internal Control and management of the Group’s risks which aims at covering the main operational, legal, industrial, environmental, economic and financial risks and to present the Internal Control and risk management procedures aimed at preventing them better and bringing them under control. DEFINITION AND OBJECTIVES OF 2.8.1. INTERNAL CONTROL Reference work 2.8.1.1. For the preparation and drafting of this Document and the definition of Internal Control, L’Oréal used the Reference Framework and its application guide initially published in January 2007, and updated on 22 July 2010 by the Autorité des Marchés Financiers (AMF). Internal Control Objectives 2.8.1.2. In L’Oréal, Internal Control is a system that applies to the Company and its consolidated subsidiaries (“the Group”) and aims at ensuring that: economic and financial targets are achieved in s compliance with the laws and regulations in force; the orientations set by General Management are followed; s the Group’s assets are valued and protected; s the Group’s financial and accounting information is reliable s and provides true and fair statements. By contributing to preventing and managing the risks to which the Group is exposed, the purpose of the Internal Control system is to enable the Group’s industrial and economic development to take place in a steady and sustainable manner in a control environment appropriate for the Group’s businesses. There are however limits inherent in any system and process. These limits result from a number of factors, in particular the uncertainties of the outside world or malfunctions that may occur due to technical or human failures. The choice of how to handle a risk is made, in particular, by making an informed choice between the opportunities to be seized and the cost of the risk treatment measures, taking into account their possible effects on the occurrence and/or the consequences of the risk.

Continuous improvement of the 2.8.1.3. Internal Control system With the aim of continually improving the system of Internal Control, the Group continued with its efforts in 2017 by notably taking the following actions: The corpus of standards and procedures was bolstered with, in particular: new, summary operating guides to remind employees of s the Group’s principles and to facilitate the sharing of best practices (real estate, information security, advertising rights and personal data protection in the European Union); revamping of the programme to raise awareness of the risks s of fraud. The deployment of online corruption prevention training (e-learning) is continuing. The network of Internal Control managers continued to be built up worldwide through: specific training courses; s a special-purpose social network which encourages and s facilitates the sharing of best practices. Communication within the Group on the main priorities of the Internal Control is promoted by the “Internal Control Awards” which rewards the best global initiatives and through the Risk Management and Compliance Department’s intranet which makes it possible to communicate all over the world on Internal Control initiatives, tools and events. COMPONENTS OF THE INTERNAL 2.8.2. CONTROL AND RISK MANAGEMENT SYSTEM Organisation and environment 2.8.2.1. The control environment, which is critical to the Internal Control system, good risk management and the application of procedures, is based on people, behaviour and the organisational structure. In L’Oréal, it forms part of a culture of rigour and commitment communicated by senior management and is also in line with the Group’s strategic choices.

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The Group’s Ethical Principle Ethical Principals

L’Oréal was built on strong Ethical Principles that guide its development and shape its reputation: Integrity, Respect, Courage and Transparency. L’Oréal’s commitment to acting ethically and responsibly is summarised in a document called “The L’Oréal Spirit” accessible to everyone.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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