The environmental impacts of Household and Personal Care (HPC) industry are mainly due to the use of heated water, the release of chemicals into the environment during use and the sourcing of ingredients, such as palm oil, contributing to deforestation and biodiversity loss.
This moderate impact intensity NEC framework encompasses the whole household and personal care value chain of cosmetic and cleaning products, from raw material sourcing, chemical production and product manufacturing, to packaging and retail activity, all the way to the product’s end-use.
This sector presents specific challenges for measuring environmental impacts and two impacts cannot be assessed at activity or company level in a transparent way:
+Climate impact: rinse-off HPC products require large volumes of water to be diluted or rinsed off and cosmetic products generally require heated water for use. Therefore, the energy required to heat the water accounts for more than 80% of a product’s lifecycle climate change impact. However, in most cases, this information is unavailable and products and companies cannot be differentiated on this dimension. +Biodegradability: a product’s negative impact on the environment can be measured through its biodegradability but establishing a company hierarchy related to the biodegradability of products is difficult because precise product formulas are not publicly reported.
Consequently, in this framework, activities are assessed against two transparent and comparable parameters:
+ Palm oil use: one key aspect in the HPC supply chain is the massive use of palm oil, for both cosmetics (e.g. cream, soap and shampoo) and household care products (e.g. laundry, cleaning products, etc.). Indeed, the consumer products accounts for around 25% of global palm oil consumption. The global expansion of palm oil cultivation is a major source of deforestation, especially in Indonesia and Malaysia where growth is concentrated. The WWF’s Roundtable on Sustainable Palm Oil (RSPO) serves as a useful source for this information as it aggregates corporate disclosures on palm oil use. +External certifications: regarding the chemical composition (formula optimization) and packaging of a product, the best way to identify eco-friendly products is using external certifications. These provide assurance about a product’s eco-design using parameters such as packaging reduction, aquatic toxicity, product biodegradability and fitness for use.
The NEC metric analyses different labels that certify product environmental performance and assesses a label’s significance based on whether the label applies only to the formula, or if it also applies to the packaging (like Ecolabel). The following chart shows how each label’s sections (with and without packaging criteria) can be hierarchized depending on the criteria’s strength.
How the NEC measures the impacts of cosmetic and cleaning products
In brief, the methodology used to calculate the environmental impacts of the HPC sector is based on certifications, as they can reliably be measured at product and company level.
The use of palm oil in the HPC sector is a major cause of deforestation which contributes to both climate change and a loss of biodiversity. Secondly, the chemical composition and packaging of a product determines its biodegradability and pollution impacts.
+ Share of each level of responsibly-sourced palm oil (RSPO) certification relative to total palm oil sourcing + Share of certified products and consistency of each certification scheme
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WHAT IS THE NEC METRIC?
Designed to inform and empower investment decision makers, it uses physical data from across the whole value chain to provide a snapshot of an activity’s net environmental contribution and it can be applied at a company, portfolio, index or product/source level.
The NEC evaluates the impact of economic activities based on environmental issues including climate change, water and biodiversity impacts.
Discover how the tool can be used by investors and corporates.