Investment Proposal Final
To: Clark Hansen, CEO of AMDP
From: Ariya Nathu, Research and Development Analyst for AMDP
Date: March 10th, 2023
Subject: Investment Proposal of Lush Ltd.
After considerable research and analysis, I recommend that AMDP does not invest in Lush Ltd. Lush is a cosmetics company that continuously presents themselves as a socially responsible and environmentally friendly business. However, after further investigation, they are not transparent or as dedicated to their standards as they advertise. The company does not align with AMDP standards.
I will first highlight the guidelines that AMDP holds itself to. I will then present Lush’s background, financials, and claims about their sustainable and ethical standards. I will provide two expert sources that uncover the reality of Lush’s environmental and socially responsible practices. Finally, I will present my final recommendation.
AMDP Guidelines
AMDP focuses on businesses that operate in a socially responsible, environmentally sustainable, and profitable way. These are the guidelines used to accomplish this standard.
Triple Bottom Line
The triple bottom line is a business concept that suggests firms should focus on their social and environmental impact in addition to their financial success. It is centered around the 3 P’s:
· Profit: the financial performance or value generated for shareholders
· People: the social impact or value created for all stakeholders affected by the business
· Planet: the positive impact made on the planet (Miller, 2020)
Corporate Social Responsibility
Corporate social responsibility is a form of self-regulation that reflects a business’s commitment to contributing to the well-being of communities and society through different environmental and social measures. To appear genuine, the practices should be integrated into the culture and business operations of the company (Reckmann, 2023).
Social Enterprise
A social enterprise is a business with a mission to address a societal need. They exist to serve the common good. A social enterprise uses their profits to improve the community and planet (Annie E. Casey Foundation, 2020).
Carbon Footprint
A carbon footprint is the amount of carbon dioxide emissions that are associated with a company. It is measured by looking at a company’s direct emissions (fossil-fuel combustion in manufacturing) and indirect emissions (emissions needed to produce electricity). Higher levels of greenhouse gasses are tied to climate change and pollution levels. By reducing our carbon footprint, we can protect the environment and planet for ourselves and future generations (Selin, 2020).
Overview of Lush Ltd.
Background
Lush was founded in 1995 by 6 cofounders; Mo Constantine, Mark Constantine, Rowena Bird, Helen Ambrosen, Liz Bennett and Paul Greeves. The company emerged from the collapse of Cosmetics To Go, a mail order business that was a success until its combination of over-trading and flooding. Since 1995, Lush has been an innovator in the cosmetics industry from inventing bath bombs to creating products that fight animal testing and promote ethical campaigning. They are perceived as an ethical and natural company that focuses on customer and employee well-being. They are known to fight for pressing social issues to better their community (Lush).
Financials
Financial metrics that indicate growth and economic stability:
· Operating Revenue (Turnover) for 2021 was $103 million which is 52% growth from 2020
· Net Income was $-24.7 million in 2021 but despite the net loss it is still 46% growth from 2020
· Current ratio of 1.59 in 2021 meaning they have strong short-term liquidity as their assets cover their liabilities 1.59 times over
Financial metrics that indicate hardship and instability:
· Profit margin of -25.29 in 2021 meaning they generate $-0.25 in profit for every dollar in sales
· Return on Equity (ROE) of -21.31 meaning they generate $-0.21 in profit for every dollar in equity (bad for shareholders)
· Their value over time decreased substantially from 2018 with $110 million in operating revenue to 2020 with $67.5 million in operating revenue and has just begun to climb again (Orbis, 2021)
Lush’s financial track record illustrates that the company is improving economically and is gaining stability and promise. However, they are still not operating in a profitable manner and their financial health and shareholder value has suffered.
Company Claims
Lush advertises a variety of ethical and sustainable practices such as:
· Naked products (lack of excess packaging for waste and customer value)
· Fighting animal testing
· Fresh cosmetics (organic materials made by hand)
· 100% vegetarian and 95% vegan materials used
· Ethical buying focused on workers’ rights, the environment, animal protection, and transport
· Handmade products (creating local jobs and using local resources)
To protect the environment, they try to leave the world lusher than they found it by:
· Saving 4,275 tons of plastic and 167.5 million plastic bottles due to their naked products and goal to be a fully circular business
· Saving 90% of the water they previously used in soap manufacturing which is close to 20,000 liters a day
· 47.86% of their energy use was renewable in 2020 and 2021
They engage in several initiatives to serve the community and address pressing social issues such as:
· Charity Pot: a lotion sold to raise funds for small grassroot charities working in areas of animal protection, human rights, and the environment that has raised $76.9 million since 2009 and has funded 13,000 groups
· Donated a total of $5.3 million through their various giving streams in the 2020-2021 Financial Year (Lush)
Expert Opinions
Despite strong claims, Lush’s practices fall below standards both ethically and environmentally. They are not as transparent and committed to their cause as they advertise to the public.
Opinion #1
According to The Ethical Consumer, a heavily researched database that reports on the ethical and sustainable premises of companies, Lush has several issues that exposes their lacking environmental and ethical standards.
People
Lush consistently has advertised their strong approach to human rights advocacy. However, they received the Ethical Consumer’s worst rating for Supply Chain Management. Their website states that they do not employ staff on zero hour contracts, but their supply chain policy that outlines expected workers’ rights did not support this and was below industry standards. They also had a subsidiary in Saudi Arabia and associated ventures in Russia, Kazakhstan, Thailand, and Pakistan. All these countries are on the list of oppressive regimes.
Environment
Lush’s environmental reporting fails to set any quantifiable targets for the future. Because of this, they received the Ethical Consumer’s worst rating for environmental reporting. They also scored the worst for their toxic chemicals policy and received a middle rating palm oil sourcing. In 2017 the company stated that they were no longer using palm oil in their products. However, in 2019 their website indicated that they continued to use some palm oil as they could not find sustainable alternatives (Ethical Consumer)
Opinion #2
Mohta and Pointing from Better Goods, a source that researches and reports safe, non-toxic, and organic products for consumers, also indicated Lush falls short of sustainable and ethical guidelines.
Lush’s branding and marketing is misleading. Their slogan is “Fresh Handmade Cosmetics”. This doesn’t say outright that the brand is all-natural, but it implies it. People believe the brand is clean, eco-friendly, conscious, and free of synthetic ingredients, but that is not true. They do not use many organic materials and not every ingredient is natural.
Every product contains synthetic fragrance. Fragrance is used as an umbrella term to hide the precise chemical makeup that goes into the product. There are sometimes hundreds of synthetic chemicals that are harmful for the environment and even human health. Lush will not disclose the ingredients in their fragrances.
Some products contain SLES (Sodium Laureth Sulfate) which is a chemical linked to cancer. Products contain SLS (Sodium Lauryl Sulfate) which is a skin, eye, and respiratory irritant that is toxic to aquatic animals. Finally, products contain Mics which presents a human rights violation. It comes from India where an estimated 22,000 children as young as 5 years old spend days mining mica for 30-40 cents a day (Mohta and Pointing).
Recommendation
I do not recommend that AMDP invests in Lush Ltd. From a financial point of view, they still need to improve their operations to be an economically sound investment. They are not profitable and do not demonstrate strong shareholder value. They promote themselves an eco-friendly, natural, ethical, and socially responsible company but their marketing and branding is misleading. They are not transparent with their reporting. They fail to set quantifiable goals and honestly articulate the materials in their products. Lush hides the fact that they use many harmful, unnatural, and not ethically sourced materials in their products. Their human and workers’ rights are not as ethical as they promote. On the surface, Lush appears to align with AMDP standards. However, after careful research and analysis, they do not measure up to the companies that AMDP wishes to support.
Thank you,
Ariya Nathu
AMDP Research and Development Analyst
Works Cited
Ethical Consumer . (2022, July 6). How ethical is lush cosmetics ltd? Ethical Consumer. Retrieved March 7, 2023, from https://www.ethicalconsumer.org/company-profile/lush-cosmetics-ltd
Lush. (2023, February 16). Our Impact . We are Lush. Retrieved March 6, 2023, from https://weare.lush.com/
Lush. (2023, February 16). Who We Are . We are Lush. Retrieved March 6, 2023, from https://weare.lush.com/
Miller, K. (2020, December 8). The triple bottom line: What it is & why it's important. Business Insights Blog. Retrieved February 26, 2023, from https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line
Mohta, D. A., & Pointing, C. (2021, March 5). Is lush guilty of greenwashing? we took a closer look. Better Goods. Retrieved March 8, 2023, from https://bettergoods.org/lush/
Orbis. (2021, June 30). LUSH LTD. Orbis. Retrieved March 6, 2023, from https://orbis-r1-bvdinfo-com.libproxy2.usc.edu/version-20230116-3408-5/Orbis/1/Companies/report/Index?backLabel=Back+to+Graph+-+Value+over+time&format=_standard&BookSection=PROFILE&seq=0&sl=1678166060824
Reckmann, N. (2023, February 21). Corporate Social Responsibility. Business News Daily. Retrieved February 26, 2023, from https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html
Selin, N. E. (2020, December 6). Carbon footprint. Encyclopedia Britannica. Retrieved February 26, 2023, from https://www.britannica.com/science/carbon-footprint
The Annie E. Casey Foundation. (2020, December 10). What is a social enterprise? The Annie E. Casey Foundation. Retrieved February 26, 2023, from https://www.aecf.org/blog/what-is-a-social-enterprise
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