Our sustainability strategy faces the challenge of making the topic one of the main vectors of innovation and new business generation, by means of solutions that create shared value for our entire relationship network.

We believe that this strategy in our business will evolve from a crossorganization approach, with inclusion of guidelines in all processes. The topic is a relevant component of the Natura Management System, being considered in everything from strategic planning to definition of indicators and goals.

To ensure its effectiveness, we have defined the materiality matrix, which determines, in conjunction with our stakeholders, the issues that should be prioritized, and guides initiatives in our whole business.

The materiality matrix is a graphic representation of Natura’s priority themes in the area of sustainability. The matrix not only determines the content of the report, but also serves as a diagnostic tool for supporting senior management in its formulation of the company’s plans, which are consequently reflected in the company’s report.

Revised every two years, our matrix is the result of cross referencing the social and environmental themes indicated as relevant by our stakeholders (external sphere) and their importance to the company (internal sphere), in accordance with its strategy, its risks and opportunities and its innovation.

The matrix presented in this report was created between 2010 and 2011 based on the dialogue panels conducted with stakeholders in Brazil and, for the first time, in the International Operations. Through this process we have built a corporate matrix with a comprehensive vision that reflects the needs of the locations where we operate. The process culminated in the definition of the following priority themes in the area of sustainability: Water, Education, Entrepreneurship, Climate Change, Relationship Quality, Waste and Social and Biodiversity.

Water

Water management has gained greater worldwide relevance. Two years ago we began developing a hydric resource management strategy based on an inventory of water consumption and pollution along our entire value chain, including the phase of product use by our consumers. This water inventory, which came to be called our hydric footprint, became an international case study in 2012, presented at a conference held by Unesco (United Nations Education, Science and Culture Organization). Also in 2012, we moved forward in the study of methodologies that include the evaluation of product biodegradability and toxicity by international researchers.

Internally, we have improved our efficient water use production processes, and in 2012, we achieved our goal of maintaining consumption at 0.40 liters per produced unit.

  2010 2011 2012
Natura 0.42 0.40 0.40

Water Consumption
(liters/produced unit)

Education

We work extensively toward improvement in education quality, because we understand that the development of conscientious individuals is the starting point for promoting a fairer and more sustainable society.

We want to take advantage of our network of 1.5 million NCs in Brazil and International Operations to foster education as a new business opportunity, stimulus for sustainable entrepreneurship and increased generation of value for all (read more about Sustainable Entrepreneurship).

We surpassed our corporate training goal by 8% in 2012, reaching a total of 87.6 average training hours per employee in Brazil and in Latin America.

Natura's education strategy also encompasses the activities of the Natura Institute, a non-profit organization created in 2010 to manage our private social investment, and which has the promotion of educational technologies to generate large-scale transformations as its primary focus. In 2012, the Trilhas Project, to encourage reading and writing in early education, became public policy in a partnership with the Ministry of Education, and reached two thousand municipalities and 3 million students.

Fundraising by the Believing is Seeing Program, a special product line and main source of funds for the Natura Institute, reached R$ 12.8 million in 2012, a record result higher than the goal of obtaining R$ 10 million in the period.

Sustainable Entrepreneurship

We live in an increasingly complex world, and we understand that there are new business solutions and formats that will form a new economic and relationship model in society. Promoting entrepreneurship is one of the alternatives for creating sustainable business ecosystems.

In 2012, we sealed a partnership with Professor Stuart Hart, from Cornell University in the USA, one of the leading global experts in business at the base of the pyramid, for the purpose of connecting a network of laboratories that research entrepreneurial solutions and business in the underprivileged classes around the world. In addition to generating knowledge for our NCs, we intend to use this experience to promote education for sustainable entrepreneurship and to enable the creation of innovative and creative solutions for solidifying new business.

Climate Change

In 2012, we accomplished a 7.4% reduction in our absolute Greenhouse gas emissions (GHG), based on 2008 emissions. However, this reduction was not enough for us to achieve the commitment to cut 10% of our absolute emissions (scope 1 and 2 of the GHG Protocol). The non-achievement occurred due to the increased participation of thermo-electric plants in provision of energy to the Brazilian electrical grid at the end of 2012, to offset the low level of hydroelectric reservoirs, which impacted our emission calculations. These data include our factories in Cajamar (SP) and Benevides (PA), as well as our administrative spaces.

Hence, although we managed to implement all projects we had planned - the biomass-fueled boiler at the Benevides (PA) factory, and another run on ethanol in Cajamar, the fuel card exclusively for ethanol use in the fleet for executives and the sales force, and reduction in electricity consumption - we are vulnerable to a factor for which the national energy system is responsible.

Moreover, our GHG emissions in 2012 maintained the trend of recent years, with proportionally lower growth than the company's economic evolution.

We accomplished a relative reduction of 4% over the previous year, and an accumulated reduction of 28.4% since 2006, in keeping with our commitment to achieve 33% by the end of 2013.

Emissions that cannot be avoided are offset by the purchase of carbon credits from reforestation, energy efficiency and fuel replacement programs.

In 2012, we ensured the contracting of projects to offset emissions generated in the 2011-2012 two-year period.

  2010 2011 2012
Natura 3.30 3.12 3.0

Greenhouse Gas Emissions
(kg CO2e / kg invoiced product)1

1 CO2 (or CO2 equivalent): measurement used to express greenhouse gas emissions, based on the global warming potential of each.

Solid waste

We have been working on a solid waste management strategy since 2010, with an integrated lifecycle vision. We have also developed and applied a waste inventory methodology with results audited by Ernst & Young.

In addition to reducing the generation of solid waste and reject along our chain, and increasing the use of recycled material, we want to develop an efficient and inclusive supply chain structure for these materials, with fair price, social inclusion, and traceability. We see waste not as an end, but rather as the beginning of a new business.

We did not achieve the efficiency we wanted in 2012. Our waste generation index increased from 20.01 grams per produced unit to 25.56. This result is higher than the goal of reaching 20 gr./unit, and it was mainly a reflection of losses with discontinued material stocks (finished products and raw materials).

In the industry sphere, we supported actions promoted by the Brazilian Cosmetics, Toiletries and Fragrance Association (Abihpec) to encourage compliance with the National Solid Waste Policy.

Sociobiodiversity

To reinforce our commitment to the Amazon region, in 2011 we launched the Amazon Program as the major focus of our sociobiodiversity strategy and it includes the neighboring countries in which we also operate. Our desire is to expand our local activity and pursue new sustainable development proposals that include Amazon inhabitants and environmental conservation.

In 2012, we established five priority territories for action, and Natura investment key issues for local institutional fortification. We opened the Natura Amazon Innovation Center (NINA - Núcleo de Inovação Natura Amazônia) in Manaus, a knowledge center with the mission of stimulating the formation of a network of researchers, in conjunction with local, national and international science and technology institutions. We also launched the Natura Campus Public Notice for selection of Science, Technology and Innovation projects in the region, and we began works for an industrial park in Benevides (PA) with ecological principles, expected to open in the first half of 2013.

Relationship quality

Our conviction is that caring for relationships has always been a great enabler of our world vision, and it will continue thus in the future, remaining at the core of our business as our brand's major distinguishing feature. For this reason, we maintain structured relationship management practices with all of our audiences, which include constant consultations and dialogues in most of the strategic projects implemented by the company.

However, there is still much to do for us to reach our desired level of excellence, and we are reinforcing our practices in the coming years. See below the results achieved with the audiences closest to our activity:

Natura Consultants (NCs) and Natura Consultant Advisors (NCAs)

2012 was a very positive year for our 1.5 million Natura consultants. The level of services provided improved, and more consultants were assisted in less time. Today, 25% of them receive their orders in up to 48 hours, against 5% in 2011. In addition, the overall average delivery time, considering the consultants all over Brazil, reached 4.5 days in the second half year. When the 12-month average is compared, the delivery time was 5.1 days instead of the 6.8 days of 2011. We do faster and more accurate deliveries, since, in 2012, we also recorded the lowest rate of unavailability of products of the last seven years.

These improvements are fruits of the investments Natura has made in recent years, in making over and expanding our logistics mesh in Brazil, and in order capture system technology. Our aim is to invest in order to improve service quality to NCs and NCAs, and to our consumers.

With the advancements, we increased NC loyalty, which reached 24$ in 2012, a much higher result than the 18.6% in the preceding year, and the 21% target for the period. Among NCAs, the growth was even more expressive, going from 24% to 40%.

Employees

Our focus on people development has been returning results, such as fastpaced career paths of high-potential management, and the acquisition of new competencies. But we know that there are still many challenges ahead, as our organization grows and expands its relationships. This growth imposes less hierarchical and more horizontal corporate structures, with more flexible goals. In 2012, the company took an important step to meeting a demand identified in the organizational climate survey. It promoted activities to convey our strategy with more clarity and objectivity, allowing employees to have a more concrete vision of the future of the business in order to guide their own work.

In 2012 we saw a two-percentage-point improvement in Natura's organizational climate survey, after two years of decline in the index.

Performance of International Operations stood out, registering sharper growth than Brazil, especially Argentina, Chile and France. The result, however, is still below the stipulated target of 74%.

  2010 2011 2012
Natura 73 70 72

Climate survey – Favorability (%)1

1 Equivalent to the percentage of employees who answered 4 and 5 (top 2 box) on a scale from 0 to 5 points.

Consumers

We face the constant challenge of promoting Well-Being-Well experiences, and infusing our Essence into each new product or contact we make with our consumers. These guidelines are present in everything we do, and they have become even more challenging in an era in which relationships and changing drastically, mainly due to social networks.

We intend to use the new mobility and information technologies to bring everyone closer, especially our end-customers and consultants, and consequently, Natura itself.

Within this spirit of closeness, in 2012 we launched the Espaço Conceito (Concept Space), in São Paulo (SP), which is a place specially set for the consumer to strengthen his/her relationship with our brand, having a multiple sense experience, integrating conceptual, sensory and commercial experiences.

Our brand strengthened its preferred position in the Cosmetics, Toiletries and Fragrance market. According to the Brand Essence image survey conducted by the consulting firm Ipsos, the number of consumers who gave Natura the highest score grew from 73% to 79% in 2012.

Suppliers

We focused our relationship on creating partnerships to build a chain with higher added value. With our performance, we know that we can influence our commercial partners, and we have worked to make that influence increasingly positive. In 2012 we expanded the Sustainable Supply Chain strategy, which considers social and environmental aspects when selecting and developing our suppliers. In 2011, we analyzed 60% of our supplier base, indentifying those with good management practices and opportunities for enhancing this performance. In 2012 we expanded the program to indirect input suppliers.

Our aim is to generate R$ 16 million in social and environmental gains in five years, through investments in our entire chain. In 2011, the first year of the program, benefits of around R$ 1 million were generated, and in 2012, an additional R$ 2 million were achieved.

Supplier loyalty dropped 4 p.p. (from 26.5% to 22.6% in 2012), influenced by the SAIN (Services, Assets and Indirect) audience. A combination of factors explains this complex supplier relations scenario, including the resolution of problems causes by the operation's instability in 2011 and commercial negotiations (including costs and payment terms), influenced by volatile exchange rates and rise in inflation.

Supplier communities

As a key audience for our sociobiodiversity strategy, we maintained relations with 36 supplier communities, involving 3.5 thousand families last year. The distribution of resources rose 16.6%, totaling R$ 12.1 million and accomplishing our goal of expanding business and the social benefit generated by access to biological resources and the associated traditional knowledge.

This value generation will continue expanding in coming years as part of the business expansion strategy in the Amazon Program (read more about Sociobiodiversity). In order to prepare our input supply chain for the increased demand, we established the Provision Center, focused on identifying structuring needs for current communities and the pursuit of new partnerships.

Supplier communities 2010 2011 2012
Communities with which Natura has relations 27 35 36
Benefitted families in supplier communities 2,301 3,235 3,571
Funds (BRL thousand) 2010 2011 2012
Funds destined to supplier communities 8,706 10,037 12,072
Last Update on May 08, 2013