REPORTTO SOCIET Y

2018

IN THIS REPORTSTRIVING TO
BE EXEMPLARYA HISTORY OF SETTING
THE TREND FOR LUXURY

PAGE 2

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OUR BRANDPURPOSECHANELTODAY

PAGE 7

PAGE 9A
CREATION-DRIVEN
BRANDACOMMITTEDLUXURY LEADERA
HUMAN-DRIVENCOMPANY

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PAGE 37

PAGE 49

GOVERNANCE FORRESPONSIBILITY ANDSUSTAINABILITY

CSR
GOVERNANCE

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PAGE 70

REPORT
TO SOCIETY

C HANE L’S RO LE
IN S O CI ET Y

CHANEL, a privately owned company for more than 100 years, has traditionallybeen very discreet about its business. We have principally devoted ourcommunications to showcasing our products and their creators, a discretion
which has contributed to a sense of mystique around the brand.
Today, however, all stakeholders expect greater transparency and accountability
from companies. We want to share in more detail how CHANEL operates, thecommitments we have made as a company, and how we collaborate with civilsociety, with external stakeholders, and with other brands on sustainability issues.
This report is a first insight into who we are and how we operate. It is a platform
for a different kind of engagement, both internally — with our employees —and externally, with our stakeholders.

1

INTRODUCTIONSTRI VI NG TO
B E EXEMPL ARY

CHANEL IS FIRST AND FOREMOSTABOUT CREATION. IT’S ALSOABOUT BEING A PROFOUNDLYHUMAN-DRIVEN COMPANYCOMMITTED TO CREATINGLONG‑TERM VALUE FOR THE
BRAND AND FOR SOCIETY.

CHANEL’s internal mission is to maintain theconditions in which creation thrives, believingthat creativity and beauty are essential driversof progress. CHANEL also believes that byproviding the enabling environment for
creation, we can be a positive force for change
in the world and contribute to transforming
lives and societies.
Since the beginning, CHANEL has always
tried to develop the long-term value of thebrand. As a company, we recognized earlyon that we can only secure this outcome if, atthe same time, we contribute long-term value
and sustainability to the environmental andsocial ecosystems in which we operate. At atime of unprecedented social, economic, andenvironmental transformation, we think wehave to continue to step up our ambitions andcommitments. In this way, we can contributeto a future that creates value for both businessand society in a mutually beneficial way.

CHANEL has always been a pioneer ofmodernity, defining trends in luxury andbeauty for more than 100 years. It is a company
seeking to constantly reinvent itself, embraceinnovation, and challenge existing boundaries
through its creativity. CHANEL, following thelegacy of our founder, assumes an influential
role in society and strives to be exemplary
in everything we do.

2

THE WAY CHANEL CREATES LONG-TERM
VALUE IS BASED ON THREE PILLARS,ON WHICH THIS REPORT IS STRUCTURED:A CREATION-DRIVEN BRAND
How CHANEL is building greater resilience
to ensure creation is always possible.
PAGE 15A COMMITTED LUXURY LEADER
How CHANEL is working toward building a moresustainable business model for luxury.
PAGE 37

A HUMAN-DRIVEN COMPANY
How CHANEL is empowering people, promoting self-accomplishment, and enablingworking conditions that respect and enhance the potential of each individual.
PAGE 49

Using our influence and our ability to think,act, and invest for the long term, CHANEL
believes that we can secure the brand’s future
and contribute to shaping a better world
for everyone. Our ambition is to engage ona journey toward exemplarity. While we areproud of what we have achieved to date,

we recognize we still need to progress toward
fully managing all our social and environmental
impacts. At every level of the company, there
is a clear commitment to engaging the human,creative, and financial resources neededto effect long-term positive change. This
commitment is made possible by CHANEL’s
independent, private ownership structure.

3

INTRODUCTIONA H ISTOR Y O F SE T T I NG
T H E TREND FO R LUXURY
The House of CHANEL was founded by a unique, powerful, atypical woman.
By shaping her own world, Mademoiselle Chanel influenced the entire
world around her, fundamentally changing perceptions of style for everyone.

1909

1921

CHANEL BEGINSUNVEILING OF CHANEL No 5,
CREATED BY ERNEST BEAUX

Gabrielle Chanel opens a shop at
160 boulevard Malesherbes in Paris.

1910

1924

1932

Gabrielle Chanel opens her firstindependent millinery shop at
21 rue Cambon in Paris.

Gabrielle Chanel launches her
first makeup collection and,in the same year, founds the
Société des Parfums CHANEL,
dedicated to creating unique highend fragrance and beauty products.

Gabrielle Chanel presents the
Bijoux de Diamants exhibitionof fine jewelry, the first timea couturier presented ahigh-end jewelry collection.

1926

Launch of the 2.55 quilted
handbag, which introduced
a new style of shoulder strapthat allows a woman’s hands
to remain free.

Gabrielle Chanel creates
the daringly simple “little black
dress,” a true revolution in the
fashion of the time.

1955

1927

1957

CHANEL develops its first lineof skincare products.

Gabrielle Chanel createsthe slingback shoe.

“IF YOU WERE BORNWITHOUT WINGS,DO NOTHING TOPREVENT THEM
FROM GROWING.”— GABRIELLE CHANEL

4

Since 1909, our entire business model has been designed to create andsafeguard the conditions for creativity to thrive. Everything we do as
a company is intended to support, enable, and feed creativity: the way werun the business, how we measure performance, our care for our people,
and the way we protect and preserve our savoir faire.
The history of CHANEL has always been one of disruption, of daring tothink and act differently, of creating new trends. Here are some key examples
of how CHANEL has set the trend for luxury over the past 100 years:

1978

2011

THE HOUSE OF CHANEL EXPANDS

FONDATION CHANELCHANEL introduces its first Ready-to-Wear collection
and the worldwide distribution of its line of accessories.

CHANEL launches Fondation CHANEL
to support women as agents of socialchange throughout the world.

1981

2013

Jacques Polge is named
director of the Laboratoire Parfum
de CHANEL, following in thefootsteps of Ernest Beauxand Henri Robert.

CHANEL opens an extension in
Pantin, one of the most modern
research centers in cosmetics.
Following the retirement of his
father, Jacques, Olivier Polge
becomes the director of Fragrance
Creation and Development
for CHANEL.

1983
Karl Lagerfeld is appointed artistic
director for CHANEL FASHION,
designer of all Haute Couture, Readyto-Wear, and accessory collections.

2016
1993
The first CHANEL fine jewelrycollection launches inPlace Vendôme, Paris.
2000
CHANEL launches the J12, thefirst watch with a case made outof black ceramic, a high-techmaterial inspired from the fieldof aeronautical engineering.
2002

1987
The first line of CHANEL Watches
launches the PREMIÈRE WATCH,
designed by Jacques Helleu.

Through its subsidiary Paraffection,
CHANEL acquires eight traditional
Parisian fashion ateliers, creating
the Métiers d’Art show.

5

Through the launch of La MONTREMONSIEUR, CHANEL unveils its
first watch with a movement
designed and manufactured
completely in-house.
2017
CHANEL launches the new
GABRIELLE CHANEL FRAGRANCE
and GABRIELLE HANDBAG.

chanel storeBOUTIQUE
CHANEL FINE-JEWELRY
Paris, France
18 PLACEVENDÔME

6

INTRODUCTION

OUR BRANDPURP OS E

The House of CHANEL was founded by a unique, powerful,atypically feminine soul who was propelled by her very core.
By determining her world, she influenced the world,
fundamentally changing perceptions of Style for everyone.
We embrace the epic modernity of our rich heritage andfulfill its vision by serving today’s self-powered woman
who creates her destiny.
Our DNA is in everything we make, and elevating women,
treasuring their complexities and facets, is in our DNA.
Our repertoire spans the extremes that allow a woman to findand express her essence, and thus offer her the invaluable
experience of a liberating transformation, whether with a dashof lipstick, a spritz of perfume or a total look.
From its inception, our House has been a seminal force
in shaping the codes of fashion. By drawing on the potencyof paradox, and reconceiving it in surprising, harmonious,
resonant design elements, we have forged for ourselves
the enduring aura of singular magnetism.

7

FASHIONFRAGRANCES& BEAUTY

8WATCHES &FINE JEWELRYINTRODUCTION

CHANE LTODAY

CHANEL is a French brand and an international businessfor luxury-goods consumers, organized as a global matrix
structure on three activities, across three regions.

The operating profit amounts to $2,692 million
with free cash flow of $1,628 million this year
allowing the company to invest $1,457 million
in brand support activities to deliver our creationand innovation strategies, up 15 percent
compared to 2016. CHANEL’s long-term
strategy is underpinned by a strong balance
sheet, with net debt of only $18 million.

The three activities are (i) FASHION, (ii)
FRAGRANCES & BEAUTY, and (iii) WATCHES& FINE JEWELRY. They define our brandstrategy, the products we develop, and thecommunication tools around them.
We operate across multiple geographies in
the Americas, Europe, and Asia, where local
markets are responsible for implementing
the brand strategy, coordination, andproduct distribution.

110

As a part of modernizing and simplifying
our organizations, we have established acommon holding company in London thatwill consolidate all CHANEL companies.
The majority of our global corporate functions
are based in London. CHANEL’s sales in 2017
continued to be strong and stand at $9.6 billion,
up 11 percent compared to 2016 on a constantcurrency basis, with growth in all regions.

Countries

20,197
Employees9CHANEL FINE-JEWELRY BOUTIQUE
18 PLACE VENDÔME

10

INTRODUCTIONA LONG-TE RMPERSPE CT I VE

CHANEL’s performance is always measured not by shareholder equity,
but by brand equity. Everything we do is aimed at protecting andenhancing the long-term value of the brand, independently of short-term
financial results and/or market constraints. Looking at long-term brandequity is how we measure our success and how we make decisions.
“PERFORMANCE IS NOTJUST ABOUT SHORT-TERM
FINANCIAL RESULTS,
BUT ABOUT LONG-TERM
CREATION OF VALUE.”

Being a creation-driven brand, committed
luxury leader, and a human-driven company
is made possible through our long-term
perspective.
This long-term perspective gives us the ability
to help drive positive change. It gives us thepossibility, and the responsibility, to use
the power of our creativity, our people, andour influence, to think, plan, and act withsociety’s and the planet’s long-term interests
in mind, as well as our own.

—P
 HILIPPE BLONDIAUXGLOBAL CHIEF FINANCIAL
OFFICER, CHANEL

Operating in this way means we can workwith suppliers over generations to ensure theresources they provide are well managed andbenefit the community in its entirety. It means
we can protect rare skills that may otherwise
die out. It means we can invest in futureenergy sources that not only serve us, butalso, others who need them. These and many
more examples in this report show what our
specific approach can enable us to achieve.

This long-term vision for our performance isthe most important element of our businessmodel, and is based on our complete financial
independence. Being a wholly privately
owned company with a strong cash flow, an
extremely sound balance sheet structure, andvery little debt affords us total independencein financing all of our strategic investments.
Operating without short-term financial
constraints gives us the freedom and the luxury
to make the right decisions for our brand.

11

INTRODUCTION

Within our FRAGRANCES & BEAUTY activity,
we have built in-house creative teams anddesigners in Paris; integrated research anddevelopment activities in Paris, New York,and Tokyo; and fully owned production
facilities north of Paris. Our focus on thelong term means we can take a slower,
more deliberate approach to new productdevelopment. The fragrance market is highly
competitive, driven by hundreds of new
product launches every year. However, we
do not believe this rhythm of new productlaunches is sustainable for the CHANEL
brand over the long term. For this reason,
we introduce new fragrance products, on
average, every 10 to 12 years. This ensures
we have sufficient financial and humanresources to build our brands over the longterm. For example, we launched the new
GABRIELLE CHANEL FRAGRANCE 12 years
after COCO MADEMOISELLE. The result of
this long-term brand vision is that we havethree brands in the top five worldwide.
Focusing on the long term has also meant we
can deliver products that are both desirable
and sustainable for our customers.

HOW WE MEASURE BRAND EQUITY
In order to measure brand equity, we carry out annual
studies of consumer perceptions of our brand. Eachstudy takes into account a large number of consumers
across all of our key markets.
The studies analyze brand perception according todetailed criteria such as saliency (brand awareness),value (what qualities the brand represents for
consumers), strength (to what extent the brand is
loved by consumers), and desirability (to what extent
the brand is “for me”).
The company has conducted brand equity studies
for over 25 years. The results are analyzed in detaileach year and discussed among the brand’s top
management, laying the foundation for our key
strategic decisions.

We have been able to make some significant
investments for the long term over the last
few years across all our activities.
Upstream in the FASHION activity value chain,for example, we have invested in a numberof manufacturing and production sites.
These are essential for CHANEL, but also
for the luxury sector as a whole, to thrive —from the footwear manufacturer Roveda
in Italy to the Bodin-Joyeux tannery in France
and the cashmere producer Barrie Knitwear
in Scotland.

One aspect central to the development andgrowth of our WATCHES & FINE JEWELRY
activity has been the consolidation of all
aspects of watch and jewelry making.
Investing in our own horological manufacturing
capabilities in Switzerland and an integrated
fine-jewelry workshop on Place Vendôme
was a strategic decision that strengthened
our authenticity.

All these production companies are partof an ecosystem, one we have created for
the European luxury-fashion industry todeliver outstanding creations, but also one
that enables us to ensure the long-termsustainability of specialist industries thatmight otherwise disappear.

12

A LONG-TERM
PERSPECTIVE

In 2016, we launched La MONTRE MONSIEUR,
the first CHANEL watch with a movement
designed and manufactured completely
in-house. Structured around a single circularbridge that connects all the elements of the
movement, we created it through an artistic
and investment haute horlogerie partnershipwith independent watchmaker Romain Gauthier.

We are also building a long-term partnershipwith Palais Galliera as the exclusive sponsor,
responsible for financing the construction of
new exhibition rooms. The Palais Galliera will
become the first permanent fashion museumin France and contribute to promoting both
fashion and Paris by making its exceptional
fashion archives accessible to all.

Downstream, we are investing significantly forthe long term in the client experience, working
out how best to embrace digital innovation in
a way that maintains both the exclusivity andquality of the overall CHANEL experience.
Our strategy is to increasingly personalize
client service and experiences while
maintaining our long-term commitment tophysical retail boutiques, which are an integral
part of how our clients interact with CHANEL.

THINKING LONG TERM THROUGH
OUR PRICING STRATEGY
In 2015, we were the first in our industry sector to
introduce worldwide price harmonization for handbags.
This decision was made in order to reduce pricedifferentials that may have existed across markets
and in order to offer our products to all of our clientsat a harmonized price, regardless of location.
Our strategy was a bold one initially, but it was amove in favor of our customers. For them, and purely
out of fairness, it was no longer acceptable for us
to allow significant price differentials to develop.

Our value chain is part of a much broader
luxury system, which must continually benourished, protected, and supported.
For example, earlier this year, we announced
sponsorship for two projects that will support
Paris’ position as the home of fashion. First,
we will invest €25 million in the restoration
and renovation of the Grand Palais, a symbolof architectural innovation in Paris since
its creation. CHANEL and the Grand Palais
have developed a close bond, initiated by
Karl Lagerfeld in 2005. The exceptional naveof the Grand Palais is the location of manyelaborate Haute Couture runway shows, andan iconic building that truly represents Paris.

We were courageous first-movers in this matter andare satisfied with how our strategy has played out:
The resale market has decreased, the traffic in ourboutiques is clearly more balanced, and we have theopportunity to better serve our clients and create anexperience in line with our standards of excellence.

13

REPORTTO SOCIETYA
CRE AT ION-DRIVEN
BR AND
Creation is at the heart of our brand. It makes our products
desirable, and the experiences we provide to our clients, unique.
In an era of ubiquitous global communications, the power ofcreation is a source of aspiration and inspiration for many.

Creation builds and spreads beauty far andwide, and inspires many people all over theworld beyond our immediate clientele.

To make this a reality, CHANEL invests heavily
in preserving the sources of creation in thefollowing ways:

We believe we have a responsibility to maintainthe conditions that allow creation to thrive, so
we give it the potential to be a positive force
for change in the world, and to contributeto transforming lives and societies.

Valuing and securing the extraordinary
and rare raw materials that we use
in our products, and protecting complex
and fragile ecosystems.

Protecting and developing theincredible skills and traditions of ourartisans, whose métiers belong to thecultural heritage of humanity but would
probably disappear without our support.

Supporting relevant new technologies
that add value to our products andto the way we produce them.

15

TUBEROSE
FROM GRASSE

16

A
CREATION-DRIVENBRAND

N ATUR A L RAW MATE RI ALS
OF EXTRAORDI NARY QUALI T Y

CHANEL’s creation relies on our ability to continue to source
natural ingredients and materials of exceptional and unique quality.
The extreme care we take in choosing and preserving such
extraordinary quality is part of our heritage.

MATIÈRES NOBLES

Many of our materials come from regionswith environmental and social challenges.
We need to secure these materials for thelong term, and we also have a responsibility
to set an example. For these reasons, weinvest in addressing these challenges as partof our supply-chain resiliency strategy.

Each of our business activities uses materials
of critical importance to our creations. Thesematières nobles are the materials that make
CHANEL products the iconic creations they
are today. In many cases, CHANEL benefits
from exceptionally close, long-standing
relationships with the suppliers who provide
us with the essential strategic raw materials
and ingredients for our products.

As part of this strategy, we distinguish between
strategic raw materials — “matières nobles” —and other raw materials, which are moregeneric commodities.

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A
CREATION-DRIVEN
BRAND

Following are some examples of our projects
aiming to achieve positive social, economic,
and environmental impacts:

For decades we have focused on supportingthe complex environmental and social
ecosystems from which we source the matières
nobles for our perfumes and cosmetics. Over15 years ago, to build on our experience inGrasse, we started extending our supplychain resiliency approach to other strategic
raw materials, with projects such as one in
Madagascar for vanilla. Given the number of
raw materials we source, and the number ofsuppliers we source them from — more than
300 for our FRAGRANCES & BEAUTY activities— the challenges we face are incredibly
diverse. They vary according to the country
and raw material in question. At the sourceof our proprietary natural ingredients supply
chains, we commit to promoting and deploying
the principles of regenerative agriculture:a system of farming practices and patterns
that actively enrich soils, biodiversity, andecosystems, while increasing the livelihoodsof individual farmers. While we have achieved
a number of positive social, economic, andenvironmental outcomes, we still have work to
do to be certain all our raw-material sourcing
achieves positive impacts in line with the
Sustainable Development Goals (SDGs) of
the United Nations. We are convinced of thepotential that regenerative agriculture holds
for transformative change toward reaching our
objectives. Promoting regenerative agriculture
is a key part of our strategy going forward.

ENHANCING SCIENTIFICSKILLS IN BHUTAN
In 2014, the CHANEL FRAGRANCES & BEAUTY
R&D team identified a native plant in Bhutan
with high cosmetic potential. As envisagedby the Nagoya Protocol on Access to Genetic
Resources and the Fair and Equitable Sharingof Benefits Arising from their Utilization to
the Convention on Biological Diversity,1 weworked with local stakeholders on an access
scheme, and established a partnership with
the Bhutanese Ministry of Agriculture andForests and its National Biodiversity Centre.
One of their key needs was to enhance thelevel of local scientific skills. We agreed on a
training plan, welcoming Bhutanese scientists
to our laboratories in Pantin, France, toconduct, with our support, their own researchon the value of Bhutanese biodiversity. We also
supported their application for a United Nations
Development Programme (UNDP) grant so the
National Biodiversity Centre of Bhutan could
set up a lab with high-performance liquidchromatography instruments. Two CHANEL
scientists went to Bhutan to set up the
instruments and train the local research teamon them, while we trained Bhutanese students
in our laboratory for analytical chemistry.

1.	The Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits
Arising from their Utilisation to the Convention on Biological Diversity (the Nagoya Protocol) is aninternational agreement that aims to share the benefits arising from the utilization of genetic resourcesin a fair and equitable way.

18

NATURAL RAW MATERIALSOF EXTRAORDINARY QUALITY

With the adoption of the UN SDGs in 2015,
we recognize that best practice means linking
project-level impacts to material sustainabledevelopment goals and local indicators. For
Bhutan and other markets in Africa, Asia, andSouth America where we source our natural
raw-materials, we have defined a method fordevising relevant and appropriate projects at
raw-material origin. Our ambition is to set thetrend in terms of corporate accountability forsustainable development in these areas andto share our approach with others.
PRESERVING GROWINGTRADITIONS IN COSTA RICA
In Cerro Azul, Costa Rica, our suppliers
cultivate approximately three tons of green
coffee a year, using traditional methods, for
our skincare products. In 2015, we carried out
a study that highlighted a number of issues —one being that due to cheaper production
methods in other countries, coffee in theregion became far less profitable. Local
producers were abandoning coffee and evenmoving away. The population of Cerro Azul
fell from 2,500 to around 1,000 in just over
25 years. To address this, and help preserve
coffee-growing traditions in Cerro Azul, we set
up a supply-chain resiliency plan. We financed
a new coffee-roasting unit to encourage theproduction and sale of locally roasted coffee.
This increased the coffee’s purchase priceand helped restore profitability.

Due to this close alignment with oursustainable sourcing strategy, we signed athree-year renewable framework agreement
for sustainably grown plant-based raw
materials. This provides visibility and financial
security for the business, while allowing
CHANEL to benefit from their extensive
agroecology and social expertise.

Working with a local social-business company,
we also developed an innovative socialentrepreneurship model for the sustainable
development of vulnerable rural communities,
using local resources and know-how iningredient production.

19

A
CREATION-DRIVEN
BRAND

INVESTING IN SUSTAINABILITY
IN NEW CALEDONIA
Sandalwood extract is used as an ingredientin many perfumes, including several CHANEL
fragrances. Although India has been oursource of this ingredient for many decades,
its overexploitation in the country, due
to its excessive use outside the perfume
industry, had led to severe deforestation.
In 2010, CHANEL decided instead to buy
all sandalwood from New Caledonia, anisland territory in the South Pacific. While
New Caledonia has extensive resourcesof sandalwood, the supply chain faced a
combination of environmental, social, andeconomic risks. There was no regulation orcontrol of sandalwood harvesting there, raising
the threat of deforestation. Sourcing activities
risked disrupting local Kanak communities,
whose economies and cultural heritage
depended on sandalwood exploitation.
Since 2015, increased global competition,
caused by weakened global markets, had
led to an intensification of illegal woodcuttingin the area.
To ensure the long-term sustainability ofsandalwood in New Caledonia, we developed
a supply-chain strategy involving three key
components: a breeding, conservation, andreforestation program, the control of wood
exploitation, and a strong engagement withlocal communities. The sandalwood programaims to conserve 75,000 sandalwood trees
in their natural habitat. For every tree cut
in the conservation area, five new trees are
now transplanted to and cultivated in thesandalwood nursery of our Kanak partner.

Working with local authorities, our support
also contributed to reducing illegal exploitation
by establishing controlled woodcutting zones.
At the same time, we engaged with local Kanak
communities to resolve potential tensions andaddress economic concerns. We also set up
a number of associated conservation projects
to protect indigenous plants and animals,
including rare butterfly and lizard species.

OTHER RAW MATERIALS
Where we don’t fully control other raw
materials we use in our products, we follow
another strategy, which includes thefollowing elements:• Traceability: We try to trace the structure
and composition of the supply chain to as
close to the material’s origin as is possible.
• Audits: We assess and monitor the actualand potential risks and impacts on thewelfare of humans, animals, and natural
ecosystems.
• Remediation: We set up programs toremediate local environmental and social
impacts wherever possible throughlong-term cooperation with suppliers
and local communities.

20

NATURAL RAW MATERIALSOF EXTRAORDINARY QUALITY

PALM OIL: USING A RECOGNIZEDSUSTAINABILITY STANDARD

In many cases, gaining greater visibility ofall stages of our raw-material supply chains
can be difficult. This is especially true for thecommodities we use in some of our products.
In these instances, we can take the initiative
to design and set up our own supply chain
in order to ensure full traceability and control,
as in the case of our beeswax supply chain
in France. Where appropriate, we also usematerials which are certified to a recognizedsustainability standard.

CHANEL is a relatively small user of palm oil,yet, like most beauty-product producers,
we do use derivatives of it in our cosmetics.
We use around 130 derivatives of palm oiland palm kernel oil as raw materials, from50 suppliers — the total amount being about
300 tons a year. All the derivatives we use arecertified to the Roundtable on Sustainable
Palm Oil (RSPO) standard. There are manyenvironmental issues linked to palm oil
production, including deforestation, lossof wildlife habitat, and even climate change.
So, despite the relatively low volume weuse, we know we need to work on tracing
the supply, and ensuring none of our buying
contributes to these issues.

For example, we have achieved COC
Responsible Jewellery Council (RJC)
certification, and we use certified palm oil
derivatives. Where supply chains are highly
complex and lacking in traceability, and whererecognized sustainability standards do notexist, we try to work in association acrosssectors, with private, public, and nonprofit
parties that are trying to achieve responsible
supply chains. This is the case with mica,
for example, through the Responsible Mica
Initiative (RMI).

To understand this better, CHANEL
commissioned a third party to conduct a
traceability study of our supply chain for palm
oil derivatives. This helped us trace 81 percent
of our products to the refineries, 75 percent
to the mills, and 16 percent to as far as theplantations. We have identified 58 refineries,
23 crushers, and 1,180 mills potentiallyconnected to our supply chain that have risks
related to deforestation and wildlife issues.

The objectives of such initiatives focus on
increasing traceability, and ensuring fairand sustainable conditions for production
or mining. This helps communities andgovernments build a legal framework andachieve acceptable standards.

We will now move on to the second stepof our traceability program by connecting
these results with our sustainable-sourcing
approach. We will talk to a selection of ourpalm oil derivative suppliers about planningand running resiliency projects along our value
chain. In addition, since 2015 we have been
trying to develop, with a local NGO, our own
source of palm oil in Ghana to supplement
our needs. Here we will have full traceability
and better control over the social andenvironmental impacts.

21

“WE ARE LUCKY TO HAVE WORKSHOPSAND SUPPLIERS WHO KNOW HOW TO
DO EVERYTHING. WE NEED PEOPLE WHO
POSSESS A KNOWLEDGE OF TRADITIONALSAVOIR FAIRE. IF CHANEL HADN’T BOUGHTALL OF THESE ‘MAISONS,’ I DON’T KNOW
HOW WE WOULD MANAGE. WHAT I LIKE IS
THAT I HAVE THE POSSIBILITY TO CREATE
IN THE BEST CONDITIONS WITH THE BESTPEOPLE. IT’S AN ENORMOUS LUXURY.”— KARL LAGERFELD

22

A
CREATION-DRIVEN
BRAND

SAVO I R
FAI RE

Creation at CHANEL relies on savoir faire. Throughout our history, we have
set the trend for collaborating closely with artisans whose exceptional craft
skills have been honed and inherited over many decades. By acquiringand investing in houses of traditional expertise, and forming partnerships,
we are helping safeguard this cultural heritage in our supply chains wherever
we can, preserving and developing savoir faire for future generations.

Savoir faire is one of the most vital conditions
for creation at CHANEL, and an inseparable
part of our cultural heritage. Our creativity
is a direct result of a continuous dialogue
between our in-house creators and highly
skilled craft practitioners working in a rangeof traditional professions. Savoir faire plays
a role throughout our business, and acrossall our activities.

Our WATCHES & FINE JEWELRY activity
depends on the expertise of our traditional
French jewelry workshop, the High Jewelry
Vendôme Atelier. The perfumes our
FRAGRANCES & BEAUTY activity createsare developed through our close association
with flower growers from the historic
perfume‑making region of Grasse, in theSouth of France.

23

CAUSSE GANTIERGLOVE MAKER

24

SAVOIR
FAIRE

Within our FASHION activity, we have built ateam of dedicated couturiers who are working
to bring the creations of our designers to life.
In addition, our FASHION activity maintains
close creative partnerships with the Maisonsd’Art: workshops practicing traditional crafts
such as embroidery, millinery, and shoemaking.
Some of CHANEL’s most iconic FASHION
pieces, such as the two-tone shoe and the tweed
jacket, were created though Gabrielle Chanel’s
personal collaborations with historic Parisianmaisons, such as the shoemaker Massaro
and the embroiderer Lesage. By entering
CHANEL’s circle of creativity, the artisans bringthe intelligence and spirit of craftsmanship,magnifying CHANEL’s creations by
Karl Lagerfeld.

SAFEGUARDING SKILLS,PRESERVING INDEPENDENCE

For the past 15 years, we have invested steadilyin the Maisons d’Art, building a portfolio ofcompanies, under Paraffection, which means“for the love of.” By acquiring and investingin businesses in this way, both sides benefit.
The investment provides the cash flow andprofessional managerial support for theworkshops and houses to innovate newtechniques, as Causse Gantier, Tanneries BodinJoyeux, Mégisserie Richard, and Tanneries Haas
have done in tanning. It also enables them torecruit and train skilled artisans. The workshops
and houses retain full creative independence andthe ability to supply other luxury houses and/or
create their own product line (as is the casewith Maison Michel and Goossens). At thesame time, CHANEL is directly connected tothe source of inspiration and craftsmanshipthat fuels creativity.

Changing market forces — such as therelocation of manufacturing to emerging
markets, and a dwindling pool of talent —pose a major threat to the Maisons d’Art
and to the irreplaceable skills and knowledge
they possess.
CHANEL was the first company to recognize
the importance of acquiring and investing inbusinesses that possess these rare capabilities,
while maintaining their independence andability to work with other brands. Through the
Maisons d’Art, CHANEL ensures that our entire
industry has access to the fine craft skills
on which our business depends.

maison LESAGEEMBROIDERer

25

CHANEL’S
MAISONS D’ART
MAISON LEMARIÉFEATHER AND FLOWER MAKER
MAISON MICHELHATMAKER
MAISON MASSAROSHOEMAKER
MAISON LESAGEEMBROIDERER
GOOSSENS
GOLDSMITHATELIER MONTEXEMBROIDERER
PALOMAMANUFACTURER
CAUSSE GANTIERGLOVE MAKER
MAISON LOGNON
PLEATER
A.C.T. 3
TWEED PRODUCER

26

SAVOIR
FAIRE

Maison Lesage, which became part of theHouse of CHANEL in 2002, is known andrecognized worldwide as the guardian ofembroidery art: a savoir faire both exacting
and precious, requiring patience, attention
to detail, and creativity, which has now
become rare.

We don’t intend to fund our acquisition
forever. Our aim is to help the Maisons d’Art
build economic resilience over time, so they
eventually develop into sustainable, fully
independent businesses with strong longterm potential. This is all part of the uniqueperspective we bring and our desire to createa virtuous circle: one that benefits the artisans,their communities, CHANEL, and the luxury
industry as a whole. It is a way for CHANEL
to contribute to the role of luxury as oneof the main contributors to the culturaland creative industry.

Since 1992, the Maison Lesage has been
imparting its knowledge and techniques in
its prestigious Parisian school. Thousands ofstudents from around the world have chosen
to study the many Lunéville hook and needle
techniques taught at the Lesage school.
Instruction is provided by Maison Lesage
embroiderers, and is accessible to all, frombeginning to advanced students, as well as
those wishing to receive professional training.
On average, the school of Maison Lesage
offers 400 students per year a chance todiscover a unique craft, which involves learning
embroidery techniques and transforming skills
into a passion to be used in Haute Couture
or interior decoration.

27

3D-PRINTED JACKET

28

A
CREATION-DRIVEN
BRAND

INNOVATION — CREATINGVALUE FOR SOCIETY

In a rapidly changing world, CHANEL needs to constantly
anticipate society’s expectations so we can develop new ideasthat will help sustain our business over the long term.

Experimentation and innovation have been
driving forces throughout our history. We areable to reinvent ourselves continually to adapt
to change in society. Innovation for CHANEL
is about harnessing that dynamic legacy so we
can protect our business from the challenges
tomorrow presents. We do not innovate forthe sake of it. Innovation needs to be at theservice of creation, whether that’s in relation
to improving cosmetic formulas, using newmaterials in our FASHION creations, working

on more sustainable production processes,
or creating our own watch mechanism.
The aim is that our innovations bring realvalue to the consumer or society.
More than other luxury brands, CHANEL playswith the tension between heritage and novelty,
savoir faire and innovation. This perspective
is inimitable, and the paradox is typical of ourbrand identity.

29

A
CREATION-DRIVEN
BRAND

OUR APPROACH
How does CHANEL innovate? By bringing
together both complementary and contrastingareas of expertise, by developing a quick-thinking
management approach, and by creatingsynergies that allow us to push the boundaries
of creativity in bold, unexpected ways.
We’ve been able to marry traditional savoir
faire craft skills with cutting-edge technologies,
resulting in highly innovative pieces, forexample, a 3D-printed CHANEL jacket createdby Maison Lesage.
At the corporate level, we have created a
dedicated innovation practice to accelerate
our ability to rapidly test, learn, and drive
long-term innovation designed to future-proof
CHANEL. An experimentation engine, thepractice focuses on future-forward solutions
that are transversal within CHANEL and takea 5+ year perspective. Its strategic areas offocus are designed to help ensure all ourclients and employees continue to truly feeland experience the CHANEL difference.
Today, the innovation process is also firmly
established in each activity. In this way, we
unearth new ideas and potential avenues forthe business to follow so our model can evolve
along a more sustainable path. Following aresome examples of this in practice throughour Pantin lab.

PANTIN LABORATORY: LEADINGINNOVATION IN COSMETICSCHANEL opened is first cosmetic lab in 1976
in Pantin, on the outskirts of Paris. The Pantinsite employs more than 180 scientists, from
biologists to ethnobotanists, from chemical
analysts to toxicologists, from chemists toprocess engineers, and from evaluations
experts to molecular biologists.

As a result, it designs new technologies, bothin-house and with external partners, for the
production of plant-based active ingredients,
all the while assessing formulas for safety
and ecological responsibility in order to beat the leading edge of new thinking andpractice. CHANEL has a specific team whoserole is to integrate CSR within the R&D functionin order to foster sustainable innovation at
the core of the development process for our
beauty products.
NEW TECHNOLOGIES FOR PLANTBASED ACTIVE INGREDIENTS:
For more than 10 years, the Pantin laboratory
has developed some 60 active naturalingredients from state-of-the-art extraction andcultivation processes and continues to explore
new techniques to create the active ingredientsof tomorrow. The laboratory is at the forefrontof new green technologies, designed to be
more respectful of the environment.
Among the processes developed by the Pantin
teams, the polyfractionation (PFA) processuses molecular-distillation technology, making
it possible to obtain the active agents specificto our skincare lines. This flash distillation
process, carried out within a vacuum at low
temperature, allows us, in a few seconds, toextract active molecules while preserving
their essential qualities. Originally used forthe development of the vanilla active PFA for
our Sublimage product line, this technology
has been used subsequently for the ginger
PFA in the Hydra Beauty product line, andrecently to extract the active ingredient fromthe green coffee oil used in our BLUE SERUM.

30

INNOVATION —CREATING VALUE FOR SOCIETY

The Innovation and Materials Development
Laboratory is also working to develop
innovative techniques for producing active
ingredients in partnership with start-ups.

LONG-TERM EXPERTISE IN HEALTHY SKIN
CHANEL FRAGRANCES & BEAUTY is dedicated tocreating the best cosmetic solutions for women in theworld. To do so, for over 25 years, CHANEL has beenrunning a long-term research program to understandhealthy skin and beauty for women. This programaims at better understanding the crossed impact ofenvironmental factors, lifestyle, and genetics on theskin’s appearance and comfort. We can capitalize on
these long-term studies in order to develop the mostappropriate cosmetic solutions for women.

For example, the laboratory collaborated
with Oléos to develop a less intense extraction
method using the physical processes of
microwaves combined with ultrasound. Thus,
for the camellia, polyphenols are extracted
from white camellia flower petals in camelliaoil. After filtration, this oil, enriched inpolyphenols, is used in the Hydra Beauty
product range. More recently, one of the three
active ingredients of our BLUE SERUM wasdeveloped using this process.

To reflect the huge diversity of women around theworld, studies were carried out in different countries
in collaboration with local research centers including
in China (700 women from Beijing, Shanghai,
Guangzhou, and Hangzhou), in India (800 womenfrom Mumbai), in South Africa (300 women from
Pretoria), the U.S.A. (450 Latin-Americans and,250 African-Americans), and over 6,000 women fromdifferent ethnical backgrounds in France. The results
were shared and co-published, enabling us to create
a database of 37,000 high-quality images of women’sfacial- and skin-health data while always complying
with the highest regulatory and ethical rules arounddata privacy.

In addition, our collaboration with Plant
Advanced Technologies, a plant biotechnology
start-up from the Lorraine region of France,
made the cultivation of plants in aeroponics
possible. This new approach to above-groundplant cultivation makes it possible to control
the ecosystem of the plant by providing itwith all the nutrients it needs to develop fully.
By stimulating a plant’s natural defenses, weare able to trigger the production of active
molecules that will be harvested through theroots as they are immersed in a natural solvent.
The process, called “PAT plant milking®,” nowmakes it possible to produce natural active
substances without damaging the plant. This
technique was used for the first time in theworld by CHANEL for the production of thestar active ingredient of the Le Lift productline, Edulis Morning Glory.

CHANEL is also a partner in major health and aging
national research programs both in France (SU.VI.MAX
study on over 13,000 men and women) and Japan(Nagahama study on over 10,000 men and women).
These long-term studies aim to better understandwomen’s health and how their bodies age with time.
They are our contribution to a better understandingof aging in skin and appearance as a part ofhuman health.

CHANEL also uses specific partnerships in thedevelopment of raw materials. In its makeup
line, for example, CHANEL FRAGRANCES &BEAUTY co-developed a red plant pigmentwith the Regional Centre for Innovation
and Transfer of Horticultural Technology in
Rochefort-sur-Mer: the sappan wood, used in
the product range of ROUGE ALLURE lipstick.

31

GABRIELLE CHANEL — THE BOTTLE

32

INNOVATION —CREATING VALUE FOR SOCIETY

PARTNERING FOR INNOVATION
No business will find all its new ideas
internally. It requires collaboration. We searchfor excellence and inspiration in productdevelopment and customer service outsideof our business via the following methods:• Financing academic research partnerships:
We work with leading academic institutions
worldwide in the field of cosmetic formulas.
• Encouraging suppliers to innovate: We workwith our suppliers to produce new, moreenvironmentally friendly creations at scale.
• Partnerships with start-ups: We work withthe pioneers of the future to ideate new,more energy-efficient processes.
• Collaborating with others: We work withbusiness-model disruptors to create
long-term value.
Some examples of our innovative partnerships
are as follows:
FINANCING RESEARCH: THE CD LAB
FOR BIOTECHNOLOGY OF SKIN AGING
Skin aging is one of the major topics ourresearch team needs to focus on in order tocreate the most efficient and relevant skincare
products. To do so, CHANEL set up a sevenyear collaboration with experts in the fieldof aging and biological skin cell deterioration:
Professor Dr. Johannes Grillari and his teamfrom the Christian Doppler Laboratory (CDL)
for Biotechnology of Skin Aging, in Austria.

This partnership is co-funded (50–50) by
CHANEL and the Austrian government(Federal Ministry for Digital and Economic
Affairs). Through this partnership, CHANEL iscommitted to financing academic research toincrease public knowledge on skin health andskin aging, and provide innovative and efficient
skincare solutions for women.
This work resulted in the following:• 42 scientific papers published in renowned
international scientific journals.
• One patent on Solidago Virgaurea extract
as a new anti-aging active ingredient, which
was launched in 2018 in the SUBLIMAGE
L’Essence Strengthening formula.
• 15 bachelor’s and master’s theses and two
doctoral dissertations have been completed,and two doctoral dissertations are in
progress.
SUPPORTING SUPPLIER INNOVATION:
THE GABRIELLE FRAGRANCE BOTTLE
Launched in 2017, the GABRIELLE CHANELFRAGRANCE was created with the eco-designof its packaging in mind. While the concept ofluxury is often associated with the weight andthickness of the glass bottle, this rebellious
fragrance required the opposite approach.
Working with our long-standing glass
manufacturer over the course of several years,
we developed a thin-walled glass to produce
an exceptional bottle. The lightness andbeveled lines of the fine glass allow the intenselight contained within this fragrance to radiate.
The result is a bottle with a carbon footprint
approximately 40 percent lower than a typical
50-milliliter perfume bottle made by the same
glass producer.

33

EXQUISITE CRAFTSMANSHIP IS
USED TO MAKE CHANEL’S CREATIONS

34

INNOVATION —CREATING VALUE FOR SOCIETY

PARTNERING WITH START-UPS:
MORE SUSTAINABLE TECHNOLOGIESCapsum is an innovative company, located in
the South of France, that creates products forthe cosmetics industry. Founded by a French
entrepreneur and two Harvard professors,
Capsum specializes in a manufacturing
process based on microfluids. This enables
the company to produce cosmetics in theform of microcapsules, pearls, and bubbles.
CHANEL has supported the company fromits inception, recognizing that the innovativetechnology it uses has interesting aesthetic
qualities and is more environmentally friendly
than similar technologies. Not only do Capsum
technologies achieve a high percentage ofnaturalness — between 95 percent and98 percent natural ingredients, dependingon the technology — but they also use a lessenergy-intensive cold process.
Capsum has been involved with some of
CHANEL’s most successful cosmetics products,
including HYDRA BEAUTY MICRO CRÈME,the first cream to be based on camellia
microdroplets. They were also fundamental
to being able to create CHANCE EAU TENDRE
in a pillow-compact form by recreating thevery same bottled fragrance in invisible
microbubbles of perfume. Today they also
work with a number of our competitors in
Europe and the U.S.A.

COLLABORATING WITHDISRUPTORS: CREATING
THE BOUTIQUES OF THE FUTURE
CHANEL boutiques and retail experience
reflect our brand and its status. For our
FASHION collections, our philosophy is tooffer our products exclusively in our boutiques,as this is key to the way we present ourcollections. Our boutiques are central tooffering our customers a unique experienceand relationship with the brand.
In February 2018, we announced an exclusive
partnership and minority stake in the luxury
digital platform Farfetch. Through thispartnership we are working on augmented
retail projects with Farfetch, and looking toestablish a consistent path for our customers
through the different online media to which
they connect. Leveraging Farfetch’s innovativetechnology will help us develop an even more
outstanding customer journey by combining agreat e-service offering with a genuine CHANEL
experience in our FASHION boutiques.

35

“A LUXURY BRAND
HAS TO REPRESENTTHE BEST IN SOCIETY
IN ORDER TO BE
RELEVANT TOMORROW.”— ANDREA D’AVACKPRESIDENT OF FONDATION CHANEL & GLOBALHEAD OF CORPORATE RESPONSIBILITYREPORT
TO SOCIETY

A
COMMIT T ED
LUXU R Y LEADER
The influence of our brand far exceeds the size of our operations.
Working within the industry and beyond, we want to use thisinfluence to define and promote a more ambitious way to address
and manage sustainability challenges.

We believe we have to set an example in theway we address climate change: by reducing
our environmental impact and stimulating fair,green growth. It is our duty to live up to thelegacy of the brand, now and for tomorrow.
Through our long-term business perspective,
we have a clear opportunity to approachsustainability in a way many othercompanies cannot.

As a committed luxury leader, CHANEL focuseson the following efforts:
Reducing and compensating for our carbon
emissions, while also investing in socially
inclusive renewable-energy projects.

Building a more sustainable retail model,
including through the environmental
certification of our boutiques.

Exploring circular design and recyclingof our sales and promotional materials.

37

A
COMMITTEDLUXURY LEADERC HANE L’S
C LIM ATE STRATE GY

Addressing the impact of man-made climate change is one of the most urgent
challenges facing the world, and a significant threat to all businesses. To counter
this threat, our global economy must decarbonize rapidly and radically.
We believe that we have a key role to play inshowing how a luxury brand can strive to address
the negative impacts of a changing climate. Indeed,
we have high ambitions for the transition from a
carbon-based economic model to one that is resilient
and regenerative. We are convinced our long-term
mind-set allows us to make decisions and put inplace processes that will achieve positive outcomes.
Similar to many companies, our approach to climatechange has been to measure our carbon footprint
and to set targets for reducing direct and indirect
carbon emissions, in line with the Paris Agreement(United Nations Climate Change Conference,
COP 21) of 2015. We aim to help limit mean global
temperature increases to 2˚ and even strive for1.5˚ against a preindustrial baseline by the middleof the century, and for emissions to be “net zero”
by the end of the century.
We also believe the influence of our brand canincrease climate action, both within our company
and beyond. We work with a number of the key
partners of the We Mean Business coalition,
including The B Team, BSR, the World BusinessCouncil for Sustainable Development, and theBusiness Renewables Center at the Rocky Mountain
Institute to help make the changes needed toaccelerate the transition to a low-carbon economy.

38

OUR ESTIMATED
GLOBAL CARBON
FOOTPRINT(Scope 1, 2, and 3 Emissions)
Estimate includes: ~ 1.9M tCO2e
SCOPE 1SCOPE 3*

Direct Emissions
9,000 tCO2e

Transport of People
19,000 tCO2e

SCOPE 2

Transport of Goods
145,000 tCO2e

Electricity
35,000 tCO2e

Other Scope 3 —Purchased Goods
and Services
1.7M tCO2e*Does not include categories for which we do not haveestimates, such as use of sold products.

OUR
CLIMATE STRATEGY
Our climate strategy is basedon the following commitments:
1
SIGNIFICANTLY REDUCING THE CARBON
EMISSIONS WITHIN OUR DIRECTOPERATIONS TO BE IN LINE WITH
THE PARIS AGREEMENT TARGETS.
2
TRANSITIONING TO GREEN POWER
IN OUR DIRECT OPERATIONS AND
WORKING WITH OUR SUPPLY BASE TO
ACCOMPANY THEM IN THIS TRANSITION.
3
COMPENSATING FOR ALL THE CARBON
EMISSIONS LINKED TO OUR BUSINESSACTIVITIES THAT WE CAN’T OTHERWISEREASONABLY REDUCE AT THIS TIME.

39

A
COMMITTEDLUXURY LEADER

1

2

REDUCING CARBON
EMISSIONS IN OURDIRECT OPERATIONSTRANSITIONING TO
GREEN POWER IN OURDIRECT OPERATIONSEmissions associated with our corporatebuildings, main industrial sites, logistics
facilities, and boutiques are approximately
40,000 tons CO2eq/year (2015 baseline).
In line with the Paris Agreement ambitions,
we aim to halve these emissions in absoluteterms by 2030.

As one of the central pillars of our climate
strategy, we have committed to making a
gradual transition to using only green powerin our direct operations, including manufacturing
sites, distribution centers, offices, and standalone boutiques by 2030.

An extrapolation of committed operational
action plans indicates that a 50 percent
reduction in emissions by 2030, from a2015 baseline, is possible at certain key sites
through energy-efficiency measures and theenvironmental certification of all our buildings,
factories, and boutiques.
Emissions associated with transporting goods
and people are approximately 162,000 tons
CO2eq/year. In line with COP21 ambitions,
we aim to reduce these by between
40 percent and 46 percent, dependingon the business activities.
The operational action plans we have identified
to date, including packing optimization to
reduce the volume of transport, a shift from
air to sea transport where feasible, and further
optimizing transport flows, are not enough for
us to reach our targets by 2030. Consequently,
we will need to further rationalize elements ofour supply chain and increase the volume of
products shipped by sea. We will also need towork with our freight providers to identify moresustainable solutions for transport, including,for example, switching to electric vehicles.

Coupled with energy-efficiency measures,
our approach to achieving this objective
has three pillars:• Maximizing on-site renewable-energy
production.
• Purchasing green tariffs as an interim
measure.
• Investing in community renewable-energy
projects.
This transition will be challenging for several
reasons, the main one being our presence
in many markets where green power is notreadily available and renewable-thermalenergy solutions are lacking. Nevertheless, weare committed to the transition to renewableenergy wherever we can have an impact.

40

CHANEL’S
CLIMATE STRATEGYMAXIMIZING ON-SITE
RENEWABLE ENERGY

PURCHASING GREEN TARIFFS
The purchase of green tariffs is an interim
measure while we look for opportunities for
direct investment in new renewable-energy
projects. In each region, procurement andfacilities managers will purchase green tariffs
wherever available on the local market.
Our Green Power Policy & Implementation
Guidelines set our standards and criteria
for buying green-tariffs, and specify our
preference for solar, geothermal, wind,hydroelectric (small scale, low impact), andwave/tidal as the underlying energy source.

This pillar involves factoring renewable-energy
production, such as on-site solar power, into
the construction of all of our new sites, andretrofitting renewable-energy production
into existing ones. As an example, we havealready installed solar panels at manufacturing
and distribution sites in France and the
U.K., and are currently planning more in
the U.S.A. and Asia.

100 PERCENT SOLAR POWER
AT PISCATAWAY

Currently, all the electricity we use in our
direct operations in France and the United
Kingdom is covered by a green-tariff contract.
These two countries represent approximately
35 percent of CHANEL’s overall global
electricity use.

In the United States, New Jersey has some of thecountry’s most ambitious rooftop-solar-power
deployment goals. To meet these goals, businesses
and residents across the state must commit theirrooftops and parking lots to solar energy. CHANEL
is proud to join this growing movement, and wehave recently signed a 20-year power purchaseagreement in support of a new 3,200 MWh/year solar
deployment at our distribution facility in Piscataway.
The generation capacity is equivalent to the site’s total
annual electricity use. Working closely with a local
solar developer, we were able to maximize capacity
for on-site solar by installing solar-panel canopies
over the parking lot, as well as a rooftop solar array.

INVESTING IN COMMUNITYRENEWABLE-ENERGY
PROJECTSOver time, we will try to gradually phase out
green tariffs in favor of providing direct financial
support for new renewable-energy projects at
a community level in key regions.

41

"DROP-BY-DROP" RELEASE OF
HYDRA BEAUTY MICRO LIQUID ESSENCE

42

CHANEL’S
CLIMATE STRATEGY

3

COMPENSATING FOR
SUPPLY-CHAIN EMISSIONSBUILDING A MORE INCLUSIVE
ENERGY TRANSITION
Extreme climate events will disproportionately
affect the most socially and economicallyvulnerable communities. Often, it is thesesame communities that are excluded fromthe economic benefits of the transition to
renewable energy. Just as we look outside ourimmediate operations in building resilience andinvesting in our approach to sourcing, we also
aim to include communities in how we envisiona resilient renewable-energy market. For the
new energy system and economy to be truly
sustainable, it must include and benefit allcommunities. Based on this vision, we will
look for renewable-energy investments thatmeet at least one of the following principles:

We currently estimate our Scope 3 emissions
to be approximately 1.72 million tCO2e per
year, with the majority being generated inour supply base from the steps associatedwith the sourcing and transformation of
the raw materials used in our products, andthe upstream impacts associated with the
production of sales and promotional materials.
Work is underway to better understand ourfull Scope 3 emissions in order for us to beable to set ambitious targets for reducing
these emissions over a reasonable time frame.
In parallel, we are committing to offset at least
1.5 million tCO2e per year to compensate forour overall emissions, while also continuing
to invest in various insetting projects in our
supply base.

COMMUNITY

Rather than contribute to financing a largescale wind or solar farm, we will aim to invest
primarily in community-level projects. Not onlyis this type of investment closer to our actualenergy use and spending, but it also resonateswith our brand value of empowering people.

INSETTING

INCLUSIVENESS

In each market we sign a deal, we will lookto ensure our investment benefits communities
that have historically experienced economic
or social exclusion. Our priority will be to workwith community businesses and organizations
to provide training and professional opportunities
in energy infrastructure for local residents, andensure equal access to these opportunities.
RESILIENCE

As extreme weather becomes more common,
empowering people will also mean building
their capacity for resilience. Providing
economic opportunity through training and job
creation is one way we can contribute to this.
Where relevant, we may also look to invest in
physical grid resilience through microgrid andstorage capacity.

43

Insetting refers to what an organization does within
its own value chain to balance out its negative impacts
on climate. For CHANEL, insetting is a key componentof our strategy to compensate for our Scope 3 carbon
emissions. It translates into projects within our supply
base, including agroforestry projects, which aredesigned to sequester as much carbon as possible.
We are a founding member of the International
Platform for Insetting (IPI), a multi-stakeholder groupthat facilitates collaboration on insetting projects andpromotes best practices.

A
COMMITTEDLUXURY LEADERSUSTAI NABLE
RETAI LCHANEL boutiques are a physical representation of the CHANEL brand, andan integral part of the client experience. They are also a significant sourceof our own environmental impact. Through LEED (Leadership in Energy andEnvironmental Design) certification and eco-design guidelines, we are aiming
to minimize the impact of our boutiques and other points of sale on theenvironment and human health. Furthermore, we are moving toward
a circular model for retail, and have begun to invest in the technology
and partnerships necessary to support that transition.

To support this new way of working, we areinvesting in LEED training for our boutiquearchitecture teams.

Retail represents a significant and growing
proportion of CHANEL’s business activity
and, based on extrapolated data, accounts
for approximately 17,000 tons CO2eq/year.
Managing the environmental impacts of ourretail spaces is therefore an important priority.

LEED: CREATING A MORESUSTAINABLE RETAIL
EXPERIENCE
We achieved our first boutique LEED
certification in 2012 for the TaiKoo Hui boutiquein China. Since then, we have expanded theapproach globally across all activities andregions. To date, we have achieved LEED
certification for 31 boutiques, with 36 more in
progress. Going forward, all new construction
and major renovation of boutiques will pursue
LEED certification.

For FRAGRANCES & BEAUTY boutiques,
we have decided to pursue LEED Volume
certification at a global level, according to
the new Version 4 standard. To date, as far as
we know, we are the only luxury brand to beparticipating in LEED v4 volume. LEED Volume
means that a set of environmental guidelines
known as a “prototype” is pre-certified, andthen applied consistently across all future
projects. This has not been an easy process,since the existing LEED standard is not always
specific to projects of the size and aesthetic
nature of luxury boutiques. As a consequence,
we have been working closely with the U.S.
Green Building Council (USGBC) and Green
Business Certification Inc. (GBCI) to identify

44

WHAT IS LEED CERTIFICATION?
LEED is a is an internationally recognized rating
system and certification standard devised by the
USGBC for evaluating the environmental, health,and safety performance of building design andconstruction projects, and encouraging market
transformation toward sustainable design. Projects
pursuing LEED certification earn points across several
categories, including, but not limited to, energy
use and air quality. Based on the number of points
achieved, a project then earns one of four LEED
rating levels: Certified, Silver, Gold, or Platinum.

approaches and guidelines most relevant toour small-scope luxury boutiques. We hopethese standards will be able to support otherluxury brands seeking LEED certification.

MOVING TOWARD CIRCULARSALES PROMOTION MATERIALS
While we work to improve our retail spaces,
we are also finding ways to reduce the impactsof our product displays and other sales andpromotional materials (SPM) that appear
within them. We are investing in the circular
economy, the end goal being to phase out
waste by regenerating materials and products
at the end of their life cycle. To this end, we areprogressively improving the eco-design of our
SPM, increasing use of recycled raw materials
and ensuring they can be recycled easily at theend of their lives.

The whole idea of the circular economy
is restorative and regenerative by design.
Relying on system-wide innovation, it aims
to redefine products and services to phaseout waste, while minimizing negative impacts.
Underpinned by a transition to renewableenergy sources, the circular model builds
economic, natural, and social capital.

REDUCING PMMA IMPACTS
Since 2014, our FRAGRANCES & BEAUTY
activity has taken a number of significant
steps to reducing the environmental impactof PMMA plastic in its SPM displays.
In 2014, we began using a recycled PMMA
known as Green Cast in our cosmetic display
cases — an innovation by our supplier
Madreperla. This increased the amount ofrecycled raw materials in our SPM by almost
one-third, and according to life cycle analysis
conducted by EVEA, decreased its carbon
footprint by 66 percent.
In 2017, the activity launched the Pearl Project,working with our suppliers Madreperla andArkema to produce recycled PMMA granules
for manufacturing injection-molded SPM
components. This project will at least double
the amount of recycled plastic in our SPM.

45

CHANEL BOUTIQUE
31 RUE CAMBON

46

SUSTAINABLE
RETAIL

WORKING TOWARDCOMPLETE RECYCLABILITYCYCLEAPP: COLLABORATINGFOR CIRCULAR POINT-OF-SALE
MATERIALS

In the U.S.A., we use a certain type of display
we call “playstations” to promote fragrance
and beauty products. These displays are bulky
and have proven difficult to recycle in the past.

In France, our FRAGRANCES & BEAUTY
activity has developed Cycleapp, a pilot
project with a digital application to improve
point-of-sale SPM recycling. The principleof the app is to make it easier for beauty andcosmetics retailers to arrange for the removalof old SPM displays at the end of campaigns
at the point of sale. When a campaign ends,
the salesperson simply posts his or her SPM
on the application as ready for removal andrecycling, whereupon it is then collected
and sent to a designated recycling center.
This ensures that more SPM material enters
the correct recycling channel and remains fully
monitored by the company. The test project
has been running in Lyon since March 2016at 13 points of sale.

To overcome this recycling challenge, our
FRAGRANCES & BEAUTY activity has beenworking with TerraCycle, a company thatspecializes in recycling materials that are hard
to recycle. This initiative aims to develop a
way to ensure complete recyclability of SPM
playstation displays at the end of their life.
Launched in 2017, the initiative has reduced
SPM waste being sent to landfill by 38 tons,
and will also serve as a pilot for how smaller
point-of-sale displays could be recycled more
systematically and regularly.

With collaboration between CHANEL,
Marionnaud, Le Printemps, Les Galeries Lafayette,
La Poste, New Attitude, and Paprec, we believe
this app could be a model for the whole beautyand cosmetics retail industry in France by 2020.
This project shows our commitment to thecircular economy, ensuring we can reuse old
SPM materials to create new displays.

47

“PEOPLE WANT TO
BELONG TO ANORGANIZATIONTHAT VALUES THEIRUNIQUENESS AND
CONNECTS THEM TOA LARGER MISSION
AND PURPOSE.”— CLAIRE ISNARDGLOBAL CHIEF PEOPLE& ORGANIZATION OFFICERREPORT
TO SOCIETYA
H UMAN-DRIVENCOMPANYFor Gabrielle Chanel, creativity and creation were enacted on adaily basis through dedication, passion, and work, allowing her to bothachieve financial security and fulfill her personal ambition. We believe
work is a source of excellence and also a fundamental means ofenhancing the dignity and respect of every individual. Following thelegacy of our founder, we believe in human empowerment, promoting
self-accomplishment and self-determination whereverour business touches people’s lives.

The right of every individual — in particular,
every woman — to participate in our economy
and society on respectful and fair terms isthe most basic form of empowerment, and anecessary condition for our creative capacity
to flourish. Therefore, we aim for working
conditions that respect and enhance thepotential of each person, both within thecompany and throughout our extended
supply base, where the risks are particularly
acute in some areas.

To achieve our ambition to be a human-driven
company, we focus on the following efforts:

Improving respect for human rights
throughout our supply base.

Creating the conditions necessary forlong-term engagement, performance, andwell-being of our employees at work.

Advancing the role of womenin society in general.

49

A
HUMAN-DRIVENCOMPANYHU M AN RI GHTS I N
OUR SUP PLY CHAI N

We are aware of the actual and potential human-rights impacts generated
throughout our value chain. We are engaged in an ongoing process ofhuman-rights due diligence, progressively taking steps to identify, prioritize,
and address salient issues. In our supply base, we recognize our responsibility
to make investment and purchasing decisions that support the highest
standards in conformity with our corporate policies, and choose towork only with those suppliers who engage with us in this.

Our supply base consists of more than 3,000
suppliers around the world, split between what
we term “direct procurement” (i.e., finishedgoods, components, and raw materials) and“indirect procurement” (i.e., sales, promotionaland marketing materials, such as shoppingbags and displays).
Our FASHION activity has over 1,400 supplychain partners, 69 percent of which supply
finished goods, and the majority of which are
based in Europe (France and Italy).

Our FRAGRANCES & BEAUTY activity has
over 900 suppliers, 69 percent of which
provide raw materials. 27 percent supply
natural raw materials of strategic importancefor the brand, and we have direct access tothe origin of such materials.
Our WATCHES & FINE JEWELRY activity
has 34 suppliers, supplying gold, diamonds,
and other precious stones. For indirect
procurement of customer-related items,
we have over 670 suppliers.

50

From the beginning, CHANEL has been amanufacturing company. Most of our finishedproducts are assembled in factories we own or wecontrol, mostly in France, Italy, and Switzerland.
These factories have a large network of suppliersof raw materials, product components, andnonsalable promotional materials.
Our due diligence approach consistsof three key components:
1
CLEAR POLICIES AND GUIDANCEGOVERNING THE SUPPLIERRELATIONSHIP.
2
RIGOROUS PROCESSES TO ASSESSAND REMEDIATE HUMAN-RIGHTSRISKS AND IMPACTS.
3
PERFORMANCE MONITORING
AND COMPLIANCE AUDITING,
AS WELL AS ONGOING DIALOGUE,ENGAGEMENT, AND IMPROVEMENT.

51

A
HUMAN-DRIVENCOMPANY1

POLICY GOVERNING THE
SUPPLIER RELATIONSHIP
Our approach to working with suppliers isgoverned by our responsible-sourcing policy.
Based on relevant international obligations
and principles from the United Nations andthe International Labour Organization (ILO),
this policy sets out our expectations andrequirements regarding issues related tolabor and human rights, the environment,
and anticorruption. Since 2011, we have asked
all our FRAGRANCES & BEAUTY suppliers
to commit to applying our policy’s principles.
The policy is updated to take into accountregulatory changes and will be introduced
across all activities and regions over the courseof 2018. We provide guidance on applying thepolicy through annual supplier meetings, andthrough support from trained professionals
on our procurement teams.

This exercise is conducted on an ongoingbasis with the procurement teams, andrequires, at a minimum, tracing the valueadding activity back to the last transformation
stage. Based on our risk-assessment approach,we have identified where there are areas ofactual and potential risk with a small numberof our suppliers from a business dependency,
CSR, and/or reputational perspective.
Second, to better understand suppliermanagement of social and environmental risks
at a more detailed level, we ask suppliers toassess themselves online using our standard.
We first developed this in 2011, in line withinternational norms, guidelines, and principles,
including the OECD Due Diligence Guidancefor Responsible Supply Chains.

A GOVERNANCE AND OPERATINGMODEL FOR RESPONSIBLE SOURCING

2

In order to continue to monitor the performance of
our suppliers, we have created a Responsible-Sourcing
Expert Team at the corporate level. It’s their mission
to define and update our responsible-sourcing
guidelines and to ensure coherence in implementing
our responsible-sourcing strategy. Our Sustainability
Excellence Program (SEP) audit committees atdivisional and corporate levels ensure the audit results
are integrated in follow-up actions endorsed by top
management, and that we monitor results.

PROCESSES TO ASSESSAND REMEDIATE IMPACTS
In recent years, we have developed a thoroughrisk-assessment methodology, which determines
and helps remediate social, environmental, andgovernance risks across our supply base.
First, we assess all suppliers according to criteria
covering the state of the business relationship(purchasing volumes, dependency), social andenvironmental issues associated with thevalue‑adding activity undertaken by the supplier,and potential reputational risks for the brand.

In total, we have five internal and 10 external trained
and certified auditors devoted to implementing oursourcing policy.

52

HUMAN RIGHTS IN
OUR SUPPLY CHAIN

We also submit this in-house standard to
external experts regularly to ensure it covers
all relevant issues and continues to set thehigh standards we expect from our suppliers.
We have designed this standard to be bothall-inclusive (covering social, environmental,
governance, and ethics topics) and exemplary— establishing high standards for the restof the industry for supplier performance onthese issues.

HUMAN-RIGHTS IMPACT ASSESSMENTS
In addition to our risk analysis at the corporate level,
we have commissioned independent organizations
to conduct in-depth human-rights impact assessments
at the source of our raw materials when we haveidentified actual and potential risks. For example, inIndia and Madagascar, they visited and interviewed
farmers, suppliers, local stakeholders, and otherrights holders to better understand the scale of therisk, its severity, remediability, and the possibility for
us to influence it. Our responsible sourcing teams
also assess human-rights impacts on-site before
and during the implementation of our reinforcement
projects at the source of our key raw-materials
supplies around the world.

Finally, based on the results from the firsttwo process steps, our internal auditors planand undertake annual audits. We conducted
over 200 of these during 2017. Over the
next two years, we plan to conduct over
500 audits across our diverse supply base,using an intelligent audit tool that provides
guidance and the most up-to-date information
possible. Where these audits reveal criticalnoncompliance issues with our SEP standard,
we put remediation plans in place, and, if they
are not implemented, we may even end ourpartnership with the supplier altogether.

We recognize we need to talk to stakeholders andexperts for guidance and support in our human-rights
approach. So in early 2018, with the help of a leadingbusiness and human-rights organization, we brought
together function heads from across our business to
discuss and prioritize our salient human-rights issues
and to formulate a plan to address them. At the sametime, using a proprietary maturity model, we conducteda gap analysis of our existing human-rights duediligence approach, using the United Nations Guiding
Principles on Business and Human Rights (UNGPs).
These principles set the international standard forhuman-rights due diligence and help guide us in the
progressive implementation of our approach.

NUMBER OF AUDITS CARRIED OUT
AMONG HIGH-RISK SUPPLIERS (2017)
FRAGRANCES& BEAUTY58

FASHION
OTHER

134
6
0

30

60

90

120

150

53

TUBEROSE
FROM GRASSE

54

HUMANRIGHTS INSUSTAINABLE
OUR SUPPLYRETAILCHAIN

3

ONGOING DIALOGUE,ENGAGEMENT, AND
IMPROVEMENT
Our relations with our suppliers has always
been driven by the wish to build long-term
partnerships. From this perspective, ourcommitment is not only to ensure they meet
our standards, but also to help them improvetheir way of working and adopt sustainable
practices. We consider them to be an integral
part of our value chain, and we want themto have the same long-term vision of value
creation. Beyond audits, we require our moststrategic suppliers to report on a selectionof CSR key performance indicators, coveringsocial and environmental issues, and thetraceability and CSR performance of theirown supply chain. We use these KPIs in annual
business reviews to benchmark and improveongoing supplier performance.
The responsibility for our suppliers’ compliancewith our responsible-sourcing policy is at theheart of our purchasing teams’ mission. Our
focus on creating value over the long term,
enabled by our independence, means we canengage suppliers on more than cost and shortterm financial-performance considerations.
This is critical for effectively remediating social,environmental, and governance issues.

For example, in 2008, during the financial
crisis, a large number of our suppliers faced
major financial stress due to the rapid andunexpected drop in demand for their goods
and the increasing pressure on prices fromthe industry.
What was important for us was not to obtainshort-term financial advantage, but to supportand sustain our strategic supplier base.
Without this base, we wouldn’t have been able
to operate over the long term. For this reason,
we confirmed long-term orders to secure theproduction planning of our suppliers, and,in certain instances, afforded them shorter
payment terms to help their liquidity.
To increase traceability and sustainability ofcertain commodities, or particularly complex
supply chains where it is hard to makeprogress, we participate in multi-stakeholder
initiatives (MSIs), to take advantage ofour collective leverage for effecting positivechange. For example, to address systemic
issues such as child labor, we engage
with partners such as the ILO to findlong-term solutions.

55

A
HUMAN-DRIVENCOMPANYB EI NG A
P U R POSEFUL EMPLOY E R

CHANEL is a family-owned company whose values are groundedin creating the conditions for people to perform at their best
and feel fulfilled and confident in their work. We care deeply about
our employees and strive to create a safe environment thatvalues people’s humanity and uniqueness so that they are free
to bring their full selves to their work and to their life’s calling.
At CHANEL, being a purposeful and humandriven employer means being intentional,
meaningful, and caring in inspiring ourpeople; fostering environments that reflect
our strong values; encouraging and enabling
inclusion; and investing in work and workplaces
that foster collaboration and well-being.
This is critical for the long-term successof our business.

A SELF-REFLECTIVE
AND INCLUSIVELEADERSHIP CULTURE
Over the last few years, we have invested
in enhancing and infusing a strong, positive
leadership culture. In 2012, starting with the
top leaders in our organization, we launched
an “Active and Conscious Leadership Journey,”through which we encouraged individual selfreflection and opening up to others and to theworld in order to be better equipped to face
the challenges of a fast-changing business
context. The Active and Conscious Leadership
Journey course started with the 20 most seniorleaders. This was followed by the next 200, andanother 400, until now, when a steady streamof 150 employees per year are taken throughvarious iterations of the platform and training,
ensuring depth and long-lasting culturalembedding. Through this Leadership Journey,
hundreds of employees are optimizing theirleadership and enhancing our rich culture.

56

INTENTIONAL ONBOARDING
FOR NEW MANAGERS
Being intentional, meaningful, and caring
is also central to our onboarding philosophy.
For new managers joining CHANEL, weoffer a 100-day onboarding plan in which weemphasize building relationships and taking
time to learn our brand, business, and culture
over driving immediate impact. By doing so,
we take the pressure off, valuing long-term
engagement and people connections througha thoughtful immersion into the company
before they are expected to engage in any
operational duties or business decisions.

THE IMAGINE CHANELPROGRAMS: BRINGINGPEOPLE TOGETHERAt CHANEL, we know that inspired, motivatedemployees are a condition for businessperformance and success in the longterm. In 2012, to ensure that everyone at
CHANEL understands and feels connectedwith the culture, each other, and our
purpose, we launched Imagine CHANEL,
a company-wide culture-immersion
and brand-education platform.
The Imagine CHANEL programs engage
people at all levels, from new recruits to seniorleaders, and uniquely brings together people
from different backgrounds, métiers, and partsof the world in forums that value inclusion.
To date, more than 11,000 CHANEL employees
have participated in the platform of programs.
Within Imagine CHANEL are four programs,
conducted throughout the world, that aredesigned to support employees at different
stages of their career. Each program has a
specific function and is focused on continuallyinspiring and connecting people to one
another, to the brand, and to our business.

57

A
HUMAN-DRIVENCOMPANY

Imagine Discovery and Imagine Perspectives,
deployed at market, regional, and global levels,
are geared to inspire new and long-serving
employees by teaching them about our brand,
history, organization, and business at different
points in their tenure. Through Imagine
Business, we help emerging talent acrossbusinesses and functions to accelerate theirunderstanding about the business dynamics
and the decision-making necessary to balance
our short- and long-term objectives. Then,through Imagine Leadership, we continue toinfuse the Active and Conscious Leadershipmind-set and behaviors to our managementlevel employees.

We encourage a multi-experience journey
so that our people can learn from different
types of work, different leaders, and different
environments and teams.

INVESTING IN OURLEADERSHIP PIPELINEDEVELOPMENT FOR ALL
Our development philosophy is groundedin the belief that all employees should be
supported in developing their personal talents
and careers. We strive to empower our people
to realize their full professional and personalpotential and achieve their ambitions througha culture of development focused on increasing
their capacity to learn, grow, and innovate.
We also believe development is fueled by aperson’s sense of purpose and self-motivation,and can take many forms, including skills
training and learning-development programs,
short-term and/or global-mobility assignments,
and challenging, fulfilling work that supports
the business.

Through systematic talent reviews at market,
regional, and global levels, we engage ourleaders in discussions about key talent, withgreater depth and focus. Building on ourdevelopment and performance philosophies,
we have implemented executive assessments
to better understand and cultivate the strengthsof our key talent and enhance professional
development and career progression. Together,
these processes enable us to identify, plan, andprepare our key talent for larger roles in theorganization, and ensure we build a stronger,
more engaged leadership pipeline.

58

BEING APURPOSEFUL EMPLOYERPERFORMANCE AT CHANEL:PEOPLE AT THEIR BESTGLOBALIZING THE CHANELFASHION RETAIL EXPERIENCE

Reflecting our brand purpose, whichemphasizes empowerment, our Design Your
Impact philosophy intends for our people tobe on a continual path of self-development,
and supports them in taking responsibility for
their growth while contributing to the business.

The Retail Excellence Program brings together
employees engaged in our retail métiers fromaround the world to Paris — our heart ofcreation — to participate in a rich learning
experience on all aspects of our FASHION
business. The experience combines thefollowing elements:

Our process for managing performance isbased on conversations with managers andprovides tools, resources, and support topeople on how to achieve as well as what toachieve. We thereby strive to keep our people
motivated and growing in a transparent, fair,and developmental process that supports
people in being their best, individually andcollectively, and ensures everyone is moving
in the same direction.

EMBEDDING PERSONAL LEADERSHIPIN PERFORMANCE DRIVERS
At CHANEL, we focus equally on four performance
drivers: Brand Performance, Client Engagement,
Leadership & People Strength, and Financial Health.
How we lead and treat our people is equal inconsideration to brand and business as a driver of
performance. Placing this equal value on Leadership& People Strength is a defining factor in who we are
as a company and brand. People matter at CHANEL,
and we demonstrate our commitment to their longterm engagement, development, and well-being in
our codified behaviors, measurements, and supportive
tools to help people optimize their strengths.

• Visits to our ateliers to learn from CHANEL
artisans about their exceptional know-how.
• Exposure to FASHION leaders to hear about
our business strategies and priorities.
• Expert-led sessions on how to deliver
exceptional service to our clients, with astrong emphasis on the human touch, which
we strive to preserve in everything we do.
In the program, our employees also connect
with each other, share experiences, and engage
in reciprocal learning, all of which helps tobuild stronger relationships and enhance theirdevelopment. Altogether, the Retail Excellence
Program deepens passion for the brandand company, and provides opportunity fordevelopment and global community building.

59

A
HUMAN-DRIVENCOMPANY

OUR WORKPLACES:
SOCIAL WORKINGENVIRONMENTS SUPPORTNEW WAYS OF WORKINGOur physical workspaces are increasingly
a driver of transformation, inspiration, andcollaboration. Understanding that the physicaldesign of our workplaces plays a critical rolein the performance and well-being of ouremployees and in our overall organizational
culture, we are investing in workspacetransformation programs across CHANEL.
New styles and/or expanded workspaces
designed in close consultation with CHANEL
employees encourage people in different
areas of the business to connect, socialize,
collaborate, and share ideas.

GENDER EQUALITY —A FIRST STEP WITH EDGE
To further enhance our inclusion and diversity
measures, in 2016–2017 we took an important
step in focusing on gender equality. As acompany employing a majority of women andas a brand primarily for women, we believe it
is essential that we ensure that the principles
of gender equality and women’s empowerment
are embedded in our organization.
We therefore engaged EDGE, the leading
global assessment methodology andcertification standard for gender equality, toprovide an initial assessment and guidanceon the gender balance across our organizationand to advise on the steps, which we are now
taking, that will help to ensure gender equality
in our pipeline development, pay practices, andfair-employment policies. Enhancing inclusionand diversity is also an ongoing opportunity
for CHANEL. We will continue to focus on new
programs to demonstrate our appreciation
for all aspects of diversity, including diversityof thought, and to further promote a more
inclusive and diverse culture.

LA PLACE
In 2016, after a year of consultation and design, ourteam in New York opened a new workplace model
designed to encourage collaboration, and explore
ways in which people in different areas of the businesscould connect, collaborate, and share ideas while
increasing visibility and interaction with seniorleadership. The new open space for gathering andinteraction has enabled multiple forms of assembly
as well as events that inspire our employees. The“La Place” model is being replicated in other offices,
including the new London management offices.

ENSURING INCLUSIONAND EQUALITY
Fostering a culture of inclusion and diversity
where individuals have the freedom to bethemselves and equal opportunity tocontribute and achieve is of essential value.
We are committed to equal treatment in ourorganization and to continually enhancing
our policies and practices that ensure safe
environments free of discrimination andharassment, as well as equality of treatment
and access to opportunities and promotions.
We are improving in this area by incorporating
inclusion and diversity in our HR talent
processes, establishing management
priorities, and conducting regular compliancecommittee reviews — all at global, regional,
and market levels.

60

BEING APURPOSEFUL EMPLOYER

PARENTAL LEAVE:COMMITTING TO EQUAL
TREATMENT AND VALUINGPEOPLE’S WHOLE LIVES

THE ASHOKA PROJECT
Ashoka is an NGO that brings together the largest
network of social entrepreneurs worldwide. Its mission
is to identify and support the most innovative ones
by fostering links with businesses to maximizesocial impact.

On January 1, 2018, CHANEL implemented a
new global parental-leave benefit, providing
14 weeks of leave at full pay for all new parents— both women and men — who expand theirfamilies by birth, adoption, or surrogacy. Thisenhanced benefit reflects our shared values ongender equality, empowerment, and freedomof choice by giving women and men equal
flexibility to focus on career and family, moving
away from stereotypes that women, morethan men, should manage family demands,
which often force them to trade off on theircareer. Our global parental-leave policy is an
employer’s essential investment in supporting
employees’, particularly women’s, long-term
personal and career ambitions, including
cherishing important moments in their lives
and reaching top executive positions, not justat CHANEL, but also in society in general.

In 2018, our FRAGRANCES & BEAUTY activity enteredinto a partnership with Ashoka, based on three pillars:
1. To select and financially support social innovatorson themes related to our business (renewableenergy, circular economy, biodiversity, integrationand diversity).
2. Engage our own employees and develop talents
alongside social entrepreneurs through discovery
sessions and skills sponsorship.
3. Share what we learn with leading companies inother sectors, within a multi-company programsupported by Ashoka.
Through this program and through social innovation,
we want to develop a strong culture of sustainability
and commitment among our employees, and create
a “laboratory” for the creation of new business models
and innovation processes.

EMPLOYEE SOCIALCOMMITMENT
Since it was first created, Fondation CHANEL
has provided employees with opportunities toactively participate in the projects it supports.
Many employees wish to engage actively insocial and philanthropic projects to fulfil theirpersonal and professional desires. CHANEL
actively encourages employees to support theassociations and social enterprises by matchingan employee’s competencies and skills to theneeds of these organizations on social andenvironmental projects. Our employees are
thereby helping these organizations not onlywith their time, but also by helping them build
internal competencies in key disciplines formutually rewarding benefit.

61

A
HUMAN-DRIVENCOMPANYADVA NC ING T HE RO LE
OF WOM EN I N S O CI ET Y

The story of CHANEL is the story of a woman. Through her entrepreneurial
spirit and creativity, Gabrielle Chanel rose from humble origins to liberate
herself, reinvent the codes of fashion, and influence the world. Today, womenare our main customers and comprise 80 percent of our workforce.

CHANEL AND THE WOMEN’SEMPOWERMENT PRINCIPLES

Fondation CHANEL, and other women’s
empowerment initiatives within the company
and our supply chain are based on the
profound conviction that women are agentsof positive change in the world. Advancing therole of women in society is a key lens throughwhich we look at everything we do: from ourbrand purpose to our employee-engagement
policies and through our approach to supplychain issues. As signatories of the United
Nations Women Empowerment Principles,
we are committed to driving these initiatives
not only within the company, but also, more
broadly in society through Fondation CHANEL.
It was to build on Mademoiselle Chanel’s legacy
that CHANEL created its first philanthropic
foundation based in France, the Fondationd’Entreprise CHANEL, in 2011, with the initial
mission to improve social and economic
conditions for women and adolescent girls.
In 2016, our philanthropic entity was renamed
Fondation CHANEL. It expanded its operations
globally to the U.S.A. and Europe, while also
strengthening its support to numerous social
purpose organizations (SPOs) in developing
countries and in East Asia.

CHANEL signed the Women Empowerment
Principles (WEPs), a partnership initiative of theUnited Nations Entity for Gender Equality and the
Empowerment of Women (UN Women) and theUnited Nations Global Compact, for the first timein 2015. The WEPs provide a set of considerations
to help the private sector focus on key elements
integral to promoting gender equality in theworkplace, marketplace, and communities.
To date, CHANEL has primarily focused on
applying the WEPs to the workplace and its
own workforce. Over the next year, we plan
to integrate a gender lens more systematicallyinto our sourcing policies, programs, metrics,
and overall reporting. To help us advance boththe thinking and practice of how companies
can achieve progress for women globally andsuccessfully apply the WEPs, CHANEL joined
BSR’s Business Action for Women (BAW)
collaborative initiative. Together with other major
corporations, CHANEL is involved in two of the
BAW working-group clusters, mainly to advance
women in the supply chain and to empower
women to lead on climate resilience.

62

WHAT WE BELIEVE:A HOLISTIC APPROACH
At CHANEL, we believe that women’s
empowerment and gender equality are
not only a question of equal rights, but arealso a key condition to global progress andrepresent a huge opportunity for growthand prosperity. Many studies have shownthat societies, companies, and communities
promoting gender equality are more free,peaceful, stable, and fair, and lead to more
prosperous and dynamic economic models.2

OUR APPROACH
For over seven years, Fondation CHANEL
has been committed to supporting social
purpose organizations working to improve
the social and economic conditions of women
throughout the world. This mission resonateswith CHANEL and leads to a systematic
integration of this issue into our work andlong-term vision. By giving grants to nonprofit
organizations, Fondation CHANEL provides
long-term support to women and girls invulnerable situations and helps them reachthe first step on the development ladder.

Fondation CHANEL promotes the following:• Access to economic resources andentrepreneurship (including microfinance).
• Access to education and vocational training.
• Access to leadership and decision-making.
• Access to health and social protection
services.
• The use of culture, information, andtechnology as a means for social integration.
• The strengthening of women’sorganizations, funds, and networks.
Since 2011, Fondation CHANEL has expanded
significantly. Since its inception, it has supported
more than 60 projects in 35 countries, witha global commitment of $20.5 million. Overthe next five years, we plan on investing over$120 million in advancing the role of women insociety. Thanks to its concrete and measurable
impact, Fondation CHANEL has gainedinternational recognition in its field throughstrategic partnerships with UN Women andthe OECD.

2.	For example, the McKinsey Global Institute Report, September 2015, “The power of parity: How advancing
women’s equality can add $12 trillion to the global economy.”63

GABRIELLE CHANEL64

ADVANCING THE ROLE
OF WOMEN IN SOCIETY

In addition to its grant-making activities,
Fondation CHANEL acts as a change-makerfor the organizations it has carefully selected:• Grants are given over longer periods of time(three to five years) to ensure that concreteand measurable impact is achieved foreach project.
• Fondation CHANEL provides flexible
funding to its partners in order to build
capacity and improve their financial stability.
In particular, it helps them assess andmeasure the impact of their activities andsupports them in their outreach activities(external communication, digital and social
media strategy, and advocacy).
• It promotes systematic exchanges of bestpractices between the organizations it
works with and participates in advocacy
activities in the field of women’s
empowerment.

The activity of Fondation CHANEL isconcentrated in a number of regional hubs.
Prior to any intervention, it analyzes the local
context in detail to ensure that the activities it
supports are the most relevant and impactful,
with systematic field visits to ensure a soundunderstanding of the project’s challenges
and results.
Fondation CHANEL also provides opportunities
for CHANEL employees to use their knowledge
and talent to strengthen the work of its partners,
either in person or from a distance. Over the
past two years, nearly 200 employees havecontributed to technical-assistance missions,
including in the fields of sales, communications,and human resources, among others.
For more information about present and past
projects supported by the foundation, visit Fondation
CHANEL’s website: www.fondationchanel.org

FONDATION CHANEL HIGHLIGHTS
2016–2017

45

1,600

projects supported
in over 35 countries

women gained employment orcreated their own enterprise$330,000

2,000

Average amount of financial
support per project

women accessed and completed
vocational training programs

3–5 years 60,000
Average durationof partnerships

women benefitted from improved
access to health services

65

The purpose of this report is to show how socialand environmental priorities are taken into
account for the long-term value creation of our brand.
Our ambitious road map depends on:

A SOLID COMPLIANCE PROGRAM THAT ENSURESTHE RESPECT OF ETHICAL AND LEGAL STANDARDSAPPLIED TO HOW WE CONDUCT BUSINESS.

A COHESIVE CSR GOVERNANCE THAT ENSURES NOTONLY THE FULL IMPLICATION AND ENDORSEMENT OFOUR TOP MANAGEMENT, BUT ALSO, THE IMPLICATIONALL OUR EMPLOYEES THROUGH THE DIFFERENTACTIVITIES AND REGIONS.

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GOV ERN AN CE FO RRESPONS I BI LI T Y ANDSUSTAI N ABI LI T Y

Our standards and principles, including those that apply to the personal
conduct of our employees, are exceptionally high. All employees are
expected to reflect our fundamental values of uncompromising integrity,
respect, and responsibility in performing their professional duties.
These global ethical values apply to how we conduct our business andcomply with applicable laws, rules, and regulations.

“WE ARE DEEPLY COMMITTED
TO DOING THE RIGHT THING. WE
ALSO WANT OUR EMPLOYEES TO
COME TO WORK EVERY DAY BEINGPROUD TO BE WORKING FOR A
COMPANY WITH FUNDAMENTALVALUES OF UNCOMPROMISINGINTEGRITY, RESPECT, ANDRESPONSIBILITY FOR THEIRCOLLEAGUES, THEIR BUSINESSPARTNERS, AND THE COMMUNITIESIN WHICH WE OPERATE.”—S ARAH FRANCOIS-PONCETGLOBAL GENERAL COUNSELLEGAL COMPLIANCE
AND ETHICS
Protecting our reputation is the responsibilityof every employee. Each of them is expectedto act with uncompromised integrity so that
others will know they can trust us and haveconfidence in our authenticity and fairness.
CHANEL wants to be recognized as a company
that honors its commitments, respects otherbusiness players, is a reliable business partner,
and is an icon of unsurpassed excellence.
We are also strongly committed to conducting
business in compliance with applicable laws,
rules, and regulations in all markets in which
we operate.

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MAISON MASSAROSHOEMAKER

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GOVERNANCE FORRESPONSIBILITY AND SUSTAINABILITY

We take a coherent approach to complianceissues, led by our legal and regulatory
departments and implemented worldwide.
It encompasses the following:

REGULATORY COMPLIANCE
IN PRACTICE: PRODUCT SAFETY
Whatever the material, from fragrance and cosmetic
ingredients to leather, textile, or jewelry components,
CHANEL has dedicated teams of experts around theworld to monitor all existing and incoming regulations
in order to secure the safety of our products. While
our finished products are fully compliant with thevarious toxicology regulations, we constantly urge our
R&D and regulatory departments in all activities to try
to further lower the required tolerance levels.

• Clear governance and guidance frommanagement on company ethics.
• Helplines to raise concerns andwhistleblowing protection.
• Policies ensuring a supportive work
environment and a zero-tolerance
approach to any form of discriminationor harassment.

Wherever possible, CHANEL FRAGRANCES & BEAUTY
forbids the use of certain substances, based on astricter interpretation of current regulations in this area.
The FRAGRANCES & BEAUTY activity has internal
criteria in place that define how these substances
are identified. The criteria covers both environmental
and ethical considerations, such as being on the IUCNRed List of Threatened Species, which identifies plantsthat are near-threatened, vulnerable, endangered,or critically endangered, as well as substances thatinvolve potential consumer health concerns.

• High employee protection in terms oflabor practices and health and security.
• Protection of our assets, including
intellectual property and data privacy.
• Anticorruption, money-laundering, andfair-competition issues.
• Ensuring consumer health and safety
through enforcement of strict regulatorycompliance for all our products.
As well as specific policies, complianceat CHANEL means constantly reevaluating
and integrating new regulations, throughawareness and specific-issues training,
regular compliance reviews, audits, andremedial actions.
We also expect third parties we conductbusiness with — including suppliers,
contractors, agents, representatives,
distributors, and consultants — to adhere
to the spirit of these standards, comply
with our ethical principles, and meet all of
their contractual obligations. We strive to
only do business with people who share ourcommitment to the highest standards ofintegrity and responsible business conduct.

Over the course of 2018, we will gather and consult apanel of experts and non-governmental organizations(NGOs) to conduct a critical review of our criteria for
identifying restricted substances.

The new version of the Responsible Sourcing
Policy referred to earlier in this report, which
is being rolled out by all activities in 2018, is thematerialization of this expectation, and CHANEL
has committed to work with all suppliers toachieve these commitments.

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CS R
GOVERNAN CE

CHANEL’s CSR governance and operating model ensures that engagement
on CSR issues become part of the daily activities of every employee,
and that CSR is ingrained in decision-making at the senior-leadership leveland fully integrated in the company’s overall business process.

The key challenge in ensuring a transition
toward a sustainable business model is toengage a profound change of culture, notonly at top management, but also, and more
importantly, across the whole employee base.
The successful implementation of CHANEL’s
overall CSR road map must not be only in thehands of experts; it is possible only throughthe empowerment of each and every individualin the company.
Inspired by these principles, we have organized
our governance on three aspects:• A strategic approach and corporate
framework endorsed by top management.
• A coherent operating model that empowers
teams in each activity and market.
• An Innovation and Sustainable Development
Fund, which acts as an acceleration
mechanism toward a sustainablebusiness model.

STRATEGIC APPROACH AND
CORPORATE FRAMEWORKCSR strategy is led by the Corporate CSR
Team, which is in charge of defining the visionof the brand for societal and environmental
impact, proposing commitments to engage
different operational teams, and defining
a global plan of action as well as a set ofoperational guidelines.
The Corporate CSR team reports directly
to the CEO. All key decisions concerning thebrand commitments and their implementation
are decided at top-management level.
The team is composed of experts in the fields
of sourcing, climate, and circular economy.
They aim for consistency and coherence in theapproach we take across the business. Specificteams of CSR experts exist in each activity, andin the other corporate functions, to implement
operational CSR plans.

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COHERENT OPERATING MODEL

What is important in this context is to remove
the administrative obstacles that would makethe adoption of new business practices too
slow and cumbersome.

ROAD MAPS
We translate our vision and CSR framework
into operational strategies through “roadmaps” for each activity and each major market.
These road maps are designed to be local,
and define the timing, level of deployment,
and resources needed to implement what is
outlined in the global framework.

In order to accelerate the adoption of our
CSR road map, we have created an Innovationand Sustainable Development Fund dedicatedto financing initiatives, proposed byoperational teams.
Established in 2016, the Fund finances activities
across the business that have a positive social
or environmental impact, while enabling us toreimagine how we innovate for sustainability.
It allows us to support projects without
bureaucracy or existing budget constraints,
and accelerates our sustainability plans.

DEDICATED CSR TEAMSIn each activity there are expert teams incharge of defining and implementing the
CSR road maps. In the same way, CSR teams
are in place in each major market.
AMBASSADORS NETWORK
We have a network of over 140 CSR
Ambassadors representing different functions
and skills at both activity and market levels.
These ambassadors act as champions of
CSR within their respective functions, andhelp establish and implement operationalroad maps for CSR activities.

The fund is financed through an internal carbon
tax based on our global carbon footprint.
During 2017, the fund invested in 19 projects toincrease sustainable innovation, drive sustainablesourcing, and facilitate business reengineering.
A high-level committee, composed of theCEO, the CFO, the three activity presidents,
and the global heads of HR, Innovation, andCSR, validates our key CSR policies andcommitments, monitors if our improvements
are in line with our commitments, andoversees the Innovation and Sustainable
Development Fund.

AN INNOVATION
AND SUSTAINABLE
DEVELOPMENT FUND
We believe that one of the key conditions
for a successful implementation of our CSR
road map is to ensure that initiatives canbe identified and driven by the operational
teams with a high level of autonomy.

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CLOSING STATEMENT

Luxury is seen as a privilege for few, but it creates desire andbeauty for many. Because of this, we believe that, as a luxury
brand, the way we operate can and should represent the bestin society. We are convinced that only an exemplary luxury
brand that contributes in an exemplary way to a better world
will remain desirable and relevant for all tomorrow.
In certain areas, thanks to our long-term approach, we have madesome concrete progress. We are aware that in other areas, we still
have significant work to do, and we are constantly trying to step up
our ambitions and commitments to strive toward exemplarity.
We know, as well, that we cannot achieve this alone. We look forward
to engaging more with our stakeholders, to listening and learning about
how we can achieve our objectives and ambitions faster, and withever more positive impacts.
This report is CHANEL’s first step in a commitment to sharing morewith stakeholders in the coming years. We see this engagement as
the very best way for us to fulfill our obligations to society, and to be
exemplary in the luxury industry.

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Photo credits:
Page 4 (left) — © Comoedia Illustré 1910 Photo Félix / All Rights Reserved.
Page 4 (middle) — © Lipnitzki / Roger-Viollet.
Page 4 (right), 8, 16, 19, 28, 32, 42, 46, 54 — © CHANEL.
Page 5 (left), 34 — © CHANEL Watches.
Page 5 (middle), 6, 10 — © CHANEL Fine Jewelry.
Page 24 — © Olivier Saillant.
Page 14, 22, 25, 26, 36, 48, 68 — © Anne Combaz.
Page 64 — © All Rights Reserved.

REPORT TO SOCIETY