By Clean Beauty Picks Staff Writer
As environmental, social, and governance (ESG) standards become increasingly central to consumer and investor decision-making, one critical and often underreported area is ingredient safety in the personal care and beauty industry. While many brands tout sustainability through eco-friendly packaging or carbon-neutral pledges, the reformulation of products to eliminate toxic ingredients remains an overlooked benchmark in ESG scoring.
Most ESG frameworks used by institutional investors rely heavily on environmental impact (like emissions) and governance factors (like board diversity). However when it comes to cosmetics and personal care, ingredient transparency and toxicology should be front and center especially given growing regulatory pressure and consumer demand.
According to a 2023 report by the Environmental Working Group, over 1,600 chemicals have been banned or restricted in cosmetics in the EU, while the U.S. Food and Drug Administration has banned just 11. This gap has driven consumer interest in “clean beauty,” a segment focused on eliminating potentially harmful ingredients such as parabens, phthalates, formaldehyde releasers, and synthetic fragrances.
Yet, despite these efforts, ESG rating agencies rarely factor in whether a beauty brand has meaningfully reformulated its products to remove such substances.
Regulators are beginning to catch up. In late 2022, the U.S. passed the Modernization of Cosmetics Regulation Act (MoCRA), the first major update to federal cosmetic laws since 1938. It grants the FDA greater authority to recall unsafe products and mandates better ingredient transparency from brands.
From an ESG investment standpoint, this means that companies lagging on reformulation face not just reputational risk, but regulatory and financial exposure. For investors tracking ESG performance in beauty and personal care, ingredient reformulation should be a material consideration alongside traditional metrics like emissions and labor practices.
Clean beauty brands are reshaping the industry not only in marketing, but also in material safety. If ESG is to remain a relevant framework for evaluating responsible investment, it must evolve to account for what goes inside the bottle — not just how it’s packaged.
