Seminar 3

Natura Cosmticos, S.A.

Adapted from a case study by Robert Eccles, George Serafeim and James
Heffernan

It was early Thursday morning, December 2, 2010, and Rodolfo Guttilla, Director of Corporate
Affairs for Natura Cosmticos S.A. (Natura), was in the process of final preparations for the
day-long meeting that was about to begin. Todays meeting was a multi-stakeholder panel
convened to discuss the future of integrated reporting at Natura.
Senior leadership was convinced that Naturas remarkable success over the years had been aided
by its corporate responsibility and strategy to continuously seek improvements in both financial
and non-financial (e.g., environmental, social, and governance) performance. Natura had created
one of Brazils strongest corporate brands which had facilitated international and domestic
growth and was a contributing factor in supporting Naturas premium price and higher
margins1. Employees were extremely motivated, with outside research showing that their
productivity was higher than their peers2. Natura was consistently rated as one of the preferred
places to work in Brazil, and its focus on social and environmental responsibility was a source
of inspiration and innovation3. Market share growth had been strong, and in recent years Natura
had pulled ahead of Unilever and Avon and now held Brazils leadership position in the
cosmetics, fragrances, and toiletries (CF&T) industry4. And in a proud moment for the
organization, in 2009 Naturas direct sales business model generated income for over 1 million
people in communities across Brazil and Latin America. Senior leadership was also convinced
that Naturas integrated reporting process was critical to supporting their strategic objectives.
Guttilla was proud that Natura was the first organization in Brazil to produce an integrated
report. Integrated reporting at Natura had come a long way since its first report in 2000, but
even as each successive report was an improvement over the previous one, Guttilla knew that
much still needed to be done if Natura was to create a truly integrated report that fully achieved
Naturas reporting objectives.
What should the future of integrated reporting be like at Natura? How could the organization
increase societys participation in the collaborative effort to develop new solutions to todays
most challenging problems? How could the report provide a clearer representation of the
organizations strategy and its ability to create and sustain value over the long-term? And
finally, how could web-based technologies be used to promote the organizations integrated
Natura is Brazils 5th most valuable brand (R$6.1B), BrandAnalytics and Millward Institute, 2009.
ABEVD (Brazilian Association of Direct Sales Companies) and Hay Consulting annual opinion poll for
consultants (direct sales force) satisfaction.
3
Best Company 2009 (Exame Magazine survey), Most Admired Company 2009/2010 (Carta Capital Magazine
survey)
4
Euromonitor 2009
1
2

reporting and sustainable development objectives?

Looking over the list of participants, Guttilla was pleased to see a wide representation of
stakeholders filling up the room. Hopefully, this meeting would provide important insights to
how Natura could fulfill the full promise of integrated reporting in the future.
Brazilian Context
Brazil was the worlds fifth largest country both by area (8.5 million sq km) and by population
(203.4 million). The country was characterized by incredible diversity; the ethnic and cultural
diversity of its population, which included more than 200 indigenous peoples and 170
languages; its geographic diversity, which included dense tropical forests, woodland-savannas,
vast wetlands, and 7,491 km of Atlantic coastline; and its unparalleled biodiversity. It was
estimated that Brazil hosted between 15-20 percent of the worlds biological diversity and the
greatest number of endemic species on a global scale5.
Economic Overview
Brazil had the worlds eighth largest economy, on par with France and almost as large as all the
other South American countries combined6. Its economy was represented by well-developed
agricultural, mining, manufacturing, and service sectors.
Following a long period of economic stagnation and rampant inflation, new economic policies
implemented under President Fernando Henrique Cardoso in the mid-1990s and continued until
the present time had steadily improved the countrys macroeconomic stability and performance.
After record growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in
September 2008. The country experienced two quarters of recession, as global demand for its
commodity-based exports dwindled and external credit dried up. However, Brazil was one of
the first emerging markets to begin a recovery. As of 2011, the country had a GDP of $2.17
trillion, estimated GDP growth for 2010 of 7.5%, and a GDP per capital of $10,8007. Direct
foreign investment in 2010 was $368.4 billion. Current forecasts for economic growth
predicted an average economic growth rate of 4.3% in the period of 2011-20208.
Brazils Sustainability Challenges
Brazil was active in global efforts for environmental protection. The country was a signatory to
most major international agreements and conventions including the Antarctic-Environmental
Protocol, Climate Change-Kyoto Protocol, Biological Diversity, Endangered Species, Hazardous
Wastes, Ozone Layer Protection, Tropical Timber 83, Tropical Timber 94, Wetlands, and
Whaling.

Source: Convention on Biological Diversity

Source: International Monetary Fund
7
Source: CIA Factbook, accessed September 2011
8
Source: Economist Intelligence Unit, accessed September 2011
6

Brazils major environmental challenges included deforestation of the Amazon Basin, illegal
wildlife and timber trade, air and water pollution, and ecosystem degradation caused by
economic development and improper mining activities. In terms of social development, Brazils
highly unequal income distribution remained one of its major problems. The countrys Gini
Index9 in 2005 was 56.7, the 10th worst in the world placing it near Bolivia, Colombia, and
Haiti10. Twenty-six percent of the countrys population lived below the poverty line11, while
other social challenges included poor education, inadequate access to healthcare, and corruption.
Brazil ranked 73rd in the Human Development Index (HDI)12, was poorly evaluated by the
Program for International Student Assessment (PISA), and had a Corruption Perception Index
of 3.7 by Transparency International, indicative of high levels of corruption13.
Natura Company Background
Natura was founded in 1969 by Antonio Luiz da Cunha Seabra as a small laboratory and
cosmetics store in So Paulo, Brazil. The company grew and prospered, and by late 2010 Natura
was the leader of the Brazilian CF&T industry with a 23.6 percent market share, a 55 percent
household penetration rate, and an estimated brand recognition level of close to 100 percent14.
The company employed 7,000 professionals, utilized a direct sales force (sales consultants) of
1.2 million people, and had company-owned operations in Brazil, Argentina, Chile, Peru,
Colombia, Mexico, and France.
The company went public in 2004 (NATU3, Bovespa Stock Exchange) and between 2004 and
2010 showed strong financial performance. For the fiscal year ending on December, 2010
Natura reported net revenue of R$6.346 billion, EBITDA of R$1.511 billion, and net
profit of R$861 million (page 6 Annual Report, 2012).
Naturas Values, Beliefs, and Strategic Positioning
Because of its corporate behavior, the quality of its relationships, and the quality of its
products and services, Natura is bound to become an international brand, identified with the
community of people who are committed to building a better world, based on better relationships
with themselves, with other people, with the nature they are part of, and with the whole.
Naturas Beliefs15
Since its founding, the company had always had a distinctive perspective on its organizational
purpose. Rather than view its purpose primarily in economic terms, Naturas leadership believed
the company was part of a larger system that required balance in order to prosper. In the
1970s and 1980s, these beliefs were promoted through a strategy with a strong focus on
9

It is a measure of statistical dispersion

Source: CIA Factbook, accessed September 2011
11
Source: CIA Factbook, accessed September 2011
12
United Nations Development Program (UNDP), International Human Development Indicators, accessed
September 2011
13
Source: Transparency International, accessed September 2011
14
Ipsos Brand Essence
15
Published in Naturas 2012 Integrated Annual Report
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building and nurturing relationships with its stakeholders. It was during this period that the
direct sales model was developed, a model that focused on fostering relationships with
community members and providing them with opportunities to participate in Naturas success.
Beginning in the 1990s, Naturas strategy evolved into one focused on corporate social and
environmental responsibility and sustainable development. This was the beginning of its current
sustainability strategy and a new management model that from this point onwards would define
its strategic purpose in terms of progress on economic, social, and environmental performance:
the triple bottom line (TBL).
Roberto Pedote described an experience he had shortly after arriving at Natura as chief of
Finance:
I was asked to analyze three possible sites for a new service center and make a recommendation
to the executive committee. Following my presentation and recommendation, I was asked:
What impact does this decision have on employment opportunities and income distribution in
the various regions? What are the possible environmental impacts of each alternative and
what are the different levels of carbon emissions for each possible location? It was an
experience I will never forget and it served to demonstrate that sustainability is a serious
issue to Naturas leadership.
Early Years of Integrated Reporting (2000 to 2006)
Naturas sustainability strategy required a new and more integrated reporting process. This
process needed to support the organizations multiple objectives of promoting an integrated
management culture, providing a broader perspective on the range of issues (economic,
environmental, and social) influencing the companys ability to create sustainable value, and
accurately disclosing the organizations financial and nonfinancial performance. Guttilla
explained the role of Naturas integrated reporting process:
Naturas integrated reporting is much more than just an integrated annual report; it includes a
number of different information and reporting systems that support our integrated management
objectives. The integrated reporting process supports each critical aspect of our management
model. Integrated reporting reinforces the organizations values and explicitly defines our
priorities and commitments. Integrated reporting is the instruments we use to collect, analyze,
and share integrated information internally and with all our stakeholders. The report is critical to
supporting dialogue and mutual collaboration. Through the reports, stakeholders are able to see
what others are doing; they can see how their interests are being integrated into the management
of the company and they can begin to understand the interconnections that exist between actions
and impacts all along the value chain.
The early years of integrated reporting were spent developing, implementing, and improving
each aspect of the new reporting process. The process included four components, each
performed as part of a continuous and reinforcing cycle. The information from each preceding
step provided the needed inputs for the subsequent step in the process.

Integrated Management Culture16

Naturas leadership was committed to developing an integrated management culture that
incorporated their vision for sustainable development and continuous improvement in financial
and nonfinancial performance. The companys leadership knew that this would be a gradual
process of adaptation and change. Marcos Vaz, Director of Sustainability at the time, explained
the challenge Natura faced at this stage in the process:
It isnt easy to change a long-standing management paradigm. At Natura, we began asking all
our employees to think about the impact of their decisions in three dimensions: economic,
environmental, and social. All investments needed to bring the targeted economic returns, but
within that constraint they also needed to account for social and environmental externalities.
In essence, we were initiating a process of redefining acceptable organizational performance. In
2000, very little existed in the way of established integrated reporting frameworks. Natura
researched best practices and existing sustainability reporting frameworks, and in 2000 decided
to adopt the Global Reporting Initiatives (GRI) reporting principles and framework. The GRI
provided important guidance on defining the scope of the report (completeness principle) and
in selecting the most relevant issues to report on (materiality principle).
By 2004, the integrated management culture had matured to the point that GRI indicators had
become part of the performance goals of all operating units.
Key Performance Indicators
Natura needed to define key performance indicators and management targets for economic,
social, and environmental performance. In adopting the GRI framework, Natura had a list of
internationally developed indicators for its reporting process. During the early years, the quality
of indicators and the capability to measure performance were major concerns. Emerging
standards such as the Greenhouse Gas Protocol (GHG), International Labor Organization
Standards, and GRI Protocols provided guidance on how to define and measure nonfinancial
performance indicators. Guttilla explained that in many cases, new measurement processes
needed to be developed from scratch to enable proper performance measurement. In other
cases, the information was available, but resided in different parts of the organization. Greater
integration between the different parts of the organization was needed.
Naturas first reports had a dozen indicators, but as the organization gained experience and
measurement capability, the number grew so that by 2006 they were reporting on all material
indicators defined by GRI.
Reporting and Communications

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While the term integrated management has been used for decades to describe the integration across
functional areas of an organization, the term here goes a step further to describe the practice of integrating
financial and non-financial aspects into the management model. It means managing for the triple bottom line
(TBL).

One of the key objectives of the integrated reporting process was to develop a communications
plan that provided transparency and balanced reporting on both positive and negative financial
and nonfinancial performance of the organization. In 2000, Natura began disclosing certain
nonfinancial performance metrics and, as a reflection of its belief in the relationship between
financial and nonfinancial performance, starting in 2002 the company combined financial and
nonfinancial reports into a single document.
The early reports were prepared annually and distributed to interested stakeholders. In 2006, the
report was put online and made available to the general public.
In response to user feedback, Natura began to create report sections focusing on specific
stakeholder groups. In that way, employees or suppliers could better utilize the report to
understand how Natura was taking their specific concerns into account in the management of the
organization.
Stakeholder Dialogue
Natura realized at the outset that integrated reporting required the inputs and perspectives of a
broad group of stakeholders. Enhanced engagement was necessary to better understand the
companys true impacts on the community as a whole and on the environment. Guttilla
described the thinking at the time: We needed to understand the implications of our
management decisions outside the organization, and that would be possible not only with
greater dialogue, but with a different type of dialogue that required more trust between the
parties. This was the beginning of developing a culture of dialogue and transparency within the
organization.
With this objective in mind, Natura developed a more systematic process to engage with
stakeholders, to record their inputs, and to analyze financial and nonfinancial performance on an
ongoing basis. It also reinforced the importance of dialogue and relationship building in its
organizational values.
The Current State of Integrated Reporting
New Strategic Intent
Natura had distinguished itself as a company committed to transparency. Its latest reports had
accumulated numerous awards for excellence in providing an accurate representation on the
organizations impacts in a sustainability context17. When asked about the key challenges
facing Naturas Integrated Reporting Process following the improvements in the early years
of reporting, Guttilla responded: If the early years enabled us to better understand our impacts
and create a good sustainability report, the challenge going forward is to create a more
integrated report; a report that will promote the actions needed to begin developing and

17

GRI Readers Choice Awards in 2006 and 2008, Corporate Registers Best Integrated Report, Brazilian
Foundation for Sustainable Development and Sustainability award for Best Brazilian Sustainability Report of
2008.

implementing innovative solutions to the sustainability challenges facing Natura.

The focus on solutions increased demands on the reporting process. Rather than just collect
information on financial and nonfinancial results, the reporting process now needed to harness
the collective intelligence of a broader group of stakeholders and promote deeper collaborations
across the organizations entire value chain. Identification of opportunities for improvement and
mobilizing people to action was Naturas new strategic intent.
Integrated Management Culture
Natura continued to report on all material indicators, but the emphasis on solutions made it
necessary to define a few core priorities for specific action and investment. Following
consultations with important stakeholder groups, Natura defined six sustainability priorities.
These priorities included:
1.
2.
3.
4.
5.
6.
7.
8.

Quality of Relationships
Climate change
Social biodiversity
Solid waste
Water
Sustainable entrepreneurship
Education
Innovation

If the challenge in the early years was to get managers to think in the three dimensions of
the triple bottom line (TBL), the challenge now was to develop better valuation models that
would assist management in making better integrated decisions. Pedote explained: When I
arrived at Natura, I wanted to provide our management team with a multidimensional valuation
model that would be a framework for making our investment decisions. Unfortunately, nothing
existed in the market.
Pedotes team continued their efforts to develop a valuation model, but challenges remained. In
one example, the company evaluated a policy to have 30 percent of new hires at a new
distribution center be physically handicapped workers. While the added financial costs to
implement this policy were relatively easy to determine, the value to society, the value from
increased employee morale and long term productivity, and the positive impact on Naturas
reputation and brand were clearly not easy to quantify. Pedote added: Performing this type of
integrated analysis is much more complex and the methods to determine the true costs and
benefits of many of these nonfinancial externalities are still embryonic.
Stakeholder Dialogue
Guttilla believed that the time had come to increase investments in stakeholder dialogue and new
communication platforms that would bring more stakeholders into the reporting process. If
the integrated reporting process was to achieve its objectives, Natura would need to broaden its
stakeholder base and change the nature of its engagement with them to support more complex
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dialogue. Natura was no longer just asking its suppliers for historical information on
nonfinancial performance; they were now asking them to share information on their social and
ecological footprint and to work with Natura to find ways to improve their combined
performance within the value chain. Guttilla added:
Traditional organizations arent designed for the levels of engagement and dialogue that are
needed in a sustainability context. The result from ones engagement process provides the
credibility, intelligence, and collaborative environment that is essential to develop sustainable
solutions across the organizations value chain. The purpose of our engagement and relationship
strategy is to create the conditions that promote dialogue, debate, and mutual understanding.
Naturas Engagement and Relationship Development Platforms
While Natura continued to use some traditional platforms such as its website, Customer Service
Centers, and an internal employee communications network, in 2007 the company set out to
establish a robust process of stakeholder engagement and relationship development that would
support its sustainability objectives. Estelita Thiele, Ombudsman18 for Natura, headed a new
department that created more sophisticated engagement practices for specific stakeholder
groups. Thieles group created relationship managers for suppliers, for the direct sales force, and
even for different communities throughout Brazil. This system provided highly specialized
facilitators each with training in relationship management, communications, and
sustainability issues who were able to utilize their knowledge of each stakeholder group to
collect information and promote sustainability and integrated operations with Natura.
In addition to the dedicated relationship managers, Natura also promoted frequent Stakeholder
Engagement Panels and Roundtable Discussions on key issues facing the organization and
society. These panels brought together specialists and stakeholder groups to debate, educate,
and share opinions on a range of issues. Panel discussions were held in 2012 with 430
participants and these discussions were recorded and made available to the public
The decision on using palm oil in Naturas production process illustrated how the different
engagement platforms supported the companys integrated reporting process. Natura wanted
to know if the use of palm oil in its production process was consistent with its values and
sustainability objectives. One argument for using palm oil was that it was a renewable vegetable
source of oil for products. Furthermore, palm oil production could provide much needed income
and jobs in remote areas of Brazil that were in need of economic development. However,
controversy existed on the environmental impact palm oil production had on deforestation and
regional biodiversity, both strategic priorities for Natura.
Multi-stakeholder panels were convened with specialists in the fields of biodiversity, sustainable
farming, and forest stewardship, among others, to discuss and debate the issues involved in
promoting the greater use of palm oil. These discussions were quite heated at times, said
Thiele, as conflicting viewpoints were presented and debated. The purpose was to include

18

Natura Ombudsmans Office is a formal dialogue channel between the company and its employees, in-house
outsourced workers, and suppliers (Brazil).

important stakeholders in the process and to really understand the range of issues and tradeoffs
related to the decision. At the same time, relationship managers in the affected communities
gathered their own information and feedback on issues of local concern and shared the
information and recommendations that had been collected during the panel discussions with
community members.
In the end, Natura chose to support the sustainable use of palm oil in its production process. The
engagement process leading up to the decision enabled Natura to establish implementation
directives to ensure the organization was proceeding in the most sustainable manner possible.
Not all stakeholders agreed with Naturas decision, but all felt that they had participated in a
transparent process and continued to work with Natura to continue learning and ensure the best
result. Thiele commented on the expectations of the stakeholders: Our stakeholders expect the
organization to analyze different perspectives before making an important decision and share
their conclusions and rationale with others.
New Digital Platforms at Natura
It was clear to Naturas leadership that if they were to accomplish their objective of mobilizing
society, the organization would need to tap into the power of social media as a communications
platform. As a result, in 2009 Natura developed a virtual social network called Natura Conecta
(Natura Connects). This communications network encouraged the general public to participate
in the discussion about corporate responsibility, sustainability, and their expectations for Natura.
In the first year, over 8,000 people registered and contributed to Naturas engagement and
integrated reporting process. Natura Conecta promoted discussions, transmitted many of the
stakeholder panel discussions via Web-cast, and also set up WikiShops, virtual debates, and
open chat rooms to stimulate participation and the generation of new ideas.
Naturas investment in its social network allowed the company to expand its engagement
process and create new relationship opportunities. The network allowed the organization to
quickly identify emerging themes. By monitoring the public conversation, Natura was able to
identify opinion leaders and invite them to participate in future stakeholder panel discussions
that were scheduled throughout the year. And lastly, participants in the social network were
invited to create a WikiReport that would be included in the final annual integrated report.
Milena Buosi, Institutional Relations Manager, described the importance of the Wiki Report as it
follows: This was our first attempt towards transforming the Annual Report into a living
document that provided not only the latest views from our stakeholders, but presented those
views in their own voice.
Reporting and Communications
Naturas reporting and communications plan also evolved during this period. Nonfinancial
information became more specific and began to be audited in 2007 by Det Norske Veritas
(DNV). The activities and impacts of suppliers were increasingly being included in the
reporting process. And as the organization engaged more stakeholders, their views and interests
became an important factor in determining the report content. In an attempt to increase
relevance to readers, the format became less technical and more narrative, providing a more
9

human perspective of the organizations strategy and performance.

The Future of Integrated Reporting
The multi-stakeholder meeting was about to begin and Guttilla was anxious to hear the
viewpoints of those in attendance. He knew that integrated reporting at Natura still needed to
evolve, as many stakeholders had commented on the difficulty they had using the information in
the reports. While Natura had been successful at engaging many diverse stakeholders, company
executives still felt it was important to expand participation by further maximizing their virtual
interactions. At the same time, Natura also felt it must continue to engage those stakeholders
who did not use or did not have access to digital technology.
Natura was already considering ways to make the annual report more meaningful and userfriendly. The positive experience with the WikiReport had demonstrated the value of using
social media and adopting a more collaborative and continuous reporting process.
Perhaps the major challenge for the future of Naturas integrated reporting was to provide
greater clarity about the relationship between the financial and the nonfinancial performance of
the organization. While leadership was convinced the link existed, many stakeholders,
particularly those in the investment community, still had difficulty assessing the value created
by Naturas strategy. If the report could demonstrate the connection between integrated
management and greater value creation for the organization, Natura felt confident that the largescale mobilization needed for sustainable development to become a reality could be achieved.
Lastly, Guttilla kept thinking of something he had discussed with Paulo Nassar, President of
ABERJE, the Brazilian Association of Business Communication, about the potential of
integrated reporting. Nassar had mentioned that to be truly effective, integrated reporting needed
to go from being informative to being transformative. Guttilla knew that if Natura wanted to
be an agent for positive change in society, it would need to mobilize an ever larger segment of
society. Naturas mobilization objectives still left much room for improvement. While analytical
and fact-based, integrated reporting had another very important role to play. In the future,
Naturas integrated report needed to tell an inspiring story, a story of how it was not only
possible to collaborate to change a prevailing management paradigm, but that it was a journey all
would want to take.

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