Tuesday, June 14th, 2016
In 2011, Puma established the first ever corporate Environmental Profit and Loss (EP&L) account to measure the value of nature to its business, and understand the true costs of its impacts on nature by placing a monetary value on them.
Material business benefits: The EP&L project won Puma significant press and attention, enhancing its reputation as one of the most sustainable and environmentally responsible companies in the world. According to its report, the business benefits delivered by the EP&L were as a strategic tool, a transparency tool and a risk management tool that helped the company to understand the scale, scope and trajectory of its environmental impacts.
A direct link to the product: Puma says that “providing goods and services will always have some impact on the environment. The challenge for us is to reduce our impact on the environment (the ‘loss’ in an EP&L) as far as possible while continuing to deliver value to our customers – and looking for ways to return value to the environment”. By measuring its environmental impacts, Puma can take steps to manage and reduce them. Furthermore, by putting a monetary value on them, the company is “minimising both business risks and environmental effects by preparing for potential future legislation such as disclosure requirements”.
Puma’s ‘accounting for nature’ approach: Puma’s operations and supply chain depend on “fresh water, clean air, healthy biodiversity and productive land”, dependencies that are met by nature: ecosystems purify water, oxygenate air, cycle nutrients, regulate floods, manage the climate and deal with wastes. To keep working effectively, these ecosystems depend upon healthy stocks of the planet’s biodiversity, much like healthy bodily systems depend on a healthy heart, liver and lungs. In the EP&L accounting process, Puma identified and articulated its business’s dependence on natural systems, but the major work was to quantify the impacts it has on the ‘natural capital’ that delivers those natural systems.
To do this, the company first identified five key environmental externalities by looking all along the value chain at operations, manufacturing, outsourcing, processing and raw materials. It then quantified each impact: climate change was measured by tonnes of greenhouse gas emissions, water scarcity was measured by volume of water used, loss of biodiversity and ecosystem services was measured by area of ecosystem converted, smog and acid rain was measured by standard air pollution indicators, impacts from landfill and waste incineration were measured by tonnes of waste to landfill and incineration.
The company then proceeded to value those impacts, using a wide range of techniques. These included direct estimates by asking affected parties how much they would be willing to pay to achieve a particular environmental outcome, indirect estimates by using estimated willingness to pay or accept compensation, and inferred value based on the cost of avoiding or mitigating particular outcomes. For instance, the biodiversity and ecosystem services impact was valued by first analysing the ‘ecoregions’ or types of habitat that Puma had an impact on and attributing a per-hectare value based on a review of the existing literature. In total, 156 different values were derived, ranging from €63 per hectare to €18,653. It accounted for scarcity by adjusting the per-hectare price for land use change that was done in the past, and came up with an average value over time for each ecoregion in each country of €347 per hectare. These valuation analyses are explained in more detail on page 15 of the report.
Puma found that its environmental impacts totalled €145 million. Of that total, water use and greenhouse gases represented the biggest losses at 33% each, with land use coming in third at 25%. Footwear was the biggest contributor accounting for 66% of the losses. Apparel was second-worst at 27%. The company also conducted a spatial analysis, finding that 66% of impacts were in the Asia/Pacific region, 24% in the Americas and 10% in the EMEA region.
The first EP&L was followed up in 2012 by an EP&L for specific products. In 2015, parent company PPR (formerly Kering) published a group wide EP&L across all its luxury, sport and lifestyle brands. These include global labels such as Gucci, Yves Saint Laurent and Balenciaga.