Sports and Lifestyle brand Puma released initial results from its groundbreaking effort to develop an Environmental Profit & Loss (EP&L) statement.
The first-of-it-kind accounting establishes an economic valuation of EUR 94.4 million for the environmental impacts caused by its greenhouse gas (GHG) emissions and water consumption.
The direct ecological impact of Puma’s operations translates to the equivalent of EUR 7.2 million of the overall impact valuation, Puma says. An additional EUR 87.2 million falls upon four tiers along the supply chain.
By putting a monetary value on the environmental impacts, PUMA is preparing for potential future legislation such as disclosure requirements. These costs also will serve as a metric for the company when aiming to mitigate the footprint of operations and all supply chain levels.
Puma says it intends to include further environmental key performance indicators at a later date, followed by social and economic impacts in later stages of the EP&L development.
After identifying the most significant environmental impacts, Puma says it will develop solutions to address these issues, consequently minimizing both business risks and environmental effects.
Puma’s parent company PPR is including the data as part of its PPR HOME sustainability initiative:
"[The EP&L statement] is an essential tool and a shift in how companies can and should account for and, ultimately, integrate into business models the true costs of their reliance on ecosystem services," said Jochen Zeitz, Chairman and CEO of Puma and Chief Sustainability Officer PPR. "Gaining a better understanding of the source of the natural goods and services PUMA relies on and the declining availability of the basic resources required for our business growth, will help Puma build a more resilient and sustainable business model and ultimately better manage its impacts on the environment."
Puma chose GHG emissions and water for the first analysis in their E P&L development as they were considered to be the most significant environmental impacts.
The economic valuation of these impacts by PwC (GHG emissions) and Trucost (water use), estimated a value per ton of CO2e at EUR 66 and an average water value of EUR 0.81/ m3. The analysis found that:
- Including the full supply chain, the overall impact was valued at EUR 94.4 million in total for 2010 with greenhouse gases equating to EUR 47.0 million and water to EUR 47.4 million.
- Of the total, Puma operations accounted for 15% of the overall GHG emissions analyzed, and 0.001% of water consumption. This is the equivalent to EUR 7.2 million of the overall valuation.
- The remaining GHG and water consumption–the equivalent of €87.2 million–fell upon its entire supply chain.
"Fundamentally, this analysis is about risk management for the environment, and for business, because you cannot separate the two," said Alan McGill, partner, PwC Sustainability and Climate Change. "This is a first for a company to measure and value the impact of its business in this way and gives Puma a unique and challenging insight into their supply chain. It’s a game-changing development for businesses to integrate environmental issues into their current business model like this, because it provides a basis for embedding their reliance on ecosystem services into business strategy. Tackling the impacts will need concerted efforts by the businesses in their supply chain as Puma shares a common but differentiated responsibility with other brands at the production facilities," he continued.
Analyses of the water and GHG impacts were performed across Puma value chain, including the operations of raw material and product suppliers as well as logistic services, which PUMA has limited control over.
- Tier 4: Raw material production, such as cotton farming, oil drilling, etc.
- Tier 3: The processing of raw materials, such as leather tanneries, chemical industry, oil refining
- Tier 2: Outsourced processes such as embroiders, printers, outsole production
- Tier 1: The manufacturing of its products
- PUMA core operations: Design, logistics services, warehousing, head office functions and
The analyses have shown that the biggest environmental impacts in the value chain occur, not through PUMA’s core operations but at the level of its Tier 4 suppliers, where raw materials are derived from natural resources, such as the cultivation and harvesting of cotton, cattle ranching for leather, and natural rubber production. This part of the supply chain accounts for 36% of the total GHG (EUR 16.7 million) and 52% of water consumption (EUR 24.7 million); indicating that the most water intensive activity in the production of a t-shirt occurs at the initial step–the cultivation of cotton. This analysis provides the first results of the first stage in a three-stage process to consider Puma’s and its supply chain’s environmental, social and economic impacts, ultimately leading to the development of an all encompassing Environmental, Social and Economic Profit and Loss Account.
The final results completing Stage 1–to be released in autumn this year–will see the inclusion of additional environmental key performance indicators such as acid rain and smog precursors, volatile organic compounds, waste and land use change, completing the valuation of the significant environmental impacts in Puma’s value chain. As the impacts of Puma’s operations not only refer to the natural environment, Stage 2 will require collaboration with other corporate and civil society stakeholders in tackling the complexities of social factors in sustainability such as fair wages, safety and working conditions, enabling the development of an Environmental and Social P&L account.
Stage 3 will complete the other side of the equation, moving to the equally complex area of valuing the social and economic benefits from Puma’s operations through the creation of jobs, tax contributions, philanthropic initiatives and other value-adding elements. These benefits will then be offset against the environmental and social costs calculated in Stages 1 and 2, hence completing Puma’s Environmental, Social and Economic P&L statement.
Stage 3 will require a strong collaborative effort to develop robust valuation methodologies and approaches. This challenge will have resonance with the corporate sector as more and more companies actively undertake similar analyses throughout their supply chains.
"Companies that understand their dependence on natural resources along the value chain are well placed to manage underlying risk from rising raw material costs and scarcity of supply issues", said Dr. Richard Mattison, CEO of Trucost. "Companies are already facing increasing input costs as a result of rising commodity prices related to climate change and water availability. Puma is now positioned to address these challenges in advance and we have helped provide them with management tools to minimize risk, hedge against uncertainty and identify new opportunities to optimize the sustainability of its products."
Puma’s Response to Minimize Risks
To reduce the impact, Puma said it will start by using these findings to better direct its sustainability efforts and initiatives. Puma’s sustainability scorecard, which was introduced in early 2010 and sets targets such as 100% sustainable packaging and 25% reductions of carbon, energy, water for 2015, has already begun to address the environmental impacts at Puma’s operations and Tier 1 supplier levels. Puma will examine how to adjust the targets set in its current sustainability scorecard and look for solutions along the entire supply chain.
In order to target solutions that address the levels of the greatest impact from tier two to four, Puma and PPR HOME intend to play a catalytic role in raising awareness that the current business model is outdated and needs decisive reforms, forging partnerships and collaborations to explore new and innovative ways to differentially attribute the responsibilities and equitably share the costs of these, while building capacity at suppliers’ factories and developing new materials and products.
Puma and PPR HOME are sharing the results of the E P&L with other industry players and corporations to leverage adopting a new business model that takes the costs of using natural resources within business operations into account. This analysis will also help to better assess the relative environmental impacts of sourcing from different countries and regions. Down the line it will allow PUMA to improve supply chain management and reduce supply chain risks.
Developing synergies and partnerships PUMA’s majority shareholder, PPR, has recently joined the World Business Council for Sustainable Development (WBCSD), which could provide an appropriate platform for constructive debate on the issue of differentiated responsibility and equitable sharing of the costs of environmental impacts while exploring new business models to help reduce these costs in future.