What are the benefits of such a move for the company and its various stakeholders? And will other organisations follow Puma’s green reporting lead?
Communicating eco-costs
Puma’s environmental P&L was the brainchild of the company’s chairman and CEO, Jochen Zeitz. “He felt that it must be possible to create something similar to a traditional business profit and loss statement in terms of our use of ecosystem services [natural resources],” says Dr Reiner Hengstmann, global director of Puma’s ‘SAFE Supply Chain’ sustainable business initiative.
“The process of producing an environmental P&L is now the cornerstone of Puma’s efforts to make its operations more sustainable,” Hengstmann adds. “It shows that there needs to be a paradigm shift in business processes.”
But how, exactly, can an environmental P&L help Puma to become more sustainable? By quantifying the environmental cost of use of different natural resources, the P&L enables Puma to measure the totality of its impact on the environment for the first time, according to Alan McGill, a partner in PricewaterhouseCoopers’ (PwC), sustainability and climate change practice, who worked on the project. “You measure carbon emissions in tonnes and water in cubic metres. Applying a consistent valuation model across both CO2 and water allows companies to make a like-for-like comparison and therefore prioritise their approach to tackling different types of environmental problems,” he explains.
“As well as providing valuable information for the business, the environmental P&L is also going down well with Puma’s professional audiences — especially NGOs,” says Hengstmann. “Institutional investors are also interested; there is a growing demand for information about the relationship between businesses and their use of natural resources,” adds Richard Mattison, a founding director of environmental risk consultancy Trucost, who was also on the project team.
How to create a green P&L
What was the most challenging aspect of producing an environmental profit and loss statement? “It was the fact that there was nothing like it out there — so we had to work out a meaningful methodology ourselves,” says Hengstmann.
The first step, started in 2005, was to gather data about carbon emissions and water use from within the business and from tier-one suppliers. “Getting relevant information from suppliers further down the chain — right down to tier four — was more difficult,” Hengstmann says.
Trucost helped Puma to develop economic models that filled the gaps in hard CO2 emissions and water use data throughout the supply chain. “Our models show that less than 10 per cent of suppliers tend to cause more than 90 per cent of emissions,” Mattison adds. “This information helps companies like Puma to focus their data-gathering activity.”
Crucially, Puma and its partners developed a methodology to measure the total social and environmental cost — rather than just the market value — of carbon emissions and water use. “This includes the market price, but also incorporates the cost of damage to the environment. For example, every tonne of carbon emitted was allocated a cost of €66,” says McGill at PwC, which helped to create the methodology.
Puma has provided full details about its methodologies on its website to ensure full transparency of the process.
Next steps
In the coming months, Puma plans to add more environmental metrics to its environmental P&L.
“At the moment, carbon emissions and water use represent losses on the P&L. So we now need to find out where the profits are,” Hengstmann says.
This is likely to include positive contributions that Puma makes to the communities in which it operates in terms of job creation, community involvement and tax contributions, for example. “We want to quantify and communicate the fact that our business creates value for society,” Hengstmann says.
“The goal is to create a complete environmental profit and loss account comprising eight or nine critical environmental drivers, as well as a social profit and loss account,” says McGill. “All this will then, in 2013, be integrated with more traditional financial reporting activity.”
The next phase of Puma’s environmental reporting process will quantify the cost of the company’s and its suppliers’ land use (in terms of its impact on biodiversity, for example), pollution and waste output. “Approximately 95 per cent of our supply chain should be covered,” Hengstmann says.
Setting a precedent http://safe.puma.com/us/en/2011/05/puma-announces-results-of-unprecedented-environmental-profit-loss/
Cross-sector, cross-border interest in Puma’s environmental P&L among corporates suggests that many other firms will follow this route. Even governments are sizing up the benefits of the idea.
“Brazil and India, for example, are looking at taking the environmental P&L model to a country level using ‘green GDP’ measures,” says Mattison.
“A lot of companies are approaching us saying it is of real interest,” says Hengstmann. The German environment minister has also held a meeting with the company to explore the concept. “Our wish is that this will be a model for other industries to follow. It demonstrates that ‘business as usual’ is not an option, and that business models need to be changed.”
How MerchantCantos can help
From inaugural CR reports to longterm integrated reporting strategies, MerchantCantos can guide your company through every aspect of the fast-changing social and environmental communications process — in print and online. For more information, contact rcarpenter@merchantcantos.com.
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