2013 October Green Guru Spotlight: The Environmental P&L as a strategic tool for building the business


The OctoGreen_Guru.pngber Green Guru spotlight is on the Environmental P&L (EP&L), its business implications and how Puma has used it as a strategic tool for creating innovation and achieving business objectives.

Puma, the German sportswear company, redefined corporate sustainability by issuing an environmental P&L (EP&L) in 2011 (for the year 2010) and then following it up with a product level EP&L in 2012. The product level EP&L demonstrates to consumers what products are more sustainable by putting a price tag on the environmental damage caused in their production and use.

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PUMA worked with PwC and Trucost to develop methodologies to first quantify its most significant environmental impacts, and then to apply values to calculate the associated economic impacts.Robust modeling techniques and data form the basis of assumptions that had to be made for certain environmental impacts and costs. A review was conducted by a panel that included experts from the World Business Council for Sustainable Development, the International Integrated Reporting Council, the U.N. Environment Programme (UNEP), the World Wildlife Fund, The Economics of Ecosystems and Biodiversity (TEEB), a few universities, and representatives from PwC and Trucost, the two companies that developed the Puma EP&L statements. The final verdict was a unanimous thumbs-up!  While there is room for improvement with respect to needing more primary data and more precise life cycle analysis, Puma’s EP&L has been judged robust enough to estimate future business risks from Natural Capital volatility and increasing environmental and social costs, and for being used to build a more sustainable business model and brand. Later this year, Puma is launching a coalition to broaden adoption of its Environmental Profit & Loss methodology; about a dozen companies are expected to join from a variety of industries.

 

So what are the business implications of this development?

Capital Accounting: Puma, with its EP&L, is considered a torchbearer in the drive towards a financial system that includes natural capital - natural capital accounting was a large part of the discussion at the U.N. Earth Summit at Rio+20 last year. It is in the best interest of resource-reliant businesses to start actively managing towards sustainability. Unilever is doing this with its Sustainable Living Plan and Interface is doing this with its Mission Zero.

Government and Trade Policy: The insights provided by natural capital accounting could influence trade policy and possibly other government policy decisions. Puma Chairman Jochan Zeitz highlighted perverse government subsidies that make it more expensive to use sustainable materials, pointing out that if the company were to make its shoes from sustainable materials instead of suede leather, it would cost an extra €3.4 million a year in duties! "Governments have a unique opportunity to incentivize corporations so that they can accelerate their evolution to a more sustainable economy through more sustainable practices and products," he said in an interview.

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Innovative Product Development: Puma’s EP&L revealed the upstream and downstream costs of their products, specifically, that 57 percent of the company’s environmental impact comes from the production of raw materials such as leather, cotton and rubber. That resulted in a focus on using more sustainable materials, and earlier this year, the launch of InCycle, the industry's first "closed-loop" line of biodegradable and recyclable footwear, apparel and accessories - all Cradle to Cradle Certified BASIC. Companies in a range of industries have C2C certified products; Patagonia was the first clothing company to make a fleece jacket out of sustainable materials (recycled plastic bottles) back in 1993, and now also uses recycled jackets as sustainable raw material!

 

Sustainable Packaging: To reduce the environmental impact of their products, Puma introduced The Clever Little bag in 2011, PUMA_shoes_n_box_smwhich cut down packaging and also transportation related emissions.  Other companies who have invested in developing eco-friendly packaging are Dell which is aiming to have 100% of its packaging be sustainable, recyclable and compostable, Stonyfield which uses plant based plastics and has a partnership with Preserve to upcycle its #5 plastic containers into new products like toothbrushes, and Clif Bar which has a partnership with Terracycle to make a range of products from its wrappers!

Extended Producer Responsibility: Puma rolled out the Bring Me Back program in 2012 to reduce waste by recycling used Puma (and non-Puma) products to create new ones. Puma products such as the InCycle backpack will be returned to the original manufacturer in China after collection, who will then produce new backpacks from the recycled polypropylene! Other companies with similar take-back programs are H&M, Patagonia and HP.

It is not easy for a company to make a decision overnight to develop an Environmental P&L, but with Puma’s coalition initiative, more and more companies will be going down this road, and other companies will get at it at different ways, such as the companies mentioned above, and the B-Corp companies mentioned in September’s Green Guru Spotlight. Start a conversation about the EP&L at work, cite some examples and see where it takes you!

 

 

Green Guru: Suparna Vashisht, October 2013

 

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