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Puma’s EP&L: Is it a Game-Changer?

Puma’s environmental profit and loss statement is already creating tangible changes, even though it is based in part on “calculated guesswork”, according to a Guardian analysis.

Puma last month announced the initial results of its Environmental Profit & Loss Account, which it called a “world’s first”. The account valued the greenhouse gas and water consumption impacts of the company’s operations and supply chain at €94.4 million ($133.5 million).

The Guardian analysis says that Puma’s consultants, PricewaterhouseCoopers and TruCost, used emerging methodologies to calculate costs to the company of carbon dioxide output (£57 per ton) and water usage (£0.69 per cubic meter). These calculations included equity weighting, future damage discounting and inflation adjustments.

TruCost chief executive Richard Mattison told the Guardian that the governing principle was to determine the social cost of carbon and water. But, he said, “The [scientific] studies sometimes use different techniques, so you’re comparing apples and oranges.”

The analysis also said that while Puma could ascribe a high degree of accuracy to environmental figures from its 60 biggest suppliers, it had to use some guesswork to come up with the data for smaller companies further down the supply chain. This guesswork is important because the producers of Puma’s raw materials account for 36 percent of its indirect greenhouse gas emissions and 52 percent of its water consumption, the Guardian said.

To calculate these carbon emissions, PwC used an “economic input-output model based on government industry data,” the Guardian said. TruCost based most of its water calculations for raw material providers on water scarcity studies by the United Nations’ Food and Agriculture Organization. “It’s not accurate to the nth degree, but it’s in the right ballpark,” Alan McGill, partner in PWC’s sustainability and climate change department, told the paper.

Another issue with the EP&L is that it only covers environmental impacts from raw materials to finished product, not “cradle to grave” effects that include products’ disposal, the analysis said. And so far it only includes carbon and water impacts, though Puma promises that by the end of 2011, it will publish an updated version with information on land use, waste and the emissions that contribute to acid rain and smog.

As for the EP&L’s effects, Puma now plans to factor water scarcity into its procurement decisions, chief executive Jochen Zeitz says, and the company now requires that its top suppliers guarantee that sub-suppliers meet Puma’s core environmental standards.

The EP&L could lead Puma to extend its offset program to cover emissions from its supply chain. But Zeitz is careful not to overstate the immediate effects of the EP&L, the Guardian says, even as he hopes that the EP&L will help spark change among industry peers.

One of the biggest impacts of the EP&L will be internal, Zeitz predicts. A ten percent reduction in carbon footprint might not mean anything to most Puma managers, but “if we say we’re going to save £20 million from our P&L, that’s much more tangible.”

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4 thoughts on “Puma’s EP&L: Is it a Game-Changer?

  1. Transparency is a natural requirement for doing business on a planet with finite resources and it is likely to be a key feature and aspiration of pathfinding market leaders. The P&L work of PUMA is definitely a game changer because companies compete through their supply chains. It is natural therefore to expect companies to disclose for their supply chain. As the saying goes “companies do not compete, it is supply chains that compete”.

    Since market leaders are now able to assess energy use through most of the systems inside suppliers (not just at the supplier level through input-output analysis) and build up intricate pictures of what is happening in terms of energy and emissions inside the tens of thousands of companies within the supply chain, the world of supply chain management is poised for disruptive change. Just imagine what will happen when one company and its supply chain of 50,000 companies ecodesign shifts to using only 20-30% of the energy used by the competitor and its supply chain.

    The stakes have gone sky high!

  2. This is absolutely a valuable step in the right direction. Praises all around to Puma, PwC and TruCost for sharing their experiences.

    I welcome the next players to get on the playing field, grab this ball and continue to “change the game”.

  3. Puma/PwC has made a good starting contribution, but a lot of value is ‘left on the table’ when only environmental sustainability factors are considered. Social and other ‘intangible returns’ need to be included for an accurate portrayal of the value that sustainability brings to corporations. Such an analysis will favor firms that make investments, as they will be getting full credit for achievements.

    I encourage you to look at our website (www.sustainedge.com) for more information on our innovative method for intangible valuation.

  4. There is not enough emphasis on ‘carbon footprint’ information to the general public. Most have no idea about their role in this so very important ‘save the earth’ concept and fact.
    However, Puma’s EP&L is a start. Great article.

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