Puma did something remarkable. It is one of the first companies to put a monetary value on its environmental impact and publicly release it as an environmental profit and loss statement (“EP&L”). The total cost of its environmental impact in 2010 was 145 million Euro (approx. US$ 192 million).

“If we treated the planet like any other service provider, Puma would have paid Euro 8 million (US$11 million) for services rendered to our core operations and another Euro 137 million (US$181 million) for services rendered our supply chain of external partners,”  says the Chief Sustainability Officer of Puma’s parent company.

Difficult to Determine Environmental Costs

Creating an EP&L is daunting because it is difficult to measure and price the costs of environmental impact. An environmental cost can be a cost incurred or a cost avoided. They can be upfront (site studies), operational (scarcity premium, product redesign), back-end (decommissioning, remediation), regulatory (compliance-driven or penalties), and contingent (property damage).  The most common methods of assessing the value of environmental costs are replacement value, market value, and statistical modeling.  Uncertainty about the timing, likelihood, and magnitude of the environmental impact makes accurate evaluations tricky.

Environmental costs are expected to double every 14 years, which can eat into a company’s profitability. Smart businesses want an accurate picture of their environmental costs because it will enable them to make more informed business decisions and better manage those costs.  As a result, businesses are likely to:

• make different investment decisions,
• adjust product pricing, mix, and development,
• enhance customer value (e.g. reduce waste), and
• “future-proof” decisions by identifying longer term environmental risks.

Don’t Forget to Include Your Supply Chain

It may come as a surprise, but only 6% of Puma’s environmental costs in 2010 came from its own operations. A whopping 94% of the costs came from its supply chain. If Puma wants to reduce its environmental impact, it will have to focus on the activities of its supply chain. The challenge is that it has limited influence over its supply chain. To engage suppliers, Puma’s parent, the PPR Group, has joined the World Business Council for Sustainable Development and plans to join the Sustainable Apparel Coalition

Benefits of Having an EP&L

“An EP&L provides companies with a roadmap to better measure and manage the environmental consequences of its operations and supply chain.” according to Alan McGill of PwC. Puma says the benefits of such a roadmap are that they provide:

• a strategic tool that pinpoints areas to develop (e.g. more cotton and rubber, reducing greenhouse gas emissions),
• a risk-management tool to warn of emerging risks (e.g. diminishing availability of water for production), and
• a transparency tool that includes environmental considerations and, thus, enables more informed business decisions (e.g. cost reduction, greater efficiencies).

By releasing the first public EP&L, Puma makes a bold statement that “business as usual” is not sustainable and that companies need to adjust how business is done.  NGOs, governments, and academics are also taking note.

One can only hope that other companies will follow Puma’s lead and that environmental accounting will become more comprehensive and commonplace over time.