Puma has published its first environmental profit and loss (E P&L) account, revealing the impact of raw materials on greenhouse gas emissions and water use. Puma is said to be the first company to attempt to produce an economic valuation of the environmental impacts of its emissions and water use across its entire value chain.
Environmental Profit & Loss Account (E P&L) tallies the raw material production accounts for the highest relative impacts of Greenhouse Gas Emissions (GHG) and Water Consumption within Puma’s operations and supply chain. Ultimately, Puma’s undertaking will see the inclusion of further environmental key performance indicators in Stage 1, followed by social and economic impacts in later stages of development.
As part of Puma’s long-term sustainability plan, the analysis was commissioned in recognition that producing and selling Puma products has a wide impact along the entire supply chain. By identifying the most significant environmental impacts, Puma will develop solutions to address these issues, consequently minimizing both business risks and environmental effects. Puma’s E P&L statement provides an unprecedented and detailed level of understanding, sets a new benchmark in corporate environmental reporting and will hopefully serve as a catalyst for others to join an industry-wide engagement.
The first results of Puma’s E P&L have revealed that the direct ecological impact of Puma’s operations translates to the equivalent of EUR 7.2 million of the overall impact valuation. An additional EUR 87.2 million falls upon four tiers along the supply chain. In total, this leads to an overall environmental impact of GHG and Water Consumption of Puma’s operations and the supply chain of EUR 94.4 million. By putting a monetary value on the environmental impacts, Puma is preparing for potential future legislation such as disclosure requirements. These costs will serve as a metric for the company when aiming to mitigate the footprint of Puma’s operations and all supply chain levels and will not affect Puma’s net earnings.
“The E P&L statement is a milestone in Puma’s mission to become the most desirable and sustainable Sportlifestyle company in the world. It 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 and PPR HOME will encourage and collaborate with the industry to adopt this tool,” 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 (please refer to www.about.puma.com for details of methodology) by PwC (GHG emissions) and Trucost (water use), estimated a value per tonne 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’s operations accounted for 15 percent of the overall GHG emissions analysed, and 0.001 percent 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 EUR 87.2 million – fell upon its entire supply chain.
- 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 retail
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 percent of the total GHG (EUR 16.7 million) and 52 percent 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.
“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 minimise risk, hedge against uncertainty and identify new opportunities to optimise the sustainability of its products.”
Puma’s Response to the Results to Minimize Risks
To reduce the impact, Puma 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 percent sustainable packaging and 25 percent 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 will look 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. For many years, Puma has been engaging with other global initiatives, industry dialogues and corporate alliances to address sustainability challenges such as: the UN Global Compact, the Fair Labor Association, the Carbon Disclosure Project and, most recently, the 2 Degree Initiative and PPR’s luxury brands have been long-term members of organizations such as the Sustainable Luxury working group (set up by the Business for Social Responsibility) and the RJC (Responsible Jewellery Council).
Puma will soon join the Sustainable Apparel Coalition, an industry-wide group of leading apparel and footwear brands, manufacturers, experts and the United States Environmental Protection Agency to reduce the environmental and social impacts of apparel and footwear products. This underpins Puma’s effort to increase collaborations with its industry peers to address the environmental impacts occurring at all shared levels of the supply chain.
Building Capacity to Create Snowball Effect
Puma will focus even more attention on capacity building projects in collaboration with other industry players to help Tier 1 supplier management identify weak points in their operations by offering training programs and by enabling them to make improvements, independently. For more than six years, Puma has carried out capacity building projects together with other industry brands to improve environmental and social conditions at Tier 1 supplier factories.
Innovating for the Development of Sustainable Materials and Products
By 2015, 50 percent of Puma’s international collections will be manufactured according to Puma’s internal sustainability standard, Puma S-Index, using more sustainable materials such as recycled polyester, that take into account the enormous environmental impact of raw material production. Puma will investigate the opportunity to address the impact of Tier 1 to Tier 4 suppliers through the innovative development of more sustainable materials and products.
And the surprising result is that the production and processing of raw materials – including farming of cotton, oil drilling and refining, cattle ranching and leather tanning, natural rubber production – have the highest impact.
While the total environmental impact of emissions and water use is equivalent to EUR 94.4 million, only EUR 7.2 million arises from the direct impact of Puma’s operations, the rest – all EUR 87.2 million of it – is associated with the company’s supply chain.
The methodology used by Puma estimates the value of a tonne of CO2 equivalent to be EUR 66 and the water value to be EUR 0.81/m3.
While the impact costs are equally spread between emissions and water use, Puma’s core operations only account for 15 percent of the overall greenhouse gas emissions and 0.001 percent of water consumption.
“The E P&L statement is a milestone,” says chair and CEO Jochen Zeitz. “It 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.”
Zeitz continues that a better understanding of the company’s environmental impact will help the transition to a more sustainable business model.
Alan McGill of PwC, which provided the economic valuation of Puma’s emissions, says it is a first for a company to measure and value its environmental impact in this way.
“It’s a game-changing development for businesses to integrate environmental issues into their current business model like this,” he says.
Puma last year instituted a strategy to use 100 percent sustainable packaging and reduce its carbon, energy and water by 25 percent by 2015.