Will Puma’s EP&L create a new Zeitz-geist?

For three years, Puma has been developing methods and tools to put a price tag on nature’s contributions to its operations, developing and compiling the first (ever) Environmental Profit and Loss statements.

Released in 2011 and 2012, detailing the German sportswear company's $192 million environmental impact in greenhouse gas emissions, air pollution, waste, and water and land use, the reports are prototypes for a type of accounting that former Chair Jochen Zeitz left to implement at Puma’s parent company, PPR, and in a multi-industry coalition to be unveiled next year.

Last week, PPR unveiled a review of the methodology by sustainability experts and accountants that put the methods through the wringer, and came up largely positive. The report found that most of Puma’s counting tactics in its EP&L statements were solid, and that imprecision was due to a lack of available data or, in some cases, the sheer difficulty of quantifying something as complicated as the natural world.

So far, the EP&L statements released during 2011-2012 have been at the company, and most recently, the product level – with social variables to be added in later.

In its last statement, Puma compared its InCycle biodegradable shoes and tshirts with more traditionally made products. The company found the biodegradable goods had environmental costs a third lower, taking into account a wide variety of variables, including the land used to raise the cattle for the suede, the use (or absence) of dyes, and the greenhouse gas emissions from synthetic fertilizer used on conventionally grown cotton.

Puma released its methodology at the time and has said it’s a work in progress. So do the numbers hold water? And – most importantly – can they be replicated?

Photo of runners in Spain's Valencias marathon courtesy of FCG via Shutterstock

The review panel 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, a few universities, The Economics of Ecosystems and Biodiversity (TEEB), and representatives from two of the companies that wrote the EP&L statements, Pricewaterhouse Coopers and Trucost.

The primary findings:

• Support for the idea as a frame for sustainability, and as an innovation in corporate transparency.
• Approval of the quality of the methods, and confidence that the data produced by them is solid enough on which to make strategic decisions and estimate future risks.
• “Unanimous decision” that the EP&L is doing precisely what Puma set out to do – begin blazing the trail towards a financial world where national capital is part of our math.

The review panel also said the methodology is lacking in some respects:

• Water pollution needs to be added to the categories of greenhouse gas, other air pollution, waste, water use, and land use.
• More primary data is needed on all counts. The methodology currently relies too much on estimation, and when real statistics are given, it is too often at the national level rather local, which varies enormously.
• The modeling done using environmental input-output data should be enriched where possible with more granular life cycle analysis data, especially from the sites; the reviewers noted the difficulties of gathering all of this data from the entire supply chain.

In Zeitz's new role as director of PPR and chair of the board’s sustainability committee, he will be supporting PPR's new chief sustainability officer, Marie-Claire Daveu, in overseeing the EP&L calculations at other PPR subsidiaries -- among them: Gucci, Yves Saint Laurent, Alexander McQueen -- and using them to achieve goals to cut carbon, water usage, and waste by 25 percent by 2016. Puma will continue to do the EP&L statements, like the other PPR properties.

The drive to a system of natural capital was a large part of the discussion at the U.N. Earth Summit at Rio+20 this year (with significant arguments on both sides of the debate). For pioneers like Puma, natural capital accounting illuminates the price of both the resources nature provides gratis, and the costs borne by society that the company is externalizing. (In its 2012 report, Puma spells out that “society shouldn’t have to pay for it.”)

The impacts could be far-reaching, if Zeitz and his cohort succeed in convincing other businesses the cost of the research is worth it. (Puma declined to disclose how much the statements cost to put together.) For example, in the product level report, Zeitz pointed out that trade policy supports more ecologically costly leather over other materials, like recycled synthetic fabric.

So in addition to revealing to companies the upstream and downstream costs of their products, the transparency made possible by natural capital accounting could influence trade policy -- and possibly other government policy decisions.

Now that's something could create a new zeitgeist.