Smarter Business: Case Studies
Environmental Profit & Loss Account Study
Photo: PUMA AG
Environmental degradation can critically damage supply chains, expose companies to higher procurement costs and even burdensome lawsuits. For businesses looking to remain successful decades into the future, identifying environmental risk is a critical step to preventing problems before they occur.
In an uncertain world of limited resources, it makes sense to accumulate the data necessary to make resource-efficient and environmentally-friendly choices. With the right metrics and research, companies can pinpoint their environmental liabilities and move their business practices onto a more resilient and sustainable long-term path.
Moreover, as issues like water scarcity and climate change grow, governments will become more likely to enact regulatory barriers or reporting requirements. Companies that anticipate government action will position themselves ahead of their competitors.
PUMA AG and parent company PPR HOME hired consulting firms PricewaterhouseCoopers and Trucost to calculate PUMA’s total global greenhouse gas emissions and total water use, respectively. As a global sporting goods and clothing company, PUMA AG sits atop an extensive network of suppliers, most of which operate outside PUMA’s direct control. The Environmental Profit and Loss study addressed everything from the extraction of raw materials to processing, manufacturing, and company logistics like design, warehousing, transportation and retail. The study did not address the environmental costs of waste and disposal.
“Fundamentally, this analysis is about risk management for the environment, and for business, because you cannot separate the two. This is a first for a company to measure and value the impact of its business in this way,” says Alan McGill, a partner at PricewaterhouseCoopers.
The consultants valued carbon dioxide at €66 ($95.75) per metric ton and average water at €0.81 ($1.75) per cubic meter. Trucost’s calculations took into account the local impact of water use, using factors like the rate of water replenishment relative to withdrawal in a given location. The consulting firms used modeling techniques based on government and United Nations data to estimate impacts when site-specific metrics were unavailable. The accounting relied on emerging methodologies like future damage discounting and adjustments to reflect differences in incomes between companies.
PUMA AG’s Environmental Profit & Loss Account estimated the total economic value of PUMA’s carbon emissions and water use at €94.4 million ($136.95M) in 2010, with greenhouse gas emissions valued at €47 million ($68.18M) and water use at €47.4 million ($68.76M).
It found that PUMA’s greatest environmental impact came at the company’s lowest production level: resource extraction and cultivation. Over a third (36%) of the company’s overall greenhouse gas emissions and over half (52%) of its water use occurs during rubber cultivation, cotton farming and cattle ranching. The report showed footwear to be PUMA’s most environmentally expensive product, and operations—the part of the supply chain PUMA has the most control over—to account for only 15% of the company’s overall greenhouse gas emissions and 0.001% of the company’s total water consumption.
“We've recognized that our current business model is not sustainable in the long run because we'll eventually run up against a shortage of resources,” says Puma Deputy Spokesperson Kerstin Neuber. “[This study] is a kind of risk management that we can use for our future procurement strategy while also reducing our impact on the environment.”
Armed with information, PUMA will be able to take more effective action in order to meet its goal of reducing energy and water use, carbon emissions and waste by 25% by 2015. Reducing emissions and conserving water are cheaper options than mitigation, so the company is well served by pinpointing and acting upon high emissions sources and high levels of water use.
PUMA plans to issue stricter environmental guidelines to its suppliers, in order to put pressure on the entire supply chain. The EP & L results will also allow PUMA to readdress its current ‘Sustainability Scorecard’ targets at the operations level.
“Companies are already facing increasing input costs as a result of rising commodity prices related to climate change and water availability,” says Dr. Richard Mattison, CEO of Trucost. “PUMA is now positioned to address these challenges in advance and we have helped provide them with management tools to minimize risk, hedge against uncertainty and identify new opportunities to optimize the sustainability of its products.”
To further improve its sustainability metrics, PUMA has launched studies to evaluate other environmental liabilities, like acid rain precursors, emissions of volatile organic compounds and waste. Future studies will address broader social impacts, like wage levels, living standards and cultural heritage.
PUMA AG has been making shoes and apparel since 1948. From its beginnings as a small German shoemaker, the company has grown into an international sportswear giant that manufactures a wide variety of goods, apparel and accessories. PUMA’s vision statement calls for greater environmental sustainability, peace and creativity worldwide.
PUMA AG is a publicly traded company, and the PPR Group has been its majority shareholder since 2007. Sales in 2012 were valued at €2.71 billion.
- Read PUMA AG’s press release announcing the study results.
- Check out graphics and charts that summarize PUMA’s environmental impacts.
- Find out more about sustainability at PUMA and PUMA’s value chain.
- Learn more about PricewaterhouseCoopers and Trucost.
- Read more about PUMA AG’s plans to include broader social and economic impacts including taxes and job creation, as well as non-tangibles like “empowerment” and “cultural heritage”.
last revised 6/16/2011