Verdict on PUMA's innovative accounting system for sustainability
We live in the age of the nerd. Once a depreciated species, tech-savvy brainboxes like Mark Zuckerberg now rule the roost. Sustainability has always had its undercurrent of wonkishness too. Anyone that has ploughed through the Global Reporting Initiative or ISO26000 can testify to that.
Sustainability geeks have themselves a new poster-child these days in the shape of PUMA. Last year, the German sports apparel and footwear brand burst onto the scene with an innovative accounting system. Pitched as the "first ever" Environmental Profit & Loss (E P&L) account, PUMA said it had cracked the challenge of putting a financial value on its use of 'natural capital'. The result? A cool €145 million. PUMA followed up this initial report with a second study back in October in which it provided a similar Euro-and-cents figure for the environmental impacts of specific product lines. The sustainability wonks drooled.
But is the methodology accurate? To its credit, PUMA's parent company, PPR, convened a group of independent experts to check. Their conclusions, published today, make intriguing reading. There's an up-front admission that PUMA's approach, which was developed in conjunction with accounting experts PwC and TruCost and PPR, marks a "first step". That said, the unanimous verdict was that PUMA "clearly applied credible valuation approaches". As a business management tool, the E P&L came out with flying colours. The expert panel judged the methodology as a valuable asset for strategic decision making, as well as for providing insights into potential business risks linked to the use of natural capital. In PUMA's case, for instance, it has enabled the company to evaluate the water intensity of its raw materials and map these against regions where availability of water is an issue or where it could be in the future. Transparency emerges as another major business benefit. "By reporting the results of an E P&L businesses can be transparent about the extent of their environmental impact thus providing a basis for more meaningful, evidence-based engagement with stakeholders", the report states.
But what about the numbers themselves? Just how robust are they? This is where the real nitty-gritty of the report lies. Data availability is the biggest issue. The E P&L differs from so-called 'Scope 1' reports in that it seeks to quantify not only PUMA's direct environmental impacts, but those of its suppliers too. Primary information is often non-existent or disaggregated. Many statistics, for instance, are only available at a national level rather than being location-specific. This means the methodology relies heavily on the use of estimation techniques, such as environmentally extended input-output modeling. These are good, but not great. More data from suppliers would be one big improvement. Failing that, the report recommends factoring in data from secondary sources, such as Life Cycle Assessment databases.
In terms of scope, the verdict of the expert panel on the list of impact areas included in the E P&L was broadly positive. The only recommended addition is the inclusion of water pollution. Many of the other recommendations focus on technical improvements around valuation. There is advice on how to avoid the risk of double accounting, how to offset bias relating to welfare-based evaluation techniques, how to account for inflation, how to structure a baseline scenario, and the like. All stuff that will keep the wonks happy and, more importantly, make the methodology more robust. Two important challenges await if PUMA's promotion of natural capital accounting is going to be more than a flash in the pan. The first centres on standardisation. "The E P&L as an approach is unlikely to be used by more companies unless a more accessible methodology is developed", the report's authors warn. In this sense, their recommendations are a good place to start. The second issue revolves around participation. PPR has largely been flying solo to date. Standardisation should help win over the early sceptics. Aligning the E P&L with related initiatives, such as the TEEB for Business Coalition framework, would help as well.
Critical to greater participation is the 'so what?' question. Carrying out an E P&L is neither cheap nor easy. Businesses are most likely to join if they can see tangible benefits. These mostly focus around the methodology's potential as a decision making tool. As yet, no "forward 'game plan'" for harnessing this potential exists, the report notes. That's an urgent entry for the to-do list. The E P&L owes its success so far to individual leadership. Much of that has come from PUMA's charismatic past-chairman Jochen Zeitz.More companies need to follow suit. Nerdy happiness will certainly go through the roof if so. More importantly, so should the business sustainability - article attributed to Oliver Malch (2012), Guardian Professional.
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