Environmental profit and loss account

An environmental profit and loss account (E P&L) is a company's monetary valuation and analysis of its environmental impacts including its business operations and its supply chain from cradle-to-gate. An E P&L internalizes externalities and monetizes the cost of business to nature by accounting for the ecosystem services a business depends on to operate in addition to the cost of direct and indirect negative impacts on the environment. The primary purpose of an E P&L is to allow managers and stakeholders to see the magnitude of these impacts and where in the supply chain they occur.

The E P&L analysis provides a metric to measure and monitor the footprint of the company's operations and suppliers all the way to the initial raw materials. It is a tool to build awareness of the importance of nature to the sustainability of businesses; enhance visibility across a company's supply chain and deepen understanding to focus sustainability efforts and implement better-informed operational decisions; improve specificity for risk management regarding environmental dependencies and impacts; and support a more holistic view of a company's performance, while bringing clarity and transparency to stakeholders at all levels and identifying new opportunities to enhance the sustainability of a company's products.

Background

Conceived by Puma Chairman, Jochen Zeitz,[1] and launched by Puma and its parent company's sustainability initiative (PPR HOME), the first-ever[2] E P&L was conducted on 2010 data and released in two phases. In May 2011 the valuation of Puma's 2010 Greenhouse Gas Emissions (GHG) and water usage was announced,[3] followed in November 2011, by Puma's overall E P&L,[4] which also included valuation results for other forms of air pollution, land conversion and waste.

Simultaneously, the PPR Group announced in November 2011 that a Group E P&L would be implemented across its Luxury and Sport & Lifestyle brands by 2015.[5]

Methodology

The E P&L and the associated methodology were developed with the support of PricewaterhouseCoopers and Trucost.[6] The E P&L used existing input-output models and developed new valuation methodologies, building on a large volume of work in the fields of environmental and natural resource economics such as the United Nations study on The Economics of Ecosystems and Biodiversity.

Kering, the parent company for Puma, has released its Environmental Profit and Loss Accounting methodology in an open source mode.[7][8] Novo Nordisk is another company that has released its environmental profit and loss account[9] and methodology report.[10] The 2017 annual report of Philips mentioned that the company had an environmental impact of Euro 7.2 billion for that year. This assessment was made through an Environmental Profit and Loss Accounting process. The company mentioned that this monetary value has not considered various practices that has environmental impacts.[11]

Engagement

The UK government used the Puma E P&L as a case study for sustainable business in the Department for Environment, Food and Rural Affairs Natural Environment White Paper in June 2011.[12] In July 2011, Pavan Sukhdev who was the Study Leader of TEEB and the Special Advisor and Head of UNEP's Green Economy Initiative, referred to the Puma E P&L in his TED presentation.[13] Sustainability authority, John Elkington includes the Puma E P&L in his "The Future Quotient: 50 Stars in Seriously Long-Term Innovation".[14] In the October issue of The Harvard Business Review the Puma E P&L is included in "The Sustainable Economy" by Yvon Chouinard, Jib Ellison, and Rick Ridgeway.[15] In the Winter 2012 issue, the Stanford Social Innovation Review published "Connecting Heart to Head" by Ram Nidumolu, Kevin Kramer, & Jochen Zeitz. The Puma E P&L is included as a business case study.[16] In December 2011, Jochen Zeitz spoke at His Royal Highness The Prince of Wales' Accounting For Sustainability Forum about the Puma E P &L.[17]

Puma's EP&L accounting process has influenced other companies attempting natural capital accounting.[18] A smartphone app has been made available, free of cost, to help students of design and fashion, to understand the environmental impacts.[19]

Critique

An assessment report indicated that preparing an EP&L report can be expensive, while benefits being derived from the process is substantial.[20] EP&L Accounting has also been considered as a first step in the process of ensuring that prices reflect the use of environmental goods and services.[21]

See also

References
  1. "Puma Reveals Its £124m Ecological Footprint". 19 November 2011.
  2. Confino, Jo (16 May 2011). "Puma world's first major company to put a value on its environmental impact". the Guardian.
  3. Anderson, Richard (16 May 2011). "Puma reveals environmental impact". BBC News.
  4. "Puma costs environmental impact". BBC News. 16 November 2011.
  5. Guevarra, Leslie (18 November 2011). "Gucci, YSL to Follow Puma in Revealing Environmental Impact Costs".
  6. "Supply chain weighs on Puma's first green accounts". 17 May 2011.
  7. Kering (May 19, 2015). "Kering Open-Sources Environmental Profit and Loss Account Methodology to Catalyse Corporate Natural Capital Accounting". Retrieved 13 August 2016 – via CSRWire.
  8. "Kering Environmental Profit & Loss" (PDF). Retrieved 13 August 2016.
  9. "Novo Nordisk's environmental profit and loss account" (PDF). 2014. Retrieved 13 August 2016.
  10. "Methodology report for Novo Nordisk's environmental profit and loss account" (PDF). 2014. Retrieved 13 August 2016.
  11. https://www.philips.com/c-dam/corporate/about-philips/sustainability/downloads/ecovision-methodologies/EPL-Account-methodology-2017.pdf
  12. "U.K. Government White Paper Calls for Tracking Green Losses, Gains". 22 June 2011.
  13. "Put a value on nature!".
  14. John Elkington; Charmian Love; Alastair Morton. "The Future Quotient". CR Magazine. Archived from the original on 11 January 2012.
  15. Yvon Chouinard; Jib Ellison; Rick Ridgeway (October 2011). "The Sustainable Economy" (PDF). The Harvard Business Review. Archived from the original (PDF) on 2011-11-12.
  16. "Connecting Heart to Head (SSIR)".
  17. ThePrincesA4S (21 December 2011). "Jochen Zeitz, CEO Sport and Lifestyle Group, CSO of PPR and Chairman of the Board of Puma" – via YouTube.
  18. "Connecting Finance and Natural Capital, Case Study for eftec: Natural Capital Statements".
  19. "Kering and Parsons School of Design Develop Free EP&L App for Fashion Students". 18 January 2017.
  20. Assessment of potentials and limitations in valuation of externalities (PDF). 2014. ISBN 978-87-93178-33-5.
  21. Nathalie Olsen Head. "The Case for Environmental Profit and Loss Accounting" (PDF). IUCN.
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