Kering: Monetising environmental impacts helped secure our future
EXCLUSIVE: Putting an economic value on the whole range of a company's environmental impacts is the best way to get business executives to understand sustainability issues, according to luxury goods and sporstwear firm Kering.
The French firm, which owns Gucci, Puma, and Saint Laurent among other big-name brands, has effectively valued its use of natural capital through Environmental Profit and Loss (EP&L) accounting.
A bold first for the industry, the EP&L system aims to assign an economic value to the environmental impacts of the group's entire supply chain – from the leather for its shoes through to the metal for zippers and everything in between.
It was first carried out on the Puma brand in 2011, but has since been scaled up across the business.
“It's the first exercise of this magnitude ever done in the luxury industry,” Kering's sustainability director Michael Beutler told edie. ”Quantifying and monetising our environmental impact like this is well beyond what other companies have done.”
Beutler explained how the impacts were presented with a monetary value to help get the information into the hands of top-level decision makers at Kering.
“Its something that business people can get their head round,” he said. “How do you compare a gram of carbon to a normal business metric like revenue? We put in in monetary terms as a way of putting it in the language of business executives”.
The valuation was done with the support of PwC, and drawing on the work of leading academics including Lord Nicholas Stern's published research on the costs of climate change. Beutler also pointed out that the values are heavily dependent on context.
“What is the cost to society of a litre of water in Brazil, France or the UK? The local aspect is quite important – a litre of water has a very different value for a farmer in Californian than in Normandy. For biodiversity too, the value of land is different for untouched rainforest, compared to land that’s has been used for agriculture for the last 200 years.
“The only thing that had the same value everywhere is CO2.”
Kering video: #DiscoverTheEdge
Beutler said the EP&L exercise has been invaluable in identifying where potential savings can - and need to be - made.
“The first surprise was the sheer impact of metal, which we use in buckles and zipper and so on," he added. "We found that the water pollution impact of silver was 170 times that of brass, and gold was double silver. The numbers are staggering.”
Beutler would not give specific details of the cost or benefits of EP&L so far, but did add: “Even if there’s no correlation to financial results yet, you can start to see that it is connected to future profit. This correlation is only going to get more refined as more people do EP&L and the methodology improves.”
The hope is that other companies will embrace this natural capital accounting concept and start contributing to the research, which is why Kering has made its own methodology open-source.
Said Beutler: “One of our competitors is doing a light version of EP&L and that’s great, we welcome that. It challenges us to improve, and maybe we can share ideas and refine the process.”
Going forward, there are plans in the pipeline to expand the EP&L reporting to consumers, since the usage of Kering products has an impact around one third the size of the supply chain.
“This is as or more challenging than mapping supply chain," said Beutler. “There are so many variables in consumer behavior. How often do people wash their clothes and or throw away handbags? That varies country by country and region by region, but it’s the sort of thing we need to know before embarking on consumer education initiatives.”
A more immediate priority, though, is speeding up the EP&L accounting itself – the process of mapping the company’s entire supply chain took around three years. However, Beutler claims that next year’s EP&L report will take the same amount of time as the standard sustainability report, with the results being used to inform business decisions as the highest level.
“The most important thing is that this information is in the hands of people making day-to-day decisions in our brands. It's a business tool not a sustainability tool."
Michael Beutler at edie's Sustainability Leaders Forum
Beutler is among the expert speakers at edie’s ninth annual Sustainability Leaders Forum which takes place on 19 November at the Hotel Russel in London.
Beutler will be presenting a talk on the topic: 'The importance of metrics and understanding reliance on Natural Capital to reduce business risk to climate change'.