The sportswear giant is first out of the starting block with an aggressive effort to track environmental performance
PUMA has a long history of winning in dramatic style. At Beijing’s 2008 Olympic Games, Jamaica’s Usain Bolt savored his world record-setting victories in two sprints by holding up his golden PUMA track shoes in a victorious archer’s pose. In 1970, Brazilian soccer legend Pele drew TV close-ups when he interrupted the opening whistle of the World Cup to bend down and tie his PUMA soccer shoes. For the exposure, PUMA reportedly paid $120,000. Decades earlier, some of the first-ever spiked track shoes helped Jesse Owens sprint to quadruple gold-medal success at the 1936 Berlin Olympics. The shoes came from PUMA’s forerunner, founded in Germany in 1924. All along, PUMA has remained a formidable contender in the devilishly competitive business of sporting gear. While continuing a tradition of high-profile athletic endorsements, a steady stream of alliances with leading designers — including Jill Sander, Philippe Starck and Alexander McQueen — has helped the German company resurrect its brand in the U.S.
The man credited for its resurgence, and for driving sales to $3.6 billion last year, is Jochen Zeitz. Appointed to run PUMA in 1993 at age 30 — at the time, this made him the youngest-ever chairman of a listed German company — Zeitz, a German native, has also distinguished the company as a sustainability pioneer, especially in the self-assessment and publication of its environmental impact. In 2008, he established a foundation to support innovative, sustainable solutions that balance conservation, community, culture and commerce. Last year, 48-year-old Zeitz worked with Anselm Grün, a Benedectine monk, to co-author Prayer, Profit & Principles – Monk and Manager, a book about how to confront pressing social and environmental issues.
Earlier this year, PUMA published the results of the first ever “environmental profit and loss” statement (EP&L) released by a major corporation. Building on the convention of corporate sustainability reporting, triple-bottom-line assessments, and more recently initiativesto report greenhouse gas (GHG) emissions, PUMA’s EP&L attempts to put a dollar value on environmental damage not typically captured by standard financial measures. For the exercise, PUMA assessed the cascade of impacts caused by producing shoes and sportswear: from raw material production, such as cotton farming and oil drilling, to raw material processing, involving leather tanneries, the chemical industry and oil refineries.
Working with accounting giantPricewaterhouseCoopers and data firmTrucost, in May PUMA pegged the ecological costs of its operations for GHG emissions and water use at $124 million for 2010. Of the total, $9.5 million is due to PUMA’s direct actions, and the remaining $115 million are incurred in the chain of suppliers that deliver finished goods to the company. The approach is controversial. Critics have argued the system is too abstract to trigger meaningful change. But by putting a dollar value on the environmental impact of its production process, Zeitz contends PUMA is playing a “catalytic role” in helping to shift the way companies measure and record their costs, and ultimately reduce them. OnEarthcontributor Adam Aston recently spoke with Zeitz, who now serves as chief sustainability officer of PUMA’s parent company, PPR Group, as CEO of its Sport & Lifestyle Group, as well Chairman of the Board of PUMA about how the EP&L can help improve sustainability.
The corporate sustainability report is, for most companies, the most detailed assessment of their environmental impact. At PUMA, you took the process considerably further. What’s the benefit?
We’re moving away from the traditional sustainability report. Such reports are fine for senior management to chart broad efforts. But from the perspective of designers or buyers trying to understand the impact of their decisions on the environment, that approach isn’t specific enough.
That’s where the EP&L comes in. Used across the entire supply chain, it offers a better tool to look at product development and design decisions, to understand the impact of what raw materials we use, how the materials are processed, where our products are made, how they’re shipped, how we package, stock and sell them, and how we dispose of or recycle them.
What variables did you measure in your first EP&L?
The first two we focused on were carbon and water. In the next phase, to be announced shortly, we aim to add other environmental indicators, such as the precursors of smog and acid rain, waste reduction and land use impacts. Eventually, our goal is to track about 90 percent of our environmental impact. Beyond that, the final 10 percent, I think, will just get too complicated.
In phase two, we plan to assess the social impacts in sustainability, such as changes in standard of living, security and health of the communities where we and our contractors have impact.
Finally, in phase three, we want to broaden the scope to look, holistically, at the economic positives of business. If we’re truly comprehensive in this effort, we shouldn’t just look at negative things. The fact is that companies also do good things — creating jobs, paying taxes, fuelling economic growth, increasing wealth and improving quality of life. That’s also something that we want to start valuing.
What surprised you in your evaluation?
The real eye opener was how much of our impact happens so early in the supply chain. That’s when most of the carbon emissions are created and most of the water is consumed.
We estimate that over half of our carbon emissions happen in the production and processing of raw materials, in the raising of cattle for leather and treating that leather, for example.
That means that the second you decide what raw materials to use in your product, you’ve set in stone the bulk of that products’ environmental impact, no matter what happens later.
How are you using the EP&L findings to alter the way you do business?
These numbers show you where you can start to turn your product development in a better direction, by looking for alternative materials, investigating how they’re made, where and by whom. So the findings are influencing product design and development day-to-day, as well as manufacturing, sourcing, even marketing to a point. We’ve begun to share these findings with our suppliers, to help them understand why we’re strict about certain materials or processes.
Are consumers starting to see these changes?
In some cases, yes. For example, to cut the amount of cardboard in our shoe boxes, we worked with Yves Behar to create Clever Little Bag. It’s a design that cleverly combines a reusable bag with a cardboard frame. The approach does away with about two-thirds of the paper used in regular boxes — this saves trees, of course, but also huge volumes of electricity and water, given how paper is made. And since it has a built in handle, the design also eliminates the need for an extra bag at checkout. That makes it more convenient for the consumer. The process of designing this required that we coordinate with our suppliers in Asia to ensure the new approach didn’t cause troubles with how our shoes are packaged at the plant, then shipped and distributed.
Given that you don’t own most of the factories that supply PUMA sportswear, is it a challenge to push through these kinds of sustainable design decisions?
While we don’t own the factories or suppliers, we are deciding who our manufacturers will be, who our raw material suppliers are, where we buy our raw materials from, and so on. We have the ability to tell a factory: “Stop buying from that supplier.”
But, of course, there are cost implications. The full costs that we identified in our EP&L exercise are borne by all of the participants in our supply chain. Though we’re at the end of that chain, PUMA doesn’t pay the full cost of that EP&L.
That’s a reason we’re working to educate our suppliers. If we identify that the footprint of cushioning in our shoes, for example, is predominantly with the chemical industry, we can say to that industry and its suppliers: “Okay, guys, what can you do to shrink your footprint?” It’s got to be a joint initiative.
Do you worry that these efforts will drive up prices, and that higher price tags could turn off consumers?
Look, very little that we buy today is truly sustainable, but this effort has to start somewhere. I believe that brands have significant power to change consumer behavior. Consumers are starting to understand that, ultimately, we’re living on one planet and we have to look after it. There’s a natural survival mode that kicks in, where we are starting to realize that things are broken and we’ve got to change it.
For PUMA, the key is that we don’t over promise, and are very transparent and true to what we do, with honest communication about what we’ve accomplished and what we haven’t. Communicating these efforts is important: we don’t want to lose our customers’ trust by getting it wrong. Nor do we want to sell a greener product that is ignored.
We’re trying to sell a solution that is desirable in many ways besides its environmental impact — its design, materials, and its style. This effort has to include the consumer. Otherwise it’s not going to change things.
What have been the greatest challenges in deploying this method?
It’s not totally black and white, for sure. Data collection is a challenge, given how many suppliers feed materials into our products. But it can be done if the rules are set, and everybody plays along.
Then, of course, is the question of valuation. For example, there is not just one method of measuring the value of water or the cost of carbon.
For us, this meant being on the cautious side when it came to valuing environmental costs, generally opting for the higher cost estimate. So, for carbon, we take its social cost, around $90 per metric ton, many times the cost of a ton of carbon offsets in EU markets. The higher social cost of carbon reflects estimates of the future costs of climate change. [For background on how this value is calculated, check PUMA’s Greenhouse Gas Emissions Valuation Model.]
Are you open to sharing these methods with your peers, to help them spread?
Yes, absolutely. For those that are serious and want to associate themselves with what we are doing in an open manner, we will also be open with them. We have already had a number of requests from the automotive, chemical and beverage industries, as well as from one of our competitors.
Sidebar – Truth Squad: A more environmental balance sheet
Why would a public company such as PUMA bother to report costs it isn’t required to? After all, tracking down water-use and carbon-emissions data for far-flung factories manufacturing countless products is a costly, complex effort, demanding time from top management at PUMA and its partners.
The goal is to turn transparency into a competitive advantage. In fact, while PUMA’s particular EP&L methodology is unique, it’s one of an emerging set of related standards for corporations to recognize, measure and report the non-financial impact of their activities. “Call it triple bottom line or sustainability accounting or CSR [for corporate sustainability reporting], dozens of standards are being developed that attempt to capture elements of companies’ environmental impact,” says Alisa Valderrama, a finance policy analyst at NRDC’s Center for Market Innovation. Some of the leading players in these efforts include Global Reporting Initiative (GRI), the Carbon Disclosure Project and CERES.
PUMA’s first effort, recording water and carbon costs on a profit and loss statement, may sound like a trivial bookkeeping shift, but the company is going a step further than most: Puma is not only disclosing impacts, but working to integrate what they learn into their bottom line. This means going beyond getting management to trim disproportionately high environmental costs. In the long term, such efforts can also help reduce the “material” risks to financial performance that companies are required to report. Energy shortages or toxic spills at a sub-contractor are examples of risks that could dent the annual returns of a company like PUMA. Lastly, share price could eventually benefit since some studies suggest that fuller disclosure of non-financial factors correlates with better investment returns.
“PUMA’s efforts sophisticated, a really holistic example,” Valderamma says. “This is costly, hard stuff: assessing your toll on the environment is not as easy as counting widgets coming of the assembly line.”
Yet she is frustrated with the broader state of reporting, because until such voluntary standards are incorporated into mainstream accounting and financial practices, their impact will be limited. “You want to get to the point where this is no longer rare and voluntary, but commonplace and expected, where Wall Street analysts are asking about EP&L in quarterly calls,” she says. “That will be the bellwether of real market change.” — Adam Aston