The evolution of corporate decision-making tools

What information do company managers rely on when making decisions? Financial information is of paramount importance, whereas environmental and social factors are often overlooked. Puma has recently made impressive strides in evolving the degree of sophistication of environmental and social data it collects and analyses, and how it will be used to make better decisions.

What information do company managers rely on when making decisions, like where to build a new facility? Financial information is of paramount importance, whereas environmental and social factors are often overlooked. While many companies now report environmental and social metrics, the degree to which these indicators actually affect most corporate decisions is limited. The accelerating pace of environmental and social trends underscores the inadequacy of the current lens through which most managers examine risks and opportunities. One company has recently made impressive strides in evolving the degree of sophistication of environmental and social data it collects and analyses, and how it will be used to make better decisions.

Puma (part of PRR Group) has, assisted by Trucost and PricewaterhouseCoopers, developed an Environmental Profit and Loss Account (EP&L) – which, when fully completed, will encompass the net environmental, social and economic impacts of its supply chain. It will compare the cost of the company’s environmental impacts to the benefits it generates, to come out with a net figure.

Puma recently released the results of the first phase of the EP&L, which put a value of€94.4 million ($133.5 million) on its greenhouse gas (GHG) emissions (€47 m, at a price of €66/t CO2) and water consumption (€47.4m, at a price of €0.81/m3) impacts. Most (84% of GHG emissions and 99.9% of water consumption) of Puma’s ecological costs arise from its supply chain, which includes the production and processing of raw materials, and outsourced processes.

Puma’s estimates of the value of its ecological impacts are calculated by looking at the long-term societal cost of the damage caused by the GHG emissions and water scarcity the company contributes to. In the case of water, this includes the value of freshwater replenishment, water nutrient cycling and other natural processes that are impaired when companies such as Puma remove water from an ecosystem. It’s beneficial for Puma to try to estimate what these costs would be, as if they were priced and the company had to pay them, to approximate the “true” cost of its dependence on ecosystem services and the externalities it is responsible for.

Puma sees the EP&L as a chance to get the jump on competitors in preparing for the future realities of the corporate world – increased disclosure requirements on environmental and social factors, the pricing of externalities (e.g. carbon pricing) and resource scarcity. The EP&L will support the company in taking more targeted action in reducing its environmental impacts, especially in its supply chain, which is a mystery to many companies.

Puma is taking the first steps to gaining a more complete understanding of its impact on the environment, and areas of vulnerability in its supply chain. Armed with the data from the EP&L process, Puma will be able to take action to build more resilience into its business model, and ultimately, make better decisions about the company’s future