Burgess COMMENTARY
The Kering EP&L initiative is impressive, and I am delighted that there is now another high profile step forward after the 2010 PUMA EP&L.

However, in my view, we still have a long way to go before impact accounting becomes mainstream and feasible for universal use. It has to be easy and it has to be low in cost.

Conventional money profit accounting has these characteristics. I like to remind people that you can learn almost everything you need to know about the money profit performance of an organization in two pages of summary numbers ... the balance sheet and the P&L account. What these numbers mean is widely understood, and a few notes clarifies things that are not particularly clear. There are accounting rules (I actually prefer principles) that define how these numbers are prepared, including consolidation rules for complex organizations.

In business accounting the financial accounts are a summary of everything, and there are usually cost accounts (many different names for this) that use the same data to enable granular information like department cost or product costs.

Money accounting is very low cost relative to the rest of the organization, and the data are summarized very quickly to inform management (and to some extent the outside world).

In my view, a mature system of impact accounting needs to be based on standard values (similar to standard costs in money accounting) that bring into play the many FLOWS or PROCESSES that exist in the business. These 'add up' to be the IMPACT P&L (which includes the money component) and also feeds into the IMPACT BALANCE SHEET.

The impact on the balance sheet has two components: (1) the impact on the balance sheet of the organization; and (2) the impact on the balance sheet on the world beyond the organization.

I am interested in the management dimension of information. In order to have accountability the data have to be organized to be in context. So a company operating in a PLACE needs to show the impact of its activities on the balance sheet of the place where is is operating. With this information the people in the PLACE have the opportunity to engage with the local operation to have the impact to be positive rather than negative.

There is also the matter of PRODUCT. It is the flow of PRODUCT that enables the generation of money revenues and profit. But it is also the flow of PRODUCTS that deliver value impact to the customer and all sorts of environmental impacts in the product life cycle. So there needs to be data about all of this at the PRODUCT level. The tech community has figured out ways to tell potential customers all about the product that relates to why the customer should buy the product, but they don't tell the customer anything about the impact the product is having through its life cycle on society and the environment.

I should also add that in the end, the impact of the organization of the quality of life of people is a very important number. In the end the performance of the socio-enviro-economic system will depend on how much positive impact on people can be achieved with a minimum of negative impact on the planet.

The journey to really useful impact accounting has a long way to go ... but the really good news is that some very important steps have now been taken to get this show on the road

Peter Burgess TrueValueMetrics.org
Peter Burgess

Owner of Puma releases EP&L as open-source tool for others to use

Kering has issued the latest results of its group-wide environmental profit and loss account and wants other businesses to get to grips with the true value of nature.

The EP&L of Kering measures the environmental footprint of the company’s own operations and across the group’s supply chains, valuing it in monetary terms.

But it has also published its EP&L methodology to provide an open-source tool that it hopes will encourage other corporations to understand their entire impact on natural capital.

It highlights where there are environmental impacts and also business opportunities “Kering is sharing this work to support the development of corporate accounting of natural capital, and the Natural Capital Protocol, a cross-sector industry initiative developing a global methodology for environmental accounting,” it said in a statement.

Through the EP&L, Kering has analysed the impact on natural capital from raw materials to the delivery of products to its customers, including logistics and stores.

“This assessment deepens the understanding of its activities, providing visibility so as to enable better decision-making,” it adds.

“Kering is sharing our EP&L work as transparency and collaboration are needed to scale solutions which will help solve problems of scale, like the depletion of natural capital,” said François-Henri Pinault, chairman and CEO of Kering.

“Our EP&L has already served as an effective internal catalyst to drive us towards a more sustainable business model. I am convinced that an EP&L, and corporate natural capital accounting more broadly, are essential to enable companies to acknowledge the true cost on nature of doing business.'

'It highlights where there are environmental impacts and also business opportunities, to then enable informed strategic decision-making that will underpin a more resilient business in the face of current and future environmental challenges resulting from climate change.'

The ‘Kering EP&L Methodology and 2013 Group results’, developed with the help of PwC, outlines a seven-step methodology to help a company create an EP&L. It also presents the consolidated group EP&L results based on 2013 data and highlights key actions already taken by the company and its brands to mitigate its impacts on natural capital thus far.

The EP&L accounts reveal a number of learnings including:

Of the total environmental impact, 93% falls within the supply chain, with over 50% of the impact associated with raw material production (tier 4 suppliers) Within the supply chain, 26% of the impact is associated with raw material processing (tier 3), and manufacturing and product assembly (tiers 1 and 2) accounts for 17% of the total impact 7% of the impacts are associated with Kering’s operations, including retail (tier 0) Of the total impact, 35% comes from greenhouse gas emissions and 27% from land use, and 25% comes from leather, while 17% is linked to cotton.