Kering is putting a monetary value on the ecological impact across its operations

Kering is putting a monetary value on the ecological impact across its operations

Luxury goods group Kering is taking an innovative approach to understanding – and changing – the environmental footprint of its business by putting a monetary value on the ecological impact racked up across its operations and global supply chain.

And the numbers make for uncomfortable reading.

Outlined in the first ever Environmental Profit & Loss (EP&L) report published on Wednesday (20 May) from the group behind brands such as Gucci, Saint Laurent and Stella McCartney, the company revealed that 93% of its total environmental impact falls within the supply chain.

Within this, over half of the impact is associated with raw material production (Tier 4 suppliers) - 25% comes from leather, while 17% is linked to cotton. Another 26% comes in raw material processing (Tier 3), while manufacturing and product assembly (Tiers 1 and 2) together account for 17% of the total. But just 7% of the impacts are associated with Kering’s operations including retail (Tier 0).

Putting a monetary value onto this across the Kering Group and its entire supply chain, the overall environmental impact in 2013 is estimated at EUR773m (US$863m) – with the combined impacts of Tiers 1 to 3 (raw material processing to assembly) put at EUR329m.

Environmental impacts are measured through greenhouse gas (GHG) emissions, water use, water and air pollution, waste production and land use - with 35% attributed to GHG emissions and 27% from land use. As well as its suppliers (from raw materials through to manufacturing), the company has also evaluated its own retail, office and transport operations.

The good news is that Kering, which generated revenues of EUR10bn in 2014 and has a presence in more than 120 countries, is now using the EP&L assessment to gain a deeper understanding of its activities and help better decision-making. Not only when it comes to reducing its impact from the point of design onwards, but also responding to supply chain drivers like fluctuations in raw material quality and availability.

For example, 93% of the total impacts from leather are driven by land use and the GHG emissions associated with farming the animals. In response, Kering is reducing its leather footprint by 'smart-sourcing' low-impact beef leather from around the world and supporting more sustainable grazing practices. The company, which owns four tanneries, has also developed metal-free and chrome-free tanning methods, reducing water and energy use by about 30% and 20% respectively.

Likewise, the production of cotton represents more than 95% of the total impacts from plant fibres, thanks to its water consumption and GHG emissions. The production of conventional cotton in India, for example, has an EP&L impact of EUR6.3/kg which is more than six times higher than that of organic cotton at EUR1.0/kg.

This translates to an 80% reduction in impacts by choosing organic production over conventional production.

Acting on this information, Kering is using more organic cotton in its luxury brands: in 2014, 73% of denim used in Stella McCartney's collections was organic. And in partnership with Textile Exchange, C&A Foundation and other companies, the group is helping to launch the Organic Cotton Accelerator, a body to promote the production and use of organic cotton.

With synthetic fibres, most of the impacts come from the processing of oil into yarn. EP&L analysis showed that recycled polyester yarns have an impact of EUR0.17/kg compared with EUR1.4/kg for conventional polyester – an 89% reduction (excluding spinning, weaving and dyeing impacts, which are similar for both). Kering's Materials Innovation Lab is looking at using more fibres and fabrics from recycled sources: its Volcom brand, for example, has adopted Repreve recycled polyester yarn in its Frickin Chine line.

In manufacturing, assembly and processing, the largest impact is seen in spinning, weaving and dyeing, partly due to the volume of textiles used in Kering's products, but also because these processes are energy and water intensive, which drives emissions of GHGs and air pollutants. To combat this, Kering's Puma brand is working towards the Zero Discharge of Hazardous Chemicals (ZDHC) by 2020.

Another key here has been to engage with suppliers to raise awareness of sustainability issues. Puma has organised roundtables with nearly 290 direct and indirect suppliers in Turkey, India, Indonesia, Vietnam, Cambodia, China, Argentina and Bangladesh.

And to help improve efficiencies at its textile suppliers, the Natural Resources Defense Council's (NRDC) Clean By Design programme has expanded into luxury supply chains in Italy where it focuses on opportunities to save water, energy, fuel and electricity.

While this is the first EP&L report for the Kering Group as a whole – based on figures from 2013 – the company first piloted the concept with its Puma brand in 2011.

At that time its scope was limited to analysis by tier in the supply chain and environmental impact. It now extends to 578 steps that include comparisons across areas such as traditional and chrome-free tanning in terms of electricity generation, fuel use and water treatment. Adding further depth, the process can also be carried out across 107 different types of raw material produced in 129 countries.

The EP&L methodology has also been refined with the help of PwC over the past four years using in a seven-step process that involved identifying key processes and brands, mapping its supply chain, collecting data on the biggest impacts – starting with supplier surveys and filling the gaps by working with external sources – monetising the environmental impact, and responding with business decisions and actions.

But the company is also keen to share its methodology to help other companies understand their impact on "natural capital," and it is also supporting Natural Capital Protocol, a cross-sector industry initiative that is developing guidance for companies on environmental accounting, due to be published in 2016.

"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," says François-Henri Pinault, group chairman and CEO.

"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."

To put Kering’s results into a wider context: PWC has estimated that if the group operated as "business as usual" and sourced from a typical supply chain, its EP&L would have been EUR1.1bn – or 40 % higher.

On top of this, its environmental impacts are less than 45% of the global average business based on comparative turnover.

Click on the following link to view the Kering EP&L Methodology and 2013 Group results report.