It’s attractive, but very dangerous, to try to calculate a ‘bottom line’ for a firm’s social or environmental performance. Attractive, because key stakeholders are increasingly interested in knowing those kinds of details. But the main danger should be obvious: there’s just no way to add up the disparate factors that make up a firm’s social or environmental performance. How do you add together litres-of-water-used plus hectares-of-habitat-destroyed? On the social performance side, how do you sum up number-of-women-in-senior-management plus fair-trade-contracts signed?
The answer of course is that you can’t. You can’t add up things that are represented in different units of measure. That’s not to say that you can’t or shouldn’t track and report these various numbers, but it casts a dim light on the prospects of arriving at a global assessment of a firm’s social or economic performance.
Unless, of course, you simply put a dollar figure on everything, in which case the math becomes quite easy.
That’s what shoemaker Puma has done, with its new Environmental Profit & Loss Account (E P&L). It has attached a dollar value to its greenhouse gas emissions and water consumption, and compared that to the dollar value of the shoes it produces. And, interestingly, Puma is publicizing the fact that, environmentally, the company is in the red. Puma extracts more from the environment than it provides to consumers.
Now, in standard terms, any firm that uses more (in dollars) than it puts out (in dollars) is going to go out of business pretty quickly. But as Puma’s Jochen Zeitz points out, that’s not the case for many environmental inputs because so many environmental inputs are unpriced—that is, they cost a company nothing. Pollution, for example, when unregulated, costs a company nothing, and when under-regulated costs the company less than the cost such pollution imposes on others. So what Puma has done is put a dollar value on these things so that it can figure out what its environmental bottom line would be, if it actually had to pay for everything it consumes and emits.
There are two key problems with such attempts to calculate an environmental bottom line this way. One is practical: there just aren’t uncontroversial ways to put a dollar figure on every unpriced environmental input. Certainly there are people who can provide methods for doing so; but that doesn’t mean there’s a clear, right way to do it.
The other problem is, well, philosophical. It’s not at all clear that everything we want to say about environmental ethics can be summed up in terms of economic impact. What’s the dollar value of the loss of a species? Is the value of beautiful scenery really captured by summing up how much each of us would be willing to pay to preserve it?
Still, Puma deserves credit for this rather striking bit of transparency. Even though the “E P&L” is a pretty incomplete picture, it nonetheless does tell us something about the company’s overall environmental impact, and its commitment to doing better.
(Thanks to Andrew Crane for pointing me to the Puma story.)