Environmental profit and loss
Sustainability - metrics.
A financial measure of corporate environmental performance.
An EP&L is a form of natural capital accounting.
It takes explicit account, in monetary terms, of the effects of an organisation's activities on carbon emissions, water use, water pollution, land use, air pollution and waste.
By doing so, an EP&L identifies and incorporates the financially quantified effects of actions that have time-lagged impacts - often negative - such as pollution. This type of item is not normally recognised so quickly in traditional financial reporting.
The EP&L is measured across an organisation's entire supply chain, as well as the internal operations of the organisation itself.
- Footprint in supply chain
- "Leading sports brand Puma [identified in 2001 that] 94% of their environmental footprint orignated within their supply chain. [This] sparked a reduction in waste and negative externalities as they created systems to achieve new targets."
- Sustainable and Social, Amy Nguyen, September 2020
An EP&L can be a powerful tool to enhance the credibility and effectiveness of an organisation's corporate communications and actions on sustainability.
- Positive presentation
- "Kering, the luxury fashion group, is a pioneer of the environmental profit and loss, and uses it as a tool across its brands to evaluate in monetary terms its environmental footprint.
- The group also analyses different irrigation systems to support sustainable cotton cultivation while securing quality on supply.
- What these examples show is that natural capital provides a framework enabling companies to communicate credibly and fulfil their corporate responsibility.
- As with Kering, it is possible to establish a baseline and use it in a reporting context to measure progress against environmental goals.
- Companies that identify and manage their natural capital and environmental impacts plus related risks can present themselves positively to both the investment community and other stakeholders."
- The Treasurer magazine, Issue 1, February 2021, p41 - Naresh Aggarwal, associate director policy & technical, ACT
Kering - the owner of Gucci and Saint Laurent - has made its EP&L methodology open source.
Kering identifies seven stages in its EP&L methodology:
- Decide what to measure
- Map the supply chain
- Identify priority data
- Collect primary data
- Collect secondary data
- Determine the monetary value of the data
- Calculate and analyse the results
- What we have learned
- "Implementing measurement systems and presenting the results are the most important features of the EP&L.
- Identifying opportunities is only the start of what the EP&L can do for a company. The findings of the EP&L can subsequently help to boost a company’s performance, too."
- Kering Sustainability - EP&L methodology - accessed February 2021
- Association of Corporate Treasurers
- Environmental concerns
- Environmental KPI
- Environmental Objective
- EP&L intensity
- Financial reporting
- Natural capital
- Open source
- Profit and Loss account
- Supply chain
- Triple bottom line