Calling the Kettle Black

kettle black

It’s usually I who criticizes the efforts of businesses to claim some sort of sustainability leadership. This time the blast comes from within the business community. The first act in this scenario is a recent PR release from the parent holding company that owns Puma.

Puma Could Be First Brand To Measure Impact on Ecosystem Services

Sports and lifestyle brand Puma has instituted a new accounting methodology that it says will lead to the first-ever Environmental Profit and Loss (EP&L) statement. The EP&L statement will attempt to measure the full economic impact of the brand on ecosystem services.

Ecosystem services is the term given to the valuable, natural functions of the planet’s ecological systems, such as water and air filtration. For years, sustainability advocates have called for corporate accounting systems that recognize the value of these services in an effort to protect and preserve them.   Puma commissioned Trucost and PwC to assist in developing the EP&L methodology, but it did not say when the first statement will be released. The company also said it will encourage others within the industry to work towards fully-integrated reporting.  

My first reaction was ho-hum as it is to virtually all announcements promising to tell all about a firm's contributions to unsustainability (that's what all LCA's or indices measure) while, at the same time, advertising their greenness or social responsibility. Similarly to Walmart’s initial announcement of their so-called Sustainability Index, this one’s name is disingenuous and mischievous. I searched for more detail on what was meant by environmental profit and loss but the details have not been released yet. The financial rhetoric being used is unfortunate because it suggests that we can set a value on the environment. The index is to be developed by Trucost, a firm that makes a business by setting values on environmental impacts and risks. Here’s what they say about themselves.

Trucost data enables organisations to identify, measure and manage the environmental risk associated with their operations, supply chains and investment portfolios. Key to our approach is that we not only quantify environmental risks, but we also put a price on them, helping organisations understand environmental risk in business terms.

You should recognize where I am going. Any accounting system that rests on monetizing the environment will always underestimate the “true” value of the current state of the environment and on the losses due to degrading impacts. Converting any natural (or man made) asset to a dollar value must include some form of discounting--accounting for the loss in monetary value of an asset at some point in the future. Using standard discount rates, anything--computers and trees alike--will have no value after a few decades. The Brundtland definition of sustainable development--the one most businesses use--predicates that, in our current use of the resources the world provides (environmental services), we will not degrade or diminish them such that future generations will be deprived of these same benefits. This way to account suggest that we might as well use everything up today because it will be worthless sometime in the future.

I have to give Trucost the benefit of the doubt, as the accounting method to be used is not yet finished, but there is no way they can dismiss the discounting and other fundamental flaws in the way we turn the value of the environment into a utilitarian equivalent. Trucost is careful to make their systems transparent, but transparency cannot hide the arbitrariness of any such attempt to develop an environmental P&L statement. I will guess that the “profit” side of the ledger will be restricted to carbon offsets. It’s interesting that this particular response to the damage we are doing to the climatic system goes by the name of “offsets.” I am curious about the way the quantity of offsets will be calculated. Will the contribution due to the shopping trips for the latest Gucci bag be based on a Hummer or Mercedes or, rather, on a Prius or Volt?

Then of course I have to express my usual cynical view of any pronouncement like this from the business sector of which Puma is a part. The PR piece goes on to point out that:  

The accounting initiative is part of a larger sustainability program instituted by parent company PPR Group—the French company behind brands like Gucci, Stella McCartney and Yves Saint Laurent. . . The Group said the overarching program, dubbed PPR Home, will go beyond the traditional Corporate Social Responsibility model and set a new standard in sustainability and business practice in the Luxury, Sport & Lifestyle and Retail sectors.

This time, however, I have company in the person of Jeff Swartz, CEO of Timberland. In the second act of this colloquy, here’s a part of what he has to say. His statement is worth reading in its entirety. it's the job of damning with faint praise i have seen in quite a while.

Too bad that the communications department at PPR, the parent company of Puma and Gucci, doesn’t seem to be held to the same standards of original design and creativity that the product design departments are. Their recent announcement about a new sustainability agenda focused on the social and environmental impacts of PPR’s business reads a lot like an off-the-rack knock-off of existing thinking, re-packaged as important business leadership. Tant pis; the world needs better.

Later he gets more specific:

Second, if you are serious about sustainability, consider some understanding of existing best practices.  Given the hurdles of consumer confusion, and government inaction, there is no time for anyone to reinvent wheels that are already rolling in the pursuit of sustainability. So it is disappointing to see you embrace buying carbon offsets as a best practice, rather than dedicating your creative energy to pursuing real, concrete emissions reductions in your operations and value chain.

He hits a key point. Offsetting carbon emissions is a remedy for the damages already done, and, as Swartz says, is a practice that every business should be doing as a matter of course. Maybe PPR will use a generous fudge factor in determining how many trees to plant to account for the huge uncertainty bounds for any computation of the gain (rare) and loss of environmental services.

My underlying concern, which I repeat to the verge of monotony and beyond, is that virtually or maybe all the practices businesses tout as contributing to sustainability do not do that. They can, at best, only reduce the impact on the world, natural and human, caused by what they produce over its entire life cycle, compared to some base case of business-as-usual. They should do this to the highest degree they can which Swartz implies is far beyond what PPR promises to do.

Sustainability is a positive vision of what we hope the world will bring to life in the future. It is not here today. If it were we would not be worrying about sustainability. Hope, only, because we can never guarantee that our activities, inevitably perturbing the complex system we call the Earth, will produce the flourishing we dream about and envision as the goal of progress.

We know in every heart-of-heart--laypersons and scientists alike--that the way we are living is reducing that possibility. Talking about sustainability in the way PPR and even Timberland does hides this reality and sends the wrong message to citizens, consumers, CEOs, Senators, Presidents, Teachers and all those who make some commitment to act to make the world a better and flourishing place. It is wrong because it argues for the wrong kind of action and the wrong way to think about sustainability. Aldo Leopold said it best in his land ethic, written some 60 years ago.

The 'key-log' which must be moved to release the evolutionary process for an ethic is simply this: quit thinking about decent land-use as solely an economic problem. Examine each question in terms of what is ethically and esthetically right, as well as what is economically expedient. A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise.

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David M. Carter said:

PPR Group (Puma) touting sustainability? What a joke! Is there a way that its state-of-the-art environmental accounting system can measure the environmental impacts of the narcissists that make up the bulk of its clientele? There is nothing remotely sustainable about a company that produces luxury products designed to perpetuate social comparison and conspicuous consumption no matter how it measures its "externalities".

Tim Gieseke said:

Placing monetary value on how we manage the land may not seem like the holy thing to do. The economy, after all, is portrayed as the monster that consumes all things natural. But as a farmer, I do receive money for how I manage the land and that income stream influences my behavior. If there was an income stream based on land management strategies that increases habitat, water quality, carbon seq., etc., that too, would change my behavior. The economy will remain a consuming monster until we train it to accept today's externalities. This ecocommerce economy will begin at the soil level - in the same manner as today's economic system began.