E P&L N a t u r a l C a p i t a l

A c c o u n t i n g : a n

E s s e n t i a l T o o l f o r

B u s i n e s s

Michael Beutler

Director Sustainability Operations

4 June 2014

About Kering

GUCCI · BOTTEGA VENETA · SAINT LAURENT ALEXANDER McQUEEN · BALENCIAGA · BRIONI

CHRISTOPHER KANE · MCQ · STELLA McCARTNEY TOMAS MAIER · SERGIO ROSSI

BOUCHERON · DODO · GIRARD-PERREGAUX JEANRICHARD · POMELLATO · QEELIN

PUMA · VOLCOM COBRA · ELECTRIC · TRETORN

LUXURY SPORT & LIFESTYLE

2

Ecosystem

services

Natural Capi ta l Account ing:

The Cost of Business to Nature

3

Forestry Mining

Agriculture

We rely on the

environment

for everything

we use in our

business

What are our

impacts, how do

we measure

them?

Retail

Production

Transport

What does business need to know?

As a company, do you know your true impact?

Where do you source from, is there a better location?

What do you use, is there a better material?

How do you make it, is there a better way?

How well do you really know your business?

4

Finding the answers wi th an E P&L

5

1.Strategic Tool

Make more informed decisions

2.Risk Management Tool

Manage your bottom line by

managing your impacts

3.Transparency Tool

Know how your business really

runs

Value to business Definition

An Environmental P&L account is a tool to …

…measure environmental impacts of the company and its suppliers across the entire supply chain

……place a monetary value on the

environmental impacts

…act in a more efficient way

An Environmental P&L

account is a means of

placing

a monetary value on the

environmental impacts

along the entire supply

chain of a given business

€

Impact on planet:

• Health & well-being

• Economic changes

• Agricultural productivity

• Loss of biodiversity & eco-

system services

E P&L X = Monetary impact

“Valuation Coefficients”

Environmental footprint “e KPIs”

Measured across the value chain:

Green House Gases

Air pollution

Water pollution

Waste

Water use

Land use

t/CO2e

OUTPUTS

ME

TH

OD

OLO

GY

S

CO

PE

M

ET

RIC

M3/Waste

t/NOx

Ltrs/Water

…

Analysis and opportunities:

Impact

Key elements of an E P&L

COST

6

E P&L dr ives bus iness value

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1.Strategic Tool

Make more informed decisions

+ Revenue: Sustainable supply ensures product availability

- Cost: locking in sources buffers variability in costs

= More consistent profitability

Better predict environmental shocks to your supply

Reduced variability to cash flows decreases risk portion

of risk adjusted return which in turn increases valuation

• Analysing our supply-chain down to the raw material level

can highlight sourcing issues, process synergies and

innovation opportunities.

• Categorising suppliers and volumes of materials sourced

through them highlights opportunities, dependencies on

raw materials and consolidation of supply opportunities.

• Understand and respond to environmental shifts on the

ground from climate change, land use shifts, water

scarcity etc…and how it can impact growth strategies

• Know better where to act, where to innovate and where to

invest to mitigate impact and maximize results

2. Risk Management Tool

Manage your bottom line

by managing your impacts

3. Transparency Tool

Know how your business runs

and where the opportunities are

What i s the scope of an E P&L

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Retail

CO2

Water use

Waste

Water quality

Air pollution

Land Use

Traditional environmental reporting

Deeper in the supply

chain

Expand

reporting

elements

Raw Materials

Processing Operations Consumer use

and end-of-life

Manufacturing

€

Why measure and monet ize?

How does an E P&L differ from traditional approaches?

– Goes beyond LCA by comparing impacts and including land use and biodiversity

– Goes beyond EEIO with a focus on primary data

What is monetization?

– A way to capture cost to society of environmental impacts at a ground level

– Externalities internalised over time to business as a proxy for environmental costs

Why monetize?

– Provides an easy means to compare

• Impacts (CO2, water, waste etc….)

• Geographic differences

• Product categories, business units, companies, industries

– Speaks the language of CEOs/ CFOS and investors

– Represents societal costs (externalities) that can become financial costs in the future

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10

137 M€

145 M€

8 M€

Outsourcing

Tier 2

Raw Materials

Tier 4

Processing

Tier 3 Manufacturing

Tier 1

Operations

PUMA E P&L case s tudy

Scaling the E P&L

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From one brand

GUCCI · BOTTEGA VENETA · SAINT LAURENT

ALEXANDER McQUEEN · BALENCIAGA · BRIONI CHRISTOPHER KANE · MCQ · STELLA McCARTNEY

SERGIO ROSSI BOUCHERON · DODO · GIRARD-PERREGAUX

JEANRICHARD · POMELLATO · QEELIN PUMA · VOLCOM

COBRA · ELECTRIC · TRETORN

Across all of Kering by 2016

GHGs Land use Water use Water pollution Air pollution

6 indicators 6 indicators 3 indicators 17 indicators 1 indicator 21 indicators

+ Waste

2x primary data across operations and supply chain

1) Human health:Increases in respiratory or cardiac illness

and premature deaths attributable to decreased air quality

3) Agriculture

Change in crop yield attributable to

change in air quality and acid rain

5) Man-made materials

The loss of material due to Increased

corrosion

4) Forests and timber

Changes in growth of forests and

plantations attributable to changes in air

quality and acid rain

2) Visibility

Costs for shipping and aviation as well as

reductions in the recreation and

residential amenity value

6) Other ecosystem services

The loss in recreation attributable to

decreased air quality and increased acid

rain

PM2.5 and PM 10

concentration

O3 concentration

PM2.5 and

PM10

emissions

Environmental

outcomes

VOCs

emissions

Impact

driver

Air

Emissions

CO and other

emissions

Impact on people

NH3 emissions

SO2 emissions

NOx emissions

Other pollutant

concentrations

SO2

concentration

Reduced air quality

Key:

Primary pollutant pathway

Secondary pollutant pathway

Immaterial, out of scope

Analysis based on impact pathways

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100% 80% 20% 0% 60% 40%

Expanded

Bro

ader

Deeper

Analysis based on impact pathways More localization of valuation Experts recommendations embedded

Enhanced

PUMA

1st E P&L (Puma only) Kering Group Rollout

Understanding the reach of our production & supply

chain

Calculate!

Reset Map

Leather: Sheep/goat:

Leather: cow

Leather: cow:

Textile: cotton:

Textile: cotton:

Leather: cow

Textile: cotton: Textile: polyester: Textile: cashmere:

Leather: calf/cow :

Textile: cotton Textile: cashmere

Leather: cow Metal: gold:

Leather: Sheep/goat:

Leather: cow

Textile: polyester: Key

0%

<0.1% 0.1%-0.5% 0.5-1.5% 1.5-3% 3-7% 7-11% >11%

What materials we choose matters….

Cow leather

100% Calf leather

66% Lamb/goat

leather

55%

13 Does not include end of life impacts

Comparative impact estimate relative to adult cow leather

14 comparative estimates of impact

Brass Recycled brass Plastic (polyamyde 6) Plastic (High DensityPolyethylene)

Ceramic

New material choices can reduce footprint 3x

How we make our products matters

estimates

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€ -

€ 1.000.000

€ 2.000.000

€ 3.000.000

€ 4.000.000

GHG Air pollution Waste Waterpollution

Waterconsumption

€0

€1.000.000

€2.000.000

€3.000.000

€4.000.000

€5.000.000

€6.000.000

BASELINE solar pv nuclear hydro wind

Imp

ac

t

GHGs Air pollution

Waste

7% reduction in E P&L footprint

by improving supplier efficiency to

level of top 25th percentile

5% reduction in E P&L footprint

utilising available alternative energy

for operations and supply chain

Change from higher to lower

impact locations

Change material

type

A new way to prioritize investment decisions

Taking environmental cost and estimated financial savings/costs into account, we can see

quick wins and more impactful larger-scale projects to be implemented

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Increase Renew. Energy

Lower impact

materials in fittings

and hardware

Increase Supplier energy efficiency suppliers

€10 m €20 m

Fin

an

cia

l C

ost

s

Total E P&L

savings

P&

L c

os

t p

er

E P

&L

sa

vin

g (€

/ €

)

Maximum use of

recycled metals

This is a net positive adaption of the carbon abatement curve developed by Mckinsey and US EPA Creating a marginal environmental benefit curve.

Fin

an

cia

l S

av

ing

s

€1.0

€(1.0)

Illustrative

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