E P&LMethodology

Discover the edge

HOW TO BUILD AN E P&L

The E P&L has given us a new way to look at our business. By creating the E P&L, we have discovered new opportunities to innovate, to become more efficient and to reduce the impact we have on the environment. These are opportunities that would have remained invisible without our E P&L.

Kering now want to enable more companies to develop their own E P&Ls, which is why we are open-sourcing our methodology.

The benefits of an E P&L are growing, and we encourage all companies, in our sector and beyond, to use this methodology and begin their own E P&L journey.

For the full, detailed methodology please download our full report.

Our methodology has evolved significantly from our pilot E P&L with PUMA in 2011. The results of that brand-level report and the Kering Group E P&L published here are not directly comparable, but both were driven from the same desire to understand the edge of our business – our supply chain.

1

DECIDE WHAT TO MEASURE

Identifying what parts of the business to include in the scope of an E P&L.

To get a full picture of our business, we had to be ambitious. Firstly we focused on our largest brands and identified key projects so as to cover as many business units across our supply chain as possible.

Within that scope, we defined the tiers of our supply chain, from our operations and sales through to the raw materials we use. This tiered approach helps guide us through the measurement and analysis of E P&L impacts.

Tier 0

Direct operations (offices, transport, warehouses and retail stores)

Tier 1

Final assembly of the finished product (e.g handbag, apparel, jewellery)

Tier 2

Manufacturing of sub-components that are needed for the finished product (e.g. woven fabric, buttons, shoe heel)

Tier 3

Processing of raw materials to produce material that can be used by our industry (e.g. leather fabric, yarn, gold)

Tier 4

Primary production of raw materials (e.g. farming, mining, extraction)

What we learnt:

Start with the largest parts of the company and use the learning from this first step to assess other parts of the business.

2

Map the supply chain

Outline the production processes for each product, from the production of raw materials through to product assembly.Identify suppliers and acquire initial data about their business and activities carried out for the brand.

Once we identified these tiers we needed to measure their impacts, so we built a clear picture of all the interconnected processes within our supply chain.

We sought to establish a holistic view of our business so that we could identify where and how to act to give our business an edge.

What we learnt:

Mapping our supply chain and production processes helped us understand all of their risks and dependencies. For example, reliance on few suppliers in an environmentally stressed area can be a risk, which this process can help identify and focus us on mitigation actions.

Example "Process Map" for the production of a cashmere suit

3

Identify priority data

Identify the data requirements for the E P&L and select the best approach to gather this data throughout the supply chain.

The more specific the data is, the better it supports decision-making. This step is all about getting the right balance between the primary data we could collect ourselves and the best available secondary data that already exists.

What we learnt:

We identified our biggest impacts and focused data collection there. Life cycle assessments or other chartered studies can confirm that planned activities will yield positive results.

4

Collect primary data

Collect environmental and other non-environmental data from suppliers and the brands. Support suppliers in collecting the right information. Validate collected data and extrapolate apply it within across groups of similar suppliers.

We collaborated with our brands and supply chain managers, to collect internal brand data and sent out surveys to suppliers.

As a change management tool, the E P&L provided a common way to view performance in our complex supply chain in an understandable way. It introduced a new way of thinking for our supply chain managers, and the suppliers themselves.

What we learnt:

This process was an opportunity to educate and raise awareness about sustainability and the role everyone in our supply chain plays in it.

5

Collect secondary data

Complete data using best available sources.

Not everything we needed was available within the company. Thankfully, there is a growing body of external data sources, especially for Life Cycle Assessment analysis.

Through understanding our business processes, we discovered which ones had available data and which needed further exploration. Many issues span industries and require cross-collaboration, so we worked with an extensive set of scientists, NGOs, trade groups and other companies to find answers.

Through Step 5, we calculated our environmental footprint.

What we learnt:

Work with a broad set of stakeholders to discover what knowledge is available and identify who to collaborate with to find more answers.

6

Determine valuation

Determine the changes in the environment and the resulting costs of these impacts on people.

Once we had gathered our data, we were ready to assess its impact on the environment and the consequences of this for human wellbeing. This step transformed our impact data into an environmental profit and loss analysis.

At the heart of this work was calculating coefficients, numbers that enable the conversion of data into the impact on human wellbeing. Coefficients consider where the impacts happen to account for the difference between urban and rural populations or dry and wet countries, for example. When you apply the coefficients to the environmental footprint, you get your impact in monetary terms.

What we learnt:

Monetising our environmental impact into familiar business language helped to move the discussion deeper into our organisation.

7

Calculate and analyse your results

Value the impacts on people and present results of the E P&L.

We discovered a great deal along the way as we worked through the previous six steps, but the real value came when we gathered our results together and saw the big picture.

Discovering the opportunities is just the start of what the E P&L can do for business. We are now using the E P&L insights to drive our business performance even further. Discover a few examples of the edge this has given us here.

What we learnt:

Presenting the results and developing actions is the more valuable, most powerful part aspect of the E P&L. We could compare the impact of projects in financial monetary terms to how much E P&L benefit it provides. This redefines materiality and transforms sustainability reporting into sustainable business decisions and actions.