Novo Nordisk Adds Environmental P&L to Their Sustainable Toolset

It's an old management truism that says you can't manage what you can't measure. Certainly if companies hope to manage their impact on the planet, then they'd best start measuring it. Novo Nordisk, the Danish pharmaceutical giant that was named the world's most sustainable company in Davos 2012, just announced another step in that direction, by publishing their first Environmental Profit & Loss (EP&L) account. This, for a company that has steadily been reducing their carbon footprint and water use, and who's CEO pay is already tied to sustainability indicators, further integrates sustainability into its core business practice.

Novo Nordisk, best known as suppliers of insulin, is the first pharmaceutical company to do this, the second major corporation, after Puma to take the step. Both companies worked with natural capital analyst Trucost to develop their EP&L accounting process.

What this means, in a nutshell, is that environmental impact, as defined by the process, will have equal footing with other business concerns, as a criteria for driving business decisions. It will help each company to focus their efforts on the biggest supply chain and operational risks and opportunities associated with environmental issues.

What the new accounting process found, when applied to the 2011 fiscal year, was that the total environmental impacts of Novo Nordisk’s business were valued at just over $300 million. Most of these impacts came from supply chain operations, particularly those responsible for growing corn to make glucose, the primary ingredient in insulin. Internal operations were responsible for roughly $40 million.

Susanne Stormer, Novo Nordisk's vice president for corporate sustainability said: “We have learned a lot from calculating the EP&L for Novo Nordisk. It has given the organisation valuable insights into the value of the externalities related to purchases in our supply chain and use at our production sites. We look forward to the continued deliberation on how the EP&L methodology can be used to inform decision-making."

The company's sustainability policy has long been triple-bottom-line-oriented, balancing social responsibility, financial responsibility and environmental responsibility with each other.

Commenting on their 2011 Annual Report, the website states, “Our annual reporting includes both non-financial and financial statements which provide detail on our efforts to have a net positive impact on society by reducing environmental impacts, increasing quality of life through better healthcare treatment, as well as providing an attractive return on investment for shareholders.”

By converting various environmental metrics, says Trucost, such as land use, which is generally measured in hectares (or acres), water use in cubic meters (or feet) and carbon emissions in tonnes (or tons), all into monetary terms, you now have “an overarching metric to assess risk and opportunity across operations, products and supply chains.”

Trucost calls it, “a proxy for nature's invoice.”

Puma has the following to say about their use of EP&L:

“While our corporate EP&L provided us with a strategic tool to measure and better manage environmental impacts across our operations and supply chain, and up to the point when our products are sold, the extension of our product EP&L analysis takes it one step further. It assesses the environmental impacts of a product at each stage of the product life cycle - from the generation of raw materials and production processes, all the way to the consumer phase.”

According to Richard Mattison, Trucost's CEO, “Novo Nordisk has shown that companies increasingly understand that creating long-term financial value depends on conserving and enhancing natural capital. Incorporating an EP&L into financial accounting provides a clear view of environmental risks and opportunities in a way that everyone in a company, from board members and financial managers to supply chain managers and product decision makers, can understand and act on.”

RP Siegel, PE, is an inventor, consultant and author. He co-wrote the eco-thriller Vapor Trails, the first in a series covering the human side of various sustainability issues including energy, food, and water in an exciting and entertaining format. Now available on Kindle.

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