Driving Sustainable Decision Making – How Philips reports its Environmental Profit & Loss with Ecochain

Philips has been running a program to deliver ambitious sustainability goals for the company’s products, operations since 2016. To measure the success of this program, they turned to Ecochain for help.

The Challenge

Philips is one of the most ambitious consumer brands when it comes to environmental impact.This meant going above and beyond – and reporting not only on revenue and profit, but also on their environmental profit and loss. But how do you measure the impact of an organization the scale of Philips?

The Outcome

Since 2017, Philips has been using Ecochain’s platform to measure the environmental footprint of their organization. The Activity-based Footprinting method has made it possible to map the footprint of the entire organization – and identify and report on the hotspots that drive impact.

Driving Sustainable Decision Making – How Philips reports its Environmental Profit & Loss with Ecochain6 min read

Becoming a purpose-driven company means taking on responsibility. And no one knows that better than Philips. 

Not only did they set ambitious targets regarding social impact, practicing circular economy and ecodesign. At the COP21 Climate Conference in 2015, Philips committed to becoming 100% carbon neutral in their operations and to sourcing all electricity usage from 100% renewable sources in 2020.

And they successfully succeeded in meeting these 2020 targets.

Acting responsibly towards the planet and society is part of our DNA. I am convinced that this is the best way for us to create superior, long-term value for Philips’ multiple stakeholders.

Frans van Houten, CEO Philips (source: Philips.)

Naturally, it doesn’t end here for the global health and technology leader. Philips is committed to sourcing over 75% of their total energy consumption from renewable sources by 2025 and to reduce the CO₂-eq emissions in their entire value chain in line with a 1.5 °C global warming scenario.

And their efforts show. The company was once again recognized as one of the top companies for sustainability performance in the global 2020 Dow Jones Sustainability Indices (DJSI) list.

So – how did they get here? And how will they continue?

Philip’s Environmental Footprint 

In 2016, Philips reached out to Ecochain – they wanted help on their journey to reach their 2020 and 2025 climate targets.

As we all know, Philips is big.  They have an immense amount of product lines in various sectors. So, Philips wanted to measure their environmental footprint – fast, effectively, and efficiently. 

And one of the most important means through which Philips wanted to communicate their environmental footprint, was the Environmental Profit & Loss account (EP&L) methodology. 

What’s an Environmental Profit & Loss account (EP&L)?

The Environmental Profit & Loss account is a method for placing a monetary (relating to money) valuation on a company’s environmental impacts. Including the impact derived from its business operations and its value chain, from cradle-to-grave*.

*Cradle to grave assesses the environmental impact associated with all a product’s life phases – from the raw material extraction phase until its waste disposal phase.  

Why is an EP&L so useful?

Because an EP&L is expressed in economical valuations (£, $ and €) instead of different impact outcomes such as kg CO₂-eq or kg CFC-11-eq – it makes it possible to compare and consolidate different types of environmental impact (such as global warming potential, particulate matter or toxicities). The result: environmental impact can be expressed in a single indicator.

EP&L expresses sustainability in terms that all businesses understand – it talks money. This is why it’s an incredibly effective way for companies to take the proper sustainable decisions and implement a profitable sustainability policy. Also making it increasingly desired information on capital and environmental risks for investors.

Philips wanted to take the EP&L account to the next step by using a technology-enabled methodology.

The Methodology behind the numbers

The calculation of the annual results of Philip’s Environmental Profit & Loss account is based on the Life Cycle Assessment (LCA) methodology. 

The Life Cycle Assessments (LCA) are conducted by using the Ecochain Environmental Intelligence software and deploy Ecochain’s top-bottom approach to LCA called Activity-Based Footprinting (ABF). Ecochain’s extensive Life Cycle Database Ecoinvent is used in performing the calculations.

The LCA assesses the environmental impacts associated with the entire life cycles of Philip’s products’. This includes Philips’ operations and its suppliers and the clients of Philips. Finally, the end of life phase (after the product is disposed of) of the Philips products is also assessed.

If you want to learn more, do not hesitate to contact our specialist team.

The EP&L account is a logical next step to extend the scope from individual product value chains to Philips’ complete value chain. It will support the direction of our sustainability strategy by providing insights into the main environmental hotspots from an overall business point of view.

Source: Philips EP&L report 2019

The Results – Philip’s Environmental Profit & Loss (EP&L) account

Since 2017, Philips now uses Ecochain’s platform annually- with their latest EP&L account in their 2020 annual report (image 3).

Philip’s total environmental impact of 2020 accounted for €4.91 billiona significant 28% improvement compared to 2019’s €6.8 billion. 

Interestingly, ‘just’ €135 million (3%) of their total 2020 environmental impact, was directly caused by Philips’ own operations – mainly driven by their outbound logistics. However, this is a staggering 12% reduction compared to €154 million in 2019. Mainly explained due to reduced business travel (COVID-19) as well as an increased share of green electricity in their non-industrial sites.

But most importantly and interestingly: by using Ecochain, Philips is able to identify its biggest environmental hotspots. So, what’s the biggest impact driver?

The biggest impact hotspot: The Customer Use Phase

Philips’ biggest environmental impact is derived from the customer use phase of their products (€4.05 billion = 83% of total impact). 

Which really makes sense if you think about it. Because everything that Philips sells is connected to the grid (uses electricity). 

Their consumer products often have large sales volumes and long lifetimes through which their products frequently require high energy consumption (e.g think of their hair care products). 

Finally, in second place comes the impact derived from their supply chain, with €693 million accounting for 14% of their total environmental impact. Here, Philips explains that their main contributors are: the electronic components, cables, and steel used in our products.

This provides a very clear and strategic message. The key focus areas for Philips to make significant changes include: reducing the energy consumption of products in their use phase (by implementing ecodesign). And working with designers and suppliers to reduce the upstream manufacturing of components. 

Image 3. Philips’s environmental footprint of 2020 – Source: Annual Report.

‘Healthy people, Sustainable planet’ 

Philips has already met its targets for 2020 and its plans for the future are great.

By using Ecochain’s platform and providing managers with such a clearly comprehensible metric as EP&L, EP&L becomes a means to identify the environmental hotspots of a company. Most importantly, it enables managers to invest time and effort where it really matters. 

With the EP&L intel from Ecochain, Philips is now able to:

  1. Engage the supply chain on environmental issues in a way that is material and relevant;
  2. Compare different impacts which are not otherwise comparable;
  3. Compare brands and business units;
  4. Make better-informed operational decisions through the ability to measure return on investment that includes environmental aspects;
  5. Improve risk management by highlighting the potential consequences of environmental dependencies.  

These annual results support the direction of their ‘Healthy people, Sustainable planet’ program.

On the one hand, this data will help Philips to continuously finetune its sustainability performance and innovation. On the other hand, it will provide the incentive for their supply chain partners to do the same. 

Simultaneously reducing impact and increasing value for all stakeholders.