Translating sustainability initiatives into financial terms is nuanced. Their impacts unfold across multiple dimensions of the business and over varying time horizons, making attribution and valuation non-trivial. To structure this, we can look at the “order of effects”:
- First-order (direct, company-level): Immediate, attributable impacts on financial statements (e.g., lower energy use, tax incentives, avoided/reduced costs).
- Second-order (value-chain): Knock-on effects across suppliers, logistics partners, and customers that change reliability, continuity, and insurability (e.g., fewer delays, better quality, lower freight risk).
- Third-order (market/system level): Broader shifts in policy, standards, investor expectations, and customer preferences that shape growth prospects, pricing power, talent attraction/retention, and license to operate — akin to systemic effects of physical risk.
First-order effects are often tangible and relatively straightforward to quantify. Second-order effects extend the impact outward, strengthening resilience across the value chain. Yet third-order effects can carry the most strategic significance: the potential to influence growth trajectories, strengthen pricing power, unlock new market opportunities, and reduce the cost of capital. These factors are critical drivers of long-term competitiveness and enterprise value (market capitalization plus total debt minus cash/cash equivalents). It is essential for companies to map the interdependencies between the order of effects to core levers of performance — cash flow, margins, and risk mitigation — to recognize sustainability as not merely as a compliance obligation, but as a catalyst for financial improvement.
A compelling real-world example of these layered impacts can be seen in Puma. The company’s sustainability-linked supplier financing program provides favorable terms for partners who meet higher environmental and social standards. This not only enables suppliers to invest in renewable energy and efficiency (first-order: risk mitigation / cost reduction) but also lowers Puma’s raw material costs and exposure to price volatility (second-order: supply chain resilience).1 Puma further reinforced the link between financial and environmental performance by cutting air freight to just 0.3% of shipments, shifting instead to lower-emission ocean transport. This transition reduced logistics costs (first-order: cost reduction) and protected against potential price shocks from EU carbon border measures (second-order: regulatory risk mitigation). 2
The results are tangible. In 2023 alone, Puma reduced its absolute greenhouse gas emissions by 24% compared with 2022, achieving its first science-based target seven years ahead of schedule.3 These outcomes delivered immediate cost savings (first-order: financial performance) while simultaneously strengthening brand trust, reinforce pricing power, and building long-term demand (third-order: future revenue resilience). For younger consumers in particular, credibility hinges not only on visible progress but also on transparent disclosure: Puma’s own research shows that 55% of 18–27-year-olds globally believe brands lack transparency about their environmental impact.4 By addressing this through clearer reporting, Puma strengthens trust among a key demographic, translating sustainability into higher demand and ultimately contributing to revenue growth, which reached €8.6 billion in 2023.5
Another third-order impact lies within the workforce itself. Labor market evidence shows that nearly 70% of young professionals prioritise sustainability when choosing an employer, with many willing to leave if expectations are unmet.6 For Puma, this translates directly into reduced recruitment costs and lower employee turnover (risk mitigation / cost reduction). In 2023, 92% of its employees were on permanent contracts and 60% of key roles were filled internally — clear indicators of a stable, engaged workforce underpinned by the company’s sustainability agenda.
Long-term economic value depends on more than isolated sustainable investments. It requires the skills to identify and manage intertwined risks, costs, and opportunities. Treating these interconnections as strategic assets rather than mere compliance can reveal much greater value.
Delve further into the third-order levers that investors model in revenue forecasts, cashflow projections, growth rates, risk premia/discount rates, terminal value, Capex and WACC, in subsequent parts of this series.
For an overview of this series in the context of WBCSD and ERM’s collaboration on quantifying sustainability for corporate finance, see here.
Footnotes
- Puma SE, 2016. Puma and IFC set up financing programme for suppliers to reward social and environmental standards. [press release] Herzogenaurach, 14 April. Available at: https://about.puma.com/en/newsroom/news/puma-and-ifc-set-financing-program-suppliers-reward-social-and-environmental ↩︎
- European Commission, 2025. Carbon Border Adjustment Mechanism. [webpage] Available at: https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en ↩︎
- Puma SE, 2024. PUMA reduces greenhouse gas emissions by 24 % in 2023, achieving its 1st science-based target seven years ahead of schedule. [press release] Herzogenaurach, 13 March. Available at: https://about.puma.com/en/newsroom/news/puma-reduces-greenhouse-gas-emissions-24-2023 ↩︎
- Puma SE, 2025. PUMA’s Voices of a RE:GENERATION present 2024 sustainability report for young audiences. [press release] Herzogenaurach, 4 June. Available at: https://about.puma.com/en/newsroom/corporate-news/2025/04-06-2025-pumas-voices-regeneration-present-2024-sustainability ↩︎
- Puma SE, 2023. Puma Annual Report 2023. [pdf] Herzogenaurach. Available at: https://about.puma.com/sites/default/files/financial-report/2023/puma-annual-report-2023.pdf. ↩︎
- Deloitte, 2025. 2025 Gen Z and Millennial Survey. [online] ESG Today. Available at: https://www.esgtoday.com/70-of-gen-z-millennials-consider-environmental-sustainability-important-in-choosing-employers-deloitte-survey/ ↩︎