Wal-Mart: Measuring Just How Green

The retailing giant launched a potentially groundbreaking initiative to measure suppliers' energy use. How hard will it push for change?

by Pallavi Gogoi and Moira Herbst

In a move with potentially far-reaching consequences, Wal-Mart Stores (WMT) says it will begin to measure the amount of energy used to manufacture and distribute some of its products, and it will launch a pilot project with certain suppliers to look for new ways to cut their energy use. The effort will begin with suppliers in seven product categories: DVDs, toothpaste, soap, milk, beer, vacuum cleaners, and soda.

The retailing giant announced the initiative Sept. 24 in partnership with the Carbon Disclosure Project (CDP), a nonprofit group supported by institutional shareholders that focuses on climate change and carbon emissions (BusinessWeek, 3/26/07). Wal-Mart says it plans to use the Carbon Disclosure Project's expertise to help set up the new program with its suppliers. "We are working together to measure our global supply chain footprint and to encourage our suppliers to reduce greenhouse gas emissions," said John Fleming, executive vice-president and chief merchandising officer at Wal-Mart.

No Trade-offs?

Environmental activists are cautiously optimistic. Many believe that Wal-Mart has been using green initiatives over the past year to try to burnish its image, battered by criticisms of its worker pay and benefits policies. But even the greenest of the greens acknowledge that if Wal-Mart really pushes for change with the latest initiative, it has the size and scale, with $350 billion in annual sales and 60,000 suppliers, to make a real difference. "Wal-Mart is forging new ground here," says Kert Davies, research director at Greenpeace. "Wal-Mart has the power to coax suppliers into changing. They're taking on a daunting task, which is pretty cool."

The key test will be in how Wal-Mart balances the green of the environment with the green of its balance sheet. As it tracks the energy use of its suppliers, will it cut off those that don't measure up? Will it stop doing business with high-polluting companies, even if they provide the lowest-cost goods? So far, Wal-Mart isn't saying. An executive for the company says it simply hasn't decided how it will use the new measurement system once it's in place. "It's too early to tell," says Jim Stanway, senior director of Wal-Mart's Global Supply Chain Initiatives, in an interview. "Significant amount of work has to be done before we reach that point where we have to decide carbon reduction standards for each category."

Fleming, in his public statements at a forum in New York organized by the Carbon Disclosure Project, said consumers and the company shouldn't have to make such trade-offs. "We don't believe a person should have to choose between an environmentally friendly product and one they can afford to buy," he said. "We want our merchandise to be both affordable and sustainable."

Huge Impact

The partnership between Wal-Mart and the Carbon Disclosure Project had a rocky start. For years, the nonprofit group tried to persuade the retailer to participate in its effort to collect greenhouse gas emissions data—and for years Wal-Mart refused. Last year, however, all of that changed. The company began to ratchet up its green initiatives after being advised by the consulting company McKinsey & Co. that it would help Wal-Mart's image if it took a proactive stance and shaped the debate, "by becoming a role model on a significant societal issue."

Since then, Wal-Mart has announced many environmentally friendly initiatives. It improved the fuel efficiency of its trucking fleet, reduced the packaging on foods, led the charge in selling more energy-efficient light bulbs, and decided to purchase its wild seafood only from fisheries that have been certified as sustainable by an independent nonprofit.