The retailing giant launched a potentially groundbreaking initiative to measure suppliers' energy use. How hard will it push for change?
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.
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."
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. It also began to work with the CDP and unveiled Sustainability 360, setting a goal of one day using only renewable energy and creating zero waste, as well as challenging its suppliers, customers, and employees to do the same. "It is a simple idea with potentially profound consequences," said Chief Executive Officer H. Lee Scott earlier this year while unveiling the plan.
The retailer can have a huge impact given its sheer size and power. Its plan to double the fuel economy of its trucks by 2015 would save 60 million gallons of diesel fuel a year. Its pledge to make its stores 20% more energy efficient by 2013 would cut annual electricity use by 3.5 million megawatt hours. And by Wal-Mart's estimates, if each of its 100 million-plus customers bought one long-lasting compact fluorescent light bulb, that would reduce electric bills (BusinessWeek, 8/13/07) by $3 billion, conserve 50 billion tons of coal, and keep 1 billion incandescent light bulbs out of landfills over the life of the bulb.
The latest effort was launched in seven product categories in part because suppliers in those categories were willing to work with Wal-Mart and the CDP on the issue. Coca-Cola (KO), News Corp.'s (NWS) Fox Home Entertainment, and several other companies provided information about how they used energy and efforts to cut back. Fleming said that 20 of Fox Home Entertainment's suppliers got involved to track the emissions associated with the production, manufacturing, and distribution of DVDs. "We're grateful for the efforts that the companies who are participating in conversations with us have made," said Fleming. "Together we are addressing some of the biggest challenges in the world today."
There are plenty of skeptics, however. One questions the seven product categories Wal-Mart decided to track. Heather Rogers, author of Gone Tomorrow: The Hidden Life of Garbage, says that toothpaste, soap, and DVDs are "low tech" products that don't really result in substantial carbon emissions. She argues that it would have been more meaningful to focus on other products that typically do require carbon emissions. "Cell phones and DVD players, for example, are conspicuously absent from the list," she says.
Rogers also says that Wal-Mart's entire business model is built on environmental waste. The company, she says, sells loads of cheap, disposable goods, and emphasizes a business strategy of rapid growth, resulting in so much negative environmental impact that its latest initiatives can make only an incremental impact. "It's an aggressively growing company," she says, "and with this business model you're inevitably going to put ever greater pressure on ecosystems."
Wal-Mart certainly casts a long shadow. The company is the biggest private user of electricity in the U.S.—each of its 2,074 supercenters uses an average of 1.5 million kilowatts annually, enough by one estimate to power all of Namibia. It also has the nation's second-largest fleet of trucks that travel a billion miles a year. By Wal-Mart's own admission, its U.S. operations were responsible for 15.3 million metric tons of carbon emissions in 2005. That's more emissions that the countries of Bolivia and Cyprus put together.
For some skeptics, the numbers from its environmental efforts just don't add up. "Wal-Mart hopes to cut 2.5 million metric tons of carbon dioxide emissions by 2013, by making its existing stores 20% more efficient," says Stacy Mitchell, a senior researcher at the Institute for Local Self-Reliance, an environmental group. "New stores built in 2007 alone, however, will consume enough electricity to add approximately 1 million metric tons of carbon dioxide to the atmosphere. At that rate, by 2013 Wal-Mart will be offsetting its cut of 2.5 million metric tons of carbon dioxide by adding 28 million metric tons of new emissions within the same time period."
Critics openly wonder whether Wal-Mart's steady stream of green initiatives are an effort to deflect attention from its workplace policies (BusinessWeek, 10/31/06) as well as its financial performance in recent years. "Wal-Mart needs to invest in its environmental policies as well as its workforce to prove it's not just a PR stunt," says Dave Willett, press secretary for the Sierra Club, the San Francisco-based environmental organization, which provides funding to Wal-Mart Watch, a union-supported group that's critical of the company.
Still, this time Wal-Mart's many critics hope their skepticism is misplaced. They see the latest initiative with the CDP as full of promise, which could be realized if Wal-Mart pushes hard for change. "We love that Wal-Mart has accepted the challenge," says Greenpeace's Davies. "But accounting is not enough. At some point, they have to set targets and actually cut their carbon emissions."