Walmart wants to be environmentally friendly — and discovers just how difficult ‘sustainability’ is PDF Print E-mail

Walmart has switched its environmental focus to its suppliers, rather than appealing to customerBy

ANDREWSPICEDAVIDGRAHAM HYATT

What a difference the birth of a granddaughter can make.

For Lee Scott, who ran Walmart WMT, +1.47% from 2000 to 2009, the arrival of his granddaughter not only convinced him the threat of global warming was realbut set him on a course that altered the very DNA of the world’s largest retailer. He decided he wanted to use its size and resources to make the world an “even better place for all of us,” changing the way millions shop in the process.

In 2005, midway through his tenure, he challenged his employees: “What would it take for Walmart to be that company, at our best, all the time?”

The answer became Walmart’s sustainability program, an ambitious effort to figure out how to get its budget-conscious customers to buy more sustainable products. Of course, it was more than Scott’s granddaughter that pushed the retailer in this direction. A dismal perception among the public as well as a stagnant stock price also played roles in prodding Scott and other Walmart officials to take the company in a more environmentally aware direction.

We spent five years studying the program — speaking with Walmart’s sustainability leaders, its suppliers and others who have a stake in the company’s activities such as environmental groups and farmers. Our findings highlight both the promises and perils of what one Walmart executive optimistically termed the “democratization of sustainability.”

 

Glaciers, landfills and shopping bags

During our extensive research into the implementation of Walmart’s sustainability program, we found many executives from the CEO on down who were passionate about making the company more environmentally friendly. Before the retailer even began its program, corporate executives traversed the globe to better understand what was at stake.

We were told stories of Scott’s summer 2005 trip to the top of Mount Washington in New Hampshire, where scientists take measurements of the ice and the wind to measure the effects of climate change and air pollution. There he met with Environmental Defense Fund President Fred Krupp and some of the scientists to discuss the company’s environmental impact and what it could be doing differently. On that same trip, he also met with maple syrup farmers who explained how climate change was affecting their harvests.

Other company leaders made trips to parched cotton fields, landfills covered with Walmart shopping bags and melting Arctic glaciers, all with the aim of gaining a deeper understanding of sustainability and engaging with environmental groups, journalists and critics.

But it still wasn’t clear where all this was going until August of that year, when Hurricane Katrina hit New Orleans, causing extensive human suffering and property damage along the coast.

Walmart, in an unusual move, gave local managers wide discretion in helping communities respond and, along with a few other large retailers, worked hard to get needed supplies to the area. In the context of widely reported government failures during the crisisWalmart received praise for its actions — a far cry from the usual criticism Scott received from social and political activists.

After Katrina, Scott had an epiphany, which culminated in that speech he made in October 2005 near Walmart’s headquarters in Bentonville, Ark., during which he announced the project:

“What if we used our size and resources to make this country and this earth an even better place for all of us: customers, associates, our children and generations unborn?”

Seeking sustainability

In the speech, Scott laid out Walmart’s sustainability vision to Walmart employees and suppliers. He called for reducing waste, using more renewable energy and selling products that “sustained people and the environment.”

In a way, these goals sounded easy. Simply cut down on waste, become more efficient, convince its legions of suppliers to make more sustainable products and sell them at its “low, low prices.” Sustainability goes up, costs go down, everybody wins. But as Scott and his successors learned, this was easier said than done.

 

Some aspects were relatively straightforward. The company’s efforts to operate more efficiently produced significant environmental value — and helped its bottom line. The efficiency of its fleet of trucks doubled within a decade. Walmart has now converted 28% of the energy sources powering its stores and operations globally to renewables.

And last year, the company diverted 78% of its global waste from landfills, instead finding ways to recycle, reuse or even sell the garbage. Its goal is to eventually get to 50% renewables and zero waste in Canada, Japan, the U.K. and U.S. by 2025.

Selling products that “sustained people and the environment” was harder. By 2008, its was clear that progress was not being made as fast as the company had expected.

Walmart had a challenging job. While the market for sustainable products is large and growing, it has primarily catered to people with a lot of disposable income who can afford to pay the “goodness” premium for things like ToyotaPriuses and organic foods.

What about the majority of consumers who usually see the high price of sustainability as a barrier? Are sustainable products a luxury good only attainable by the well off?

Read: Walmart earnings: E-commerce investments could offset earnings growth

The questions and challenges of selling sustainable products escalated over time. What is a sustainable product? How could it be measured effectively and efficiently? And how could this information create value for the company and customers? Would people be willing to pay for it if it was impossible to keep the costs down?

Two interconnected challenges it faced are particularly illuminating: the lack of a sustainability standard and how to convince suppliers and customers to go along.

What’s ‘sustainable’ anyway?

Walmart leaders quickly learned that the absence of a credible sustainability standard hampered their ability to market new products.

Back then, marketing products as “sustainable” was anything goes. While a few marketing attributes, like “organic,” are verified by the U.S. Department of Agriculture, for the most part companies were free to call their products “sustainable,” “natural” or “good for you,” regardless of whether it was true or not.

The need for a standard crystallized when Walmart asked suppliers for proposals for a 2008 Earth Day promotion. It wanted to specifically promote products that were sustainable. Suppliers responded with such a vast range of claims that Walmart managers could not figure out which products to include. Examples of traits that made a product “sustainable” ranged from having “reduced” packaging material — though there was no gauge as to what it was reduced from — to the use of non-toxic ingredients or the product’s overall recyclability.

A subsequent promotion of Campbell’s soup with a green “Earth Day” label (instead of its customary red one) generated external criticism and accusations of “greenwashing.” That is, some bloggers claimed sustainability at Walmart simply meant taking existing products and putting green labels on them.

Lessons like these led Walmart to seek a way of defining what sustainable means for all its products — a mammoth scale given that the company had over 60,000 direct suppliers and a single store could sell about 142,000 products. So, in 2009, the company helped establish the Sustainability Consortium, a collaboration of retailers, suppliers, universities, environmental groups and others to create a data-driven index of sustainability.

The consortium would eventually produce a sustainability “toolkit” with key performance indicators and guidance for achieving sustainability at the product category level whether these be laundry care products, computers or beer.

Read: BlackRock is stripping Walmart, Dick’s from some of its funds over guns

Such indicators could then be used by consortium members in communications with their suppliers, typically in a sustainability scorecard that the supplier would complete. For instance, a manufacturer might be asked if it had plans for reducing harmful emissions — and if it didn’t, the thinking initially went, this type of information could eventually be passed on to consumers who could then make their own judgments.

The problem was, relying on customers didn’t work.

Focusing on suppliers, not consumers

 
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