Exclusive: Wal-Mart’s sustainability index

Wal-Mart will make a big announcement this week: The company, working with consumer-goods manufacturers and a group of universities, will unveil plans to measure the sustainability of every product it sells. In time, sustainability labels could provide us with information about the environmental and social attributes of consumer goods, much as nutrition labels tell us about the content of the foods we eat.

Nutrition Facts Label

I’ve been hearing about Wal-Mart’s sustainability index for about a year, but the company has been reluctant to discuss it. (Uncharacteristically so, in my experience.) Wal-Mart’s new CEO, Mike Duke, will announce the index on Thursday, July 16, at the company’s corporate headquarters in Bentonville, Arkansas, before invited suppliers, environmentalists and academics. I’ve been able to piece together the story by talking to Wal-Mart insiders, academics who are working with the company and environmentalists. The Big Money, Slate’s business site, has just published the story  here.

Here’s how the story begins:

PepsiCo buys lots of renewable energy, while a Coca Cola plant recycles plastic bottles. Should environmentalists drink Pepsi or Coke?

Dell is “carbon neutral.” Hewlett Packard says it designs for the environment. Whose laptops are more “green”?

So many choices, so little reliable guidance: Clorox GreenWorks or Seventh Generation? Local or organic strawberries? Paper or plastic? Who’s to say?

Wal-Mart, that’s who.

The giant retailer ($406 billion in revenues in 2008) is developing an ambitious, comprehensive and fiendishly complex plan to measure the sustainability of every product it sells. Wal-Mart has been working quietly on what it calls a “sustainability index” for more than a year, and it will take another year or two for labels to appear on products. But the company’s grand plan—“audacious beyond words” is how one insider describes it—has the potential to transform retailing, by requiring manufacturers of consumer products to dig deep into their supply chains, measure their environmental impact and compete on those terms for favorable treatment from the world’s most powerful retailer.

There is, of course, lots to say about this. One thing that needs to be clear is that Wal-Mart does not intend to own or manage this index. although the company is  driving its creation. To see who’s involved, check out the Sustainability Consortium, which is being led by faculty at the University of Arkansas and Arizona State University. Other universities have been asked to join but they are wrestling with such thorny questions as whether measuring the environmental impact of, say, a flat-screen TV qualifies as academic research and what it means for businesses including Wal-Mart to pay for the effort. One academic, who’s enthusiastic about the idea of an index, told me he’s getting questions like these from colleagues: “Are we getting hoodwinked into being a corporate shill? How can we defend this as academically legitimate research?” It’ll be interesting to see if prestigious institutions like Duke and the University of Michigan lend their imprimatur to this effort.

It probably goes without saying that measuring the environmental impact of a product is a challenge. (See my last post, An Apple Juice Puzzle.) The consortium intends to use a tool called Life Cycle Assessment, which measures production, shipping, use and disposal. The consortium website says:

The Consortium has set an initial and ambitious goal of establishing the scientific standards to measure the sustainability of consumer products and is committed to ensuring that the system it establishes is credible, transparent, and user-friendly.

Measurements of sustainability will be holistic and account for both environmental and social imperatives throughout the entire life cycle of the product including manufacture, distribution, consumer use, and post-use. These measurements will be derived from four areas: energy and climate, material efficiency, natural resources, and people and community.

Notice the reference there to “social imperatives.” Wal-Mart wants “people and communities” to be part of the index, meaning that such squishy questions as wages and factory conditions in the developing world will have to be factored into the accounting. “There are all sorts of thorny issues,” an insider says. “Do you use U.S. working standards in the developing world?”

Matt Kistler, Wal-Mart’s sustainability leader, has a presentation on the website that makes for interesting reading. He says the objectives of the index are to:

Facilitate selection of an exciting basket of preferred products

Drive innovation and continuous improvement

Continuously track Walmart’s supply chain performance

Empower Walmart’s buyers/suppliers and make them accountable

On that last point, his presentation includes a list of 16 specific questions for Wal-Mart suppliers–as I recall, the company has about 60,000 suppliers–asking if they have measured their greenhouse gas emissions, set public targets for reducing waste, tracked the origin of the things they make and managed social compliance at their factories. No wonder the consumer goods makers are nervous about the index, my sources tell me.

The index, Kistler says, is being designed to “create a race to the top.”

If all goes according to plan, this will be be an amazing race to watch.

Walmartumpire

Comments

  1. Do you happen to have any idea if Wal-Mart has plans to wait on Congress or the EPA to implement their own product carbon labeling?

    Waxman-Markey included a provision (http://www.rff.org/wv/archive/2009/05.aspx) to have the EPA look into designing a program to measure, monitor, and disclose product carbon content.

  2. Hooray, I won’t have to boycott Wal-mart anymore. It is good to know the super giants are getting on board and going all out it would appear. Great question too, Tiffany. I’d be curious of the answer.

  3. Great blog…people become very suspicious whenever Walmart becomes the lead dog in a major attempt to hop on board of any train, whether it be, looking at how to reduce energy consumption in their stores or now setting the stage for how we look at the “Sustainability Index” of consumer products. Applying the “Cradle to Cradle” review on consumer goods is a step forward in the right direction. Regardless, if Walmart does it first or if any other big kahuna steps up to the plate, third party analysis, with Universities would be a great partnership and monitoring system, as long as Walmart doesn’t give large sums of money to those higher educational institutions who are involved, which would pose a whole new set of questions. I am all for it..we need to start somewhere and those with deep pockets can start the Sustainability Index ball rolling!

  4. Say, Am Id, I would not be so fast to celebrate. Though each step taken by Wal-Mart is significant (due to it’s shear size, i.e. turning a behemoth 10 degrees has more impact than turning ma and pa 180), product labeling is only designed to empower consumer choice, not reduce GHG, waste, water, dependency on oil or increase air quality or the living conditions of factory workers in Bangladesh. Do you think that Wal-Mart will use this program to stop selling their top selling items, regardless of how dastardly they might be. Yes, the initiative may drive more suppliers to improve their products, though Wal-Mart must bear some accountability (and cost) as well and continue to re-define their own role in the product lifecycle and towards greate social responsibility (formerly having bad grades in this area). I for one will spend a significant amount of time studying the four corners of the initiative before I’m willing to throw them at the top of the sustainability heap.

  5. I agree with you, Neal. A sustainability index is a great idea, but it would be nice if they used this data to drive their own purchasing decisions. I’d like to see Wal-Mart set a standard for themselves of what they will and will not sell based on these metrics.

  6. Tiffany,
    It is my understanding that the EPA has been involved in this multi-stakeholder process.

  7. Wal-Mart’s sustainability index, if it is achieved, could be far more important than anything the EPA or similar organizations have achieved so far. It gives the power to the consumer to judge the value products not just on price and brand, but on sustainability peformance as well. That’s why it should not be used by buyers initially. The consumers’ purchases tell the buyers what to procure, not the opposite. When consumers start buying more sustatinable products within a product category, the buyers will then use the index to help select more sustainable new products to replace the old ones–since that’s what consumers are buying. Assuming consumers want to make sustainability a substantial part of their purchasing decisions, other retailers would then be forced to follow suit. And the consumer will lead a sea change in corporate sustainability far greater and far faster than any governement could hope to achieve–especially in developing countries where many goods are manufactured and governements are warry of doing anything that reduces their country’s competitiveness. The Sustainability Consortium should not sit on their hands waiting for the EPA. We need to put the power of consumer choice to work for the planet ASAP.

    If consumers use the sustainability index as I hope they will, it will change the fundamentals of marketing (the famed 4 Ps will get an S added to them) and economic theory. This is a big deal. We should support the Sustainability Coalition’s work with Wal-Mart and other leading retailers and consumer goods companies.

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