Wal-Mart’s Efforts to Affect Change: Who Would Have Thunk?
Posted on October 21, 2009
This past July, Wal-Mart announced its intentions to implement a “Sustainability Index” that will ultimately ask its suppliers to provide Wal-Mart with information about the social and environmental impacts of their products. Last month, the company hosted a follow up webinar where it attempted to provide greater context behind the initiative and answer questions from many of its suppliers. Locally, this has created both concern and confusion with companies doing business with Wal-Mart. Regardless of the outcome, it has certainly created a heightened conversation inside many companies on the long term costs their policies and operations will have on the communities where they do business. So, what is this Index, why is Wal-Mart doing this, and why should we care?
What is the Index?
Wal-Mart’s index is an attempt to gather sustainability information on companies, and, eventually, products sold in all Wal-Mart and Sam’s Club stores. As a first step, Wal-Mart asked its more than 100,000 suppliers to answer a set of 15 questions aimed at measuring current sustainability efforts. The fifteen questions are grouped in four broad categories: energy and climate, material efficiency, natural resources, and people and community. This last category, “people and community,” is interesting in that it moves the assessment beyond environmental issues to the broader definition of sustainability, which includes social issues. It also allows Wal-Mart to begin inoculating itself from sweat shop criticisms it has received in the past on the working conditions in some of the companies in its supply chain.
By providing a degree of transparency that has previously not existed, the questions are designed to allow Wal-Mart and others to compare companies to one another, showing how each performs. In other words, it’s a means by which to assess and compare companies’ efforts to sustain their operations as the world transitions to a low carbon, resource constrained economy. The next phase of the Index will be to provide this same type of transparency on all the products sold at their stores. A consumer will be able to comparison shop based on the carbon and water footprint it took from origin to product shelf; the amount of material resources used to make and transport a product; and, the type of working conditions that exist for the employees who manufacture a product.
Why is Wal-Mart Doing This?
No doubt, this is the latest in a long history of initiatives to drive greater efficiencies throughout the company’s supply chain—to support their branding campaign, “Save Money. Live Better.” And, it’s a recognition that in the not too distant future there will be higher business costs associated with energy and resource consumption. That said, when Wal-Mart President and CEO Mike Duke discussed the reasons for such an initiative, he indicated that another motivation was based on market research. Duke stated their internal research showed “the next generation consumer will make purchasing decisions based on the type of sustainability
information we will have on our products.” He went on to say that “for these consumers, Wal-Mart will never be cool. But, we want to let them know that we’re big, we care, and we can make a difference.”
Now, I have a 14 year old daughter who fits this description. She knows which clothing stores have been accused of sweat shop conditions and which ones have not. She’s constantly reminding me to recycle more than what I do. And, she rolls her eyes at me when I come home with groceries in plastic bags. (But, I do drive a Camry hybrid, which she holds up as an example to her friends that I’m not a total lost cause.) Not that my daughter’s behavior is an accurate predictor of what her generation’s purchasing habits will be, but my wife and I have a one person focus group living in our house providing us with a window on what they might be.
Why should we care?
I personally believe that Wal-Mart’s efforts will extend well beyond its supply chain and competitors. And, the company has made it clear that it doesn’t intend to own this: the index will live within a credible, broad-based entity that will continue to develop and deploy it. The Sustainability Consortium is the group that will spearhead this initiative. This group is administered by two universities—University of Arkansas and Arizona State University. Companies from a variety of industry sectors are paying $250,000 a year to sit at the table with leading environmental groups and other interested parties to develop the industry standards that will be used to develop the sustainability information for products.
Potentially, this could even have an impact on a local region’s ability to attract and retain business. Using Wal-Mart’s 15 question supplier assessment as a guide, a region could assess its own strengths and weaknesses to determine if it’s better suited to support a sustainable business environment than its neighbors. No doubt some regions will use it as a marketing opportunity to attract new business.
A long way to go—yes. But, it’s a bold move that attempts to leverage both retailers and consumers’ buying power to affect change. Who knows–Wal-Mart might ultimately end up being more of a catalyst for social and environmental change than governments—who would have ever thunk?