06/11/2008 11:16 AM

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The Greening of Wal-Mart Page 1

In 1989, Wal-Mart Stores Inc. launched one of the first major retail campaigns to sell environmentally safe products in recyclable or biodegradable packaging. The corporation promoted these products by labeling them with green-colored shelf tags. Although there were over 300 green products at its peak, Wal-Mart didn't directly set or monitor supplier environmental standards.

This resulted in negative publicity for Wal-Mart when the public learned that a green-labeled brand of paper towels had only a recycled tube - the towels were virgin paper treated with chlorine bleach! The green tag program waned, and by the mid-1990s environmental issues seemed to have slipped off the company's list of priorities.

Meanwhile, Wal-Mart's reputation among consumers was also slipping. Issues surrounding its competitive practices and labor policies loomed large in the public eye. The company's environmental record was nothing to boast about, either. Indeed, a 2005 McKinsey & Company study found that 2-8% of customers had stopped shopping at Wal-Mart because of the company's practices.

Against this backdrop, Wal-Mart CEO H. Lee Scott Jr. unveiled a new plan to reduce the company's environmental footprint. In an October 2005 speech broadcast to all 1.6 million employees in all 6,000-plus stores and shared with some 60,000 suppliers worldwide, he announced that Wal-Mart was initiating a sweeping "business sustainability strategy." The idea was to reduce the company's impact on the environment through a commitment to three ambitious goals: "To be supplied 100% by renewable energy; to create zero waste; and to sell products that sustain our resources and the environment."

Wal-Mart also saw actively pursuing an environmental agenda as a way to differentiate from competition, maintain a license to grow, and make its supply chain dramatically more efficient. In other words, a good business sustainability plan would help Wal-Mart get even better at what it does best: drive down costs to generate profits.

To go green, Wal-Mart would have to think outside the "Bentonville Bubble." For years, the company had operated in relative isolation from external stakeholders - without much in-house expertise on sustainability and environmental performance, it would need to involve them in its new plan.

Moreover, as the paper towel incident illustrated, most opportunities for environmental improvements resided with suppliers. "If we focused solely on our own operations, we would limit ourselves to 10% of our effect on the environment, while eliminating 90% of the opportunity that's out there," says Tyler Elm, Wal-Mart's senior director of corporate strategy and business sustainability when the initiative launched.

And so Wal-Mart began to reach out to its external stakeholders. The corporation first identified areas of maximum environmental impact and then invited stakeholders to join 14 "sustainable value networks" - such as the seafood network and the packaging network. In return, network participants would gain information about and say in Wal-Mart's operations.

By the end of the sustainability strategy's first year, the network teams generated savings roughly equal to the profits generated by several Wal-Mart Supercenters.

Certified Seafood

In 2006, Science published a study predicting that all species of wild seafood would collapse within 50 years. That same year, Wal-Mart's seafood business grew roughly 25%, to about $750 million. "I am already having a hard time getting supply," says Peter Redmond, vice president for seafood and deli and captain of the Wal-Mart seafood network. "If we add 250 stores a year, imagine how hard it will be in five years!"

Continuity of supply is the greatest challenge for Wal-Mart's seafood network, explains Redmond. One way Wal-Mart could prevent further depletion of fish stocks while ensuring its continuity of supply is to buy fish that has been caught and processed using sustainable fishing practices.

By partnering with the Marine Stewardship Council (MSC), which manages the leading certification program in the field, Wal-Mart avoided criticism that its standards were not stringent enough while leveraging the established expertise of the MSC and its partners.

Wal-Mart committed to working with MSC-certified suppliers, which gave suppliers an incentive to seek certification - a time-consuming and expensive process. In 2006, Wal-Mart announced a highly ambitious goal to carry 100% MSC-certified wild-caught fish in its stores within 3-5 years. As the supply of MSC-certified fish is currently far from adequate to meet Wal-Mart's demand, this public announcement was effectively a commitment to buy from all fisheries that become MSC-certified.

The World Wildlife Fund (WWF), which co-founded the MSC with Unilever, plays an integral role in the partnership by helping boat operators and processors prepare for certification by identifying problems that need to be fixed (e.g., strengthening management practices, rebuilding stocks, and reducing environmental impacts) before they can be certified. This helps fisheries become certified more quickly to keep pace with the sharp increase in demand for certified seafood.

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