Wal-Mart's green impact
Wal-Mart is the world’s largest retailer, ranking second on the Fortune 500 list with revenues of over US$300 billion. It has been a target of environmental and social protests, partly due to the enormous impact of its global business model which moves inexpensive products throughout the world, often to the detriment of other smaller competitors. But the company has embarked on a major environmental initiative that is already having a profound impact on its operations and on its supplier network.
Wal-Mart CEO Lee Scott last year launched the company’s environmental initiative (PDF) by outlining three ambitious goals: (1) to be 100 percent supplied by renewable energy; (2) to create zero-waste; and (3) to sell sustainable products.
The company appears to be making progress on all three fronts. How good this will be for Wal-Mart’s bottom line (and for the environment) will determine whether other large companies follow Wal-Mart’s example.
Some of Wal-Mart’s green initiatives are focused on its own operations, such as improving energy efficiency and purchasing renewable energy for its stores. Given that the company is the largest private energy user in the United States, this could have a significant impact. Wal-Mart Canada made the largest commercial purchase of green power in Ontario’s history last year by buying - in partnership with Bullfrog Power - 39,000 mega-watt hours of green power over a three year period. The company wants to build stores that use 30 percent less energy and has also targeted packaging as a major initiative, moving to corn-based plastics for some groceries.
Wal-Mart plans to invest $500 million each year in technologies to reduce greenhouse gas emissions from store operations and transportation. Vancouver-based Cellex Power Products was involved in hydrogen fuel cell field trials at Wal-Mart Store’s logistics subsidiary, and Wal-Mart’s use of fuel-cell powered forklifts for warehouse operations could spur the mainstream adoption of this environmentally friendly technology.
Wal-Mart is also seeking to capitalize on the growing green consumer movement by offering environmentally-friendly products. Organic food consumption is on the rise thanks to retail outlets such as Whole Foods, and Wal-Mart is entering this market on all fronts. It could become the largest organic retailer in North America in the next few years.
As was noted in the article on the rising power of green spending, organic foods and ‘green’ household goods that used to be considered niche products have now become staples in many mainstream markets.
Wal-Mart’s pledge that within three to five years it will sell nothing but wild-caught seafood that meets standards for sustainability has rippled through the global seafood trade. Other major consumers of seafood such as McDonald’s, Darden Restaurants (the parent of Red Lobster) and many others are contemplating similar steps.
Following a boom in ethanol investments, Wal-Mart announced plans to begin selling E85 blended ethanol at its retail outlets and could also become a continental leader in that market. A strong push by Wal-Mart has helped boost sales of compact fluorescent light bulbs (CFLs), a more energy efficient technology which uses up to 80% less energy than incandescent bulbs and lasts ten times longer. According to studies, if each American household purchased just one of these bulbs, the annual energy savings would power a city of 1.5 million people. Wal-Mart recently announced a goal of selling 100 million CFLs by the end of 2007. If the company meets this goal, consumers will save $3 billion in energy costs over the lifetime of the bulbs.
Wal-Mart’s focus on sustainability will have its greatest impact throughout the company’s massive global supply chain. CEO Scott estimates that this is where up to 90 percent of the change the retailer hopes to influence will take place. Scott recently announced that the company will require its 60,000 suppliers to reduce the amount of packaging they use, and by 2008 will grade them on their progress. Through the use of smaller, lighter packages that are easier to transport and stock, he expects to save $3.4 billion in direct costs and almost $11 billion through the entire supply chain.
Engineers hired to evaluate energy consumption at Wal-Mart stores have also been sent into supply-chain factories. Initial results showed electricity bill savings of up to 60 percent through installation of commercially available lighting and energy technologies.
Wal-Mart suppliers will also be encouraged to subscribe to the firm’s “Preferred Chemical Principles”, which specify product ingredients that are less harmful to human and environmental health. By adopting such policies and purchasing according to environmental principles, Wal-Mart will spread its green philosophy around the globe.
Wal-Mart’s operations produce around 23 million tons of CO2 equivalents each year, reported the company in Senate hearings where it testified in favour of greenhouse gas regulations. During the same hearings, the company estimated that there are 220 million tons of emissions in the supply chain directly related to Wal-Mart products. The emissions reduction potential here is enormous.
Aligning business and environmental goals is what Wal-Mart is attempting to do, and if successful it will help make the world a better place. Along with other global firms such as BP and GE that have made the environment and sustainability core strategic priorities, Wal-Mart’s position as a corporate leader gives it the ability to enact change on a worldwide basis.
Going for the green!
As a major corporation accountable to its shareholders, Wal-Mart must consistently demonstrate business strategies that improve the company’s bottom line. There is no doubt in Mr. Scott’s mind that the move to make Wal-Mart more environmentally friendly will do just that.
Reducing packaging alone will cut transportation costs and lower store display and waste disposal costs. Wal-Mart also sees a huge potential in earning carbon credits by reducing greenhouse gas emissions throughout its operations and supply chain. Add rising sales of energy efficient appliances, light bulbs, organic foods, and environmental products that are in high demand these days, and Wal-Mart is confident its profits will continue to grow.
As noted by GLOBE Award winner Interface Americas Inc. executive Jim Hartzfeld in his comments at the awards, the switch to a more socially and environmentally responsible business model was originally perceived by Wal-Mart as a “license to operate” necessity. But it is now seen by its top executives as a major opportunity to grow the company.
Some environmental groups are embracing the company’s green initiatives, while others remain skeptical. The World Wildlife Fund (WWF) for example, is working with Wal-Mart on a number of sustainability initiatives. Other groups point out that Wal-Mart’s worldwide production model will inherently result in greenhouse gas emissions and pollution from transportation.
Nonetheless, holding corporations such as Wal-Mart to their public declarations is important in encouraging others to be good corporate citizens. When a company of Wal-Mart’s size links environmental and social initiatives to profitability, the benefits can be widespread and significant.
As noted in a review of a report by Andrew Hoffman of the University of Michigan for the Pew Center on Global Climate Change, in order to succeed in a future marketplace where greenhouse gases are regulated and carbon-efficiency is in demand, companies will need to reshape their core business strategies.
The determinants of success in this regard will be strategic timing, establishing an appropriate level of corporate commitment, influencing policy development, and creating business opportunities by positioning the company to capture emerging opportunities for competitive advantage wherever possible.
Through its actions and by virtue of its market size, Wal-Mart is well on the road to success in a carbon-constrained future. But more important than market size or strategic advantage is the personal commitment of the company’s top executives.
As noted by Bob Elton, President & CEO of BC Hydro speaking at the opening of the EXCEL Partnership’s Workshop on A Next Decade Vision for Canadian Corporate Sustainability, “as business leaders, each of us must take personal responsibility. A commitment to sustainability is a very personal thing. It is a commitment to taking care of the future.”
At Wal-Mart, that level of commitment was demonstrated by Wal-Mart CEO Lee Scott at the launch of the company’s sustainability initiative and will be a key factor in determining how successful it will be over the long haul.