Industry Market Trends

Wal-Mart Ups the Stakes In Its Supplier Sustainability Scorecard Program

May 15, 2012

Not very long ago, using the words "sustainable" and "Wal-Mart" in the same sentence might have been the punch line of a joke. The world's largest retailer was not well known for its green-minded practices, and it probably would have ranked just behind Monsanto, Exxon Mobil, BP, and other eco-villains on the blacklists of environmentalists.

While Wal-Mart still takes heat in other arenas -- notably gender parity in pay and labor relations -- it has been starting to show signs of life on the environmental front, which, given the sheer size of the company, is good news. With more than 100,000 suppliers and $420 billion in revenue, Wal-Mart represents 3 percent of U.S. GDP. It's the number-one player in the U.S. consumer-goods supply chain, so it wields a lot of clout when it comes to making demands on its suppliers.

As the old saying goes, when you sleep next to an elephant, you move when the elephant moves ... at least, if you don't want to get squashed.

Wal-Mart recently announced plans to expand its sustainability scorecard program, which it uses to rate and rank the green efforts of the companies in its supply chain. The program was launched in 2006, but at that time, it applied only to product packaging. The company had hoped to achieve a 5 percent improvement in its packaging waste generation in five years -- a pretty modest goal.

But the program evolved from there. In 2009, the company broadened its supplier sustainability scorecard to 15 categories. The checklist, developed in conjunction with the Sustainability Consortium, in Tempe, Ariz., included questions about greenhouse gas emissions, water usage, product and ingredient safety, packaging, social issues, community outreach, materials efficiency and waste, materials and ingredients transparency, endangered species management (such as with wild-caught fish), labor issues and employee safety and wellness. The retailer ranked its suppliers' responses according to "above target," "at target," and "below target" and gave each supplier a score for each category. It then used these category scores to arrive at a total sustainability score.

Questions on the checklist included:

  • Have you measured and taken steps to reduce your greenhouse gas emissions? (Y/N) If measured, please report total amount of solid waste generated from the facilities that produce your product(s) for Wal-Mart for the most recent year measured. (Enter total pounds)
  • Have you established publicly available sustainability purchasing guidelines for your direct suppliers that address issues such as environmental compliance, employment practices and product/ingredient safety? (Y/N)
  • Do you have a process for managing social compliance at the manufacturing level? (Y/N)
  • Have you set publicly available water use reduction targets? If yes, what are those targets? (Enter total gallons and target date)

Wal-Mart said the program has been such a success, it will continue expanding it. Following its 2012 Sustainability Milestone Meeting in Bentonville, Ark., in April, it announced plans to develop supplier scorecards in up to 100 major product categories by the end of this year. Each product category will have customized questions for the purpose of determining scores. For example, computer manufacturers will answer questions about power efficiency, recycled materials, use of rare earth minerals, etc.; toilet paper manufacturers will be quizzed on the percentage of recycled paper in each roll that they produce, as well as on the chemical content and safety of any bleaches, dyes or perfumes they use.

"We will go to cereal and apparel, and we're looking at hardware, electronics and toys," said Duncan Mac Naughton, chief merchandising and marketing officer for Wal-Mart U.S., at the meeting in Arkansas. (Video of the speech and other meeting events is available here.) "Moreover, in 2013, we're going to spread [the scorecard] across the entire categories," added Mac Naughton.

A poor score doesn't necessarily mean that a supplier will get dumped -- not at first.

Wal-Mart plans to launch an "incentive plan" designed to induce greater sustainability progress in its buyers and merchants. The company plans to recognize suppliers that support sustainability, as well as meet with suppliers "who aren't doing so well," said Mac Naughton. Wal-Mart calls these "family meetings," and it's unclear how long a supplier has to shape up if it doesn't show sufficient progress after a few family gatherings.

Wal-Mart is far from the only retailer pursuing a sustainability scorecard process for the companies in its titanic supply chain. Other members of the Sustainability Consortium include Disney, Dell, Alcoa, Coca-Cola, Best Buy, Dow Chemical, Panasonic, Samsung, Unilever and a host of other household names.

Nor is the expanded sustainability scorecard Wal-Mart's only new corporate social responsibility pledge. The company recently vowed to reduce waste by 80 percent, expand locally grown produce in its stores by up to 97 percent, source $20 billion worth of goods and services from women-owned businesses and introduce a "Great For You" icon designed to alert shoppers to healthful food items more easily.

Critics of Wal-Mart won't be completely mollified, however. They point out that the best thing the retailer could do is help shoppers think twice about buying things they don't need, scale down the sheer size of its stores and push harder into buying its energy from renewable sources (something the company has been making slow progress on).

Although pushing the world's corporations toward sustainability seems like a Sisyphean task, think about it: Starting from the top down, action from just a relative handful of companies could begin a cascade effect. Since the top 500 companies in the world collectively generate $23 trillion in annual revenues, which is more than a third of global GDP, action on the sustainability front at a majority of these 500 companies could shake the global supply chain to its green foundation.

You can find Wal-Mart's 2012 Global Responsibility Report here.