Air Date: Week of November 21, 2008

Wal-Mart has a long list of green promises to live up to. (Photo: Mark Hasty)

The world’s largest retailer says it won’t do business with suppliers who violate environmental laws. But can Wal-Mart's low-cost mission align with its lofty goals for sustainability? Host Bruce Gellerman talks with green business consultant Andrew Winston about how Wal-Mart can clean up its act while cleaning up the environment.

Transcript

GELLERMAN: Attention shoppers, Wal-mart, the world’s biggest retailer, has some big changes in store for it’s biggest supplier: China. Next year, Chinese companies that produce about nine billion dollars worth of goods for Wal-mart, will have to come clean, and comply with Wal-mart’s new environmental and labor requirements. Among other things it means manufacturers will have to cut energy consumption by 20 percent. The new goals were recently announced at a sustainability summit in Beijing. Andrew Winston helps companies go green - he’s founder of Winston Eco Strategies, and he attended the summit where Wal-mart explained the new policy.

WINSTON: Well right now, what they laid out in China was a set of goals and standards and very tough statements about what they would expect from their suppliers and they’ve been working on sustainability at Wal-mart for a couple years. And they’ve been working hard on supplier issues because they realized that the biggest part of their impact was not really their own operations, as big as they are, it’s what happens upstream, as they say, with all the products and where they’re made and there was only so long they could work on supply issues without going to China. China supplies, you know, 70, 80 percent of the toys in the world, a huge chunk of the apparel, etc, etc. So they had to go there and what they’ve set is very tough goals – they said you have to meet certain environmental and social standards, you have to comply with the law in China, which is not something most manufacturers do. And if you don’t, this was the big “aha” there, was if you don’t, we will drop you as a supplier. And that was what made the meeting, I thought, historic, because I’ve never seen a company do that – say outright, we will drop you and ban you, as Lee Scott said, ban you from selling products to Wal-mart.

GELLERMAN: And Lee Scott is the CEO of Wal-mart.

WINSTON: That’s right. It was an impressive performance.

GELLERMAN: But is Wal-mart willing to pay more for say, you know, a cleaning product?

WINSTON: Well there was, you know, really a sort of fun interesting moment in this event where the CEO of FedEx was there, the CEO of Waste Management and Jeffrey Katzenberg, co-CEO of DreamWorks, the studio was there, moderating a panel on consumerism. And on the panel was the chief merchandiser for Wal-mart. And Katzenberg asked him - hey, you’ve set all these goals, will you pay an extra nickel for products, if they’re more environmentally sustainable? You know, this is a metaphorical nickel, say on a gallon of milk or whatever. And he said, we’d want to know what’s in that nickel and then we try to find ways to cut, which is the classic Wal-mart answer. And then Katzenberg wouldn’t let him get away, and he said – well, okay, but once you’ve looked at it and it just costs more to be cleaner, for the time being, are you gonna pay that nickel? And you know, the executive basically said – well, as long as we know transparently what’s in it, yes I think we would. There were sort of gasps in the room, you know, from some of the suppliers because they don’t hear that. In the past, as this executive said, we’ve asked for, you know, price cut, and we haven’t really cared, you know, how they did it. Well now we want to know what’s going into that price.

GELLERMAN: Well is the better question, you know, are Wal-mart customers – am I – willing to pay more for a more sustainable product?

WINSTON: Well, it’s certainly the critical question. I think the number of people who will pay more for green or sustainable products is still pretty small, and it’s probably going to stay small, especially now in tight times. But there’s sort of a different group of consumers, which is what some people call the conflicted consumers or conscious consumers. People who want more from their products. They think about where the product came from or how much energy it uses. And they care about those issues nearly as much as they care about the price and quality. But they want those things, I think, with no tradeoffs and that’s the big goal, I think, in sustainable products, finding ways to satisfy customers and satisfy their environmental and social needs without asking them to pay more.

GELLERMAN: You know, Mr. Winston, this isn’t the first time Wal-mart has promised to clean up its act. I know a number of years ago it said, “Okay, we’re going to be a hundred percent renewable energy.”

WINSTON: Right.

GELLERMAN: We’re gonna have zero waste. Those haven’t happened.

WINSTON: No, they haven’t yet. They set some, as they call them, aspirational goals. I think that’s fair. I think companies should do that. There’s lots of companies who say we’re gonna be zero waste. Very, very few have found a way to that actual goal, but it is – it’s directional. It tells people what they should be shooting for. Now, I think a company the size and recognition level of Wal-mart is only going to be given so much time to keep saying things, they’re going to have to hit some of their goals. Now on some, they have. The goals that they’ve set that are much more specific like we’re gonna reduce energy use in stores by 20 percent, or trucks – we’re gonna increase the fuel efficiency twenty, twenty-five percent. They are well on their way on some of those goals.

GELLERMAN: But isn’t there something inherently unsustainable about the Wal-mart business model. That is, you know, they ship millions of tons of stuff around the world and encourage people to buy, buy, buy, consume, consume, consume.

WINSTON: Yeah, it’s a really fascinating issue of what happens after an initial phase. Right now, what they’re asking is, you know, resource conservation fundamentally, and that saves money so that fits their business model. But what – you’re asking a pretty important question, which is what happens when you get to the point of – okay, we’ve made it very lean, but does it make sense to ship from China. Now, I’d say that part of that gets answered if we get the price of energy right. If energy prices are very high, shipping things from all over the world may turn out not to be the most economical, so some of that should work itself out through natural market forces. But there’s a fundamental mismatch in asking people to buy a lot of stuff. Wal-mart did something, I think, also more subtle but also historic in this meeting. They talked about quality a lot, which they’re not known for, you know, no one would claim they’re known for quality products. But Lee Scott said - he said almost word for word, you know, people want socks that don’t fall down after they’ve been washed. They want things that last longer. So they’re saying to their suppliers, make better products that last longer. That’s actually somewhat of a disconnect with their business model. Their model is to sell you stuff over and over again. So, I think it’s pretty profound that they’re saying - hey, higher quality products that last longer, that makes them more sustainable, that’s where the world’s going, and we’re gonna get ahead of that curve. That’s, you know, true leadership if they follow through on it.

GELLERMAN: They’re gonna start phasing in this initiative in China, starting in January ’09. And then worldwide by 2011. And I’m thinking, you know, so goes Wal-mart, so goes the world.

WINSTON: That’s right. I mean, they are that big. If they can make this happen, one of the goals they’ve set is that 95 percent of the product that they buy from Chinese suppliers will have to be from firms that are in compliance with all these audits. Now that’s a monumental number because as someone else said – one of the other speakers – something like 25 percent of the wastewater from factories in China is treated. So 75% are sort of out of compliance by definition. So getting to 95% that are in compliance is a monumental task in a country like China, and I think if we get to a point where we look back in a few years, five whatever years, and say, “Well, China’s actually a lot cleaner, so’s the world.” This will be one of those turning points.

GELLERMAN: Well, Mr. Winston, I want to thank you very much.

WINSTON: Thank you. Thanks for having me, Bruce.

GELLERMAN: Andrew Winston is the founder of Winston Eco Strategies and co-author of the book "Green to Gold".

 

Links

Andrew Winston’s website

For a dose of Wal-Mart’s skepticism, check out the group Wal-Mart Watch

For more on Wal-Mart’s green ambition, click here