Wal-Mart’s Sustainability Index…To Be or Not to Be
Filed under: Consumer & Industrial Goods Industry, Retail Industry, Supply Chain & Operations, Sustainability & Corporate Social Responsibility | Tags: consumer goods manufacturers, environmental marketing, green strategy, Marketing, retail, supply chain, Sustainability Index, Wal-Mart |
If you think green marketing is a lot of hype, you might want to ponder the implications of a July 16, 2009 announcement. On that day, Wal-Mart launched their Sustainability Index, which measures the environmental impact of every product they sell. This Index has the potential to reshape retailing and the consumer goods industry by requiring manufacturers to measure the environmental impact (e.g., carbon footprint and recyclability) of each product they sell (Wal-Mart sells over a million products on and offline) and then to label them accordingly. In essence, each supplier is now competing through the Index for favorable treatment from the world’s most powerful retailer, who in 2008 generated sales of $406B.
I have mixed emotions with this initiative. On one hand, I salute the attempt by a major retailer to bring scale, order and credibility to a confusing and misunderstood subject. Wal-Mart expended significant effort and cost to develop the plan including extensive consultations with suppliers, other retailers, universities and non-profit environmental organizations. To maintain impartiality, Wal-Mart plans to have a public-private consortium own and operate the Index.
On the other hand, this type of regulation-yes that is what it is-strikes me as a nervy act of a private sector big brother, especially when the company is often not shy to throw its weight around. Requiring suppliers to analyze their supply chains at the granularity necessary will be neither a simple or inexpensive activity, especially for small firms. Moreover, one can’t help but ask how different voter-accountable governments, who are ultimately responsible for environmental and consumer regulations, will support this Index, especially when it may not align with different national standards. Finally, one needs to consider how credible is an Index that does not encompass every retailer nor is legally binding. Could a confusing situation evolve where there are competing indexes, much like there are two different US College Football ranking polls?
Typically, Companies that embrace and adapt to change faster reap the greatest rewards. However, with most changes, the devil is in the details and not all of these are apparent today. The Index will probably help the environment but will it be at the expense of higher prices passed along to the consumer? In addition, could the Index be interpreted by other nations as a non-tariff barrier? If so, there is the potential to trigger international trade problems.
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