Wal-Mart’s Sustainability Index…To Be or Not to Be


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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9 comments so far

  1. Jeff Wilson on

    Great article. So would you say this strategy is more damned if you don’t for Wal-Mart? While they certainly will garner some “damned if you do” criticism, as a consumer and one whose family shops at Wal-Mart and given that I care deeply about my children (and what goes into them), I applaud the effort to make manufacturers accountable.

    In this scenario, competition is very good for the consumer as it also involves disclosure. And that this is Wal-Mart driven and not government makes it even better because Wal-Mart will not hesitate to slap offenders into place or winnow out those who can’t make the grade whereas government tends to be slow and impotent. Just look at how companies have abused labeling laws for a prime example of failure by government to enforce a standard.

    We live in a global community now and very few companies in the world can influence global manufacturers. While we shop locally, the products we buy are often from foreign companies; companies that have radically different values, processes, and laws. While this could easily be big brother, I look at the opposite and if i have a choice, I’ll side with big brother to keep all of these companies accountable to some sort of standard that can be enforced by the world’s biggest retailer.

    the way I interpret this is stepping up to champion the rights of Wal-Mart’s consumers; but it is global brand protectionism, not US proetctionaism. Does it create a new barrier to working with Wal_mart? Yes. Does this barrier improve product quality? It should and most likely will. If you want to sell anywhere through Wal-Mart from London to Lower Slobovia to New York City, you have to be part of the program.

    Good on them and good to see for our kids that someone is leading in this area. Natural Selection is a glorious process, especially when you are adaptive by nature and can use it to your advantage.

  2. mitchellosak on

    Jeff,
    Good comments. In principle I agree with you. However, like any company, Wal Mart is driven by shareholder value and is accountable ultimately to them. Any benefit to the community, our environment or your kids is merely an externality to this mission. While incentives are aligned, the system works. When Wal Mart starts dictating policy that is the purview of public institutions I get a little concerned. As well, the firm has not always acted ethically and responsibly with smaller suppliers. Though in their right to compete as hard as possible, using one’s business leverage to the pentultimate degree strikes many as excessive. Like everything else, time will tell. Right now, I am willing to give them the benefit of the doubt.

    • jeff wilson on

      I understand your points and their ethics are cause for concern. But have their ethics impacted their customers before? I’m sure driving harder bottom line results with suppliers has made shareholders happy in the past, but I’m getting out of my comfort zone on that to be too confident on the point.

      I’m Hobbsian in my outlook on humanity though. What’s wrong with a little focused brutality to keep people in check? It will take making an example of one or two for the others to fall in line!

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