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[Editor's Note: For more on Walmart's climate announcement, see coverage at GreenBiz.com and a post from Elizabeth Sturcken of Environmental Defense Fund.]
Until now, Walmart's bold sustainability efforts were marred by a glaring omission.
The $405-billion a year retailer has worked hard since 2005 to save energy, reduce waste and sell more sustainable products.
But it resisted pressures to reduce or hold steady its own greenhouse gas emissions. In fact, its carbon emissions have grown, as the middle graphic below shows. (There's a cleaner version in WMT's responsibility report, here.) When it comes to global warming, Walmart would appear to be doing more harm now than it was three or five years ago.
Today, Walmart made its first major commitment to reduce greenhouse gases -- although, in typical WMT fashion, rather than set a tough goal that might affect its own growth curve, the company plans to turn up the pressure on its thousands of suppliers to reduce their emissions.
Here's how a press release from Walmart and its lead environmental partner, Environmental Defense Fund, explained it:
Walmart today announced a goal to eliminate 20 million metric tons of greenhouse gas (GHG) emissions from its global supply chain by the end of 2015. This represents one and a half times the company's estimated global carbon footprint growth over the next five years and is the equivalent of taking more than 3.8 million cars off the road for a year.
The footprint of Walmart's global supply chain is many times larger than its operational footprint and represents a more impactful opportunity to reduce emissions.
You can think of this as the biggest carbon offset in global history, and I'm being only partly facetious when I say that.
Walmart wants to grow -- the company is expanding in the U.S., and elsewhere in the world -- and it will likely grow its own carbon footprint, directly and indirectly, as it sells more stuff and builds new stores, most in suburbs and rural areas, surrounding by acres of parking. But the companies that supply WMT -- that is, Procter & Gamble, Unilever, Clorox, Coca-Cola, PepsiCo, Kraft, General Mills, Sony, Apple, HP, Dell and hundreds more, all of whom must be wondering about their carbon emissions right now -- will be asked to make things more efficiently, use less energy, buy more recycled content and the like.
Less about cost, more about leverage
Great and lucid article - thank you Mark!
I would disagree with anonymous in thinking that the market is ensuring that the cost reduction is going where it is cheapest. P&G, Coca-Cola and others are less than 20% Wal-Mart's size, and need Wal'Mart's distribution. Consequently Wal-Mart has them make reductions in CO2, will not accept any costs associated with that, and thus ensure that any costs associated with the reduction actually flow to Wal-Mart competitors. We know this is cheaper for Wal-Mart. We don't know that it is the cheapest way of reducing GHGs.
I am one of those who has a love/hate relationship with Wal-Mart. Love because the changes they are driving through the full supply chain promise the greatest environmental benefits rippling through the global economy. And, we know they are doing whatever they can to ensure they trounce competitors, and whatever they can to deflect from the aggravating question of labour. In the book "The Wal-Mart Effect" note is made that if all Wal-Mart's profits were given back to their workers in terms of raising the hourly wage the results would hardly be significant to the workers.
Hence the push to build and burnish the halo on the back of other companies' hard work.
Caroline http://ren-new.com
Walmart optimal carbon reduction
Under certain reasonable assumptions, Walmart's decision to have its suppliers reduce emissions instead of reducing it themselves is both environmentally optimal. Furthermore, Walmart is still bearing the costs of the reductions even though it is the supplying firms who are reducing emissions.
Imagine that a supplier requires $4 million per year in profit to compensate them for supplying Walmart. If they are willing to accept an environmental policy that would cost them $1 million annually to meet Walmart's standards, then it means that they had been making $5 million or more previously. Furthermore, the fact that Walmart knows that the supplier is willing to accept this decrease in profits, means that they are aware that they would be able to get a lower price from the supplier. Thus, Walmart can choose between making an extra $1 million by negotiating a lower price or by forcing the adoption of a pro-environment policy. By pressuring the environmental policy, Walmart forgoes the lower costs that they could have negotiated. This is why they should be praised.
Furthermore, Walmart is also presumably spending the money where it can be most effective. They cost of reducing carbon emissions varies across industries. If the cost of reducing emissions themselves were lower, then Walmart would take the $ 1 million and spend that money on reducing their own emissions. The fact that Walmart is having their suppliers reduce emissions, shows that the suppliers probably have the lower costs. Thus they are spending the $1 million where it will have the most effect.