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Inside Wal-Mart's Sustainability Index

<p>The mega-retailer is about to unveil its guidelines for what it considers a sustainable company. But with so many definitions of how a business can be considered green, who's to say with any certainty what sustainable means?</p>

[Editor's note: See further coverage by Greener World Media Executive Editor Joel Makower, Executive Editor Preston Gralla, sustainability consultant Catherine Greener and by our news staff.]

Wal-Mart will make a big announcement this week: The company, working with consumer-goods manufacturers and a group of universities, will unveil plans to measure the sustainability of every product it sells. In time, sustainability labels could provide us with information about the environmental and social attributes of consumer goods, much as nutrition labels tell us about the content of the foods we eat.

I've been hearing about Wal-Mart's sustainability index for about a year, but the company has been reluctant to discuss it. (Uncharacteristically so, in my experience.) Wal-Mart's new CEO, Mike Duke, will announce the index on Thursday, July 16, at the company's corporate headquarters in Bentonville, Arkansas, before invited suppliers, environmentalists and academics. I've been able to piece together the story by talking to Wal-Mart insiders, academics who are working with the company and environmentalists. The Big Money, Slate's business site, has just published the story here.

Here's how the story begins:

PepsiCo buys lots of renewable energy, while a Coca Cola plant recycles plastic bottles. Should environmentalists drink Pepsi or Coke?

Dell is "carbon neutral." Hewlett Packard says it designs for the environment. Whose laptops are more "green"?

So many choices, so little reliable guidance: Clorox GreenWorks or Seventh Generation? Local or organic strawberries? Paper or plastic? Who's to say?

Wal-Mart, that's who.

The giant retailer ($406 billion in revenues in 2008) is developing an ambitious, comprehensive and fiendishly complex plan to measure the sustainability of every product it sells. Wal-Mart has been working quietly on what it calls a "sustainability index" for more than a year, and it will take another year or two for labels to appear on products. But the company's grand plan—"audacious beyond words" is how one insider describes it—has the potential to transform retailing, by requiring manufacturers of consumer products to dig deep into their supply chains, measure their environmental impact and compete on those terms for favorable treatment from the world's most powerful retailer.

There is, of course, lots to say about this. One thing that needs to be clear is that Wal-Mart does not intend to own or manage this index. although the company is driving its creation. To see who's involved, check out the Sustainability Consortium, which is being led by faculty at the University of Arkansas and Arizona State University. Other universities have been asked to join but they are wrestling with such thorny questions as whether measuring the environmental impact of, say, a flat-screen TV qualifies as academic research and what it means for businesses including Wal-Mart to pay for the effort. One academic, who's enthusiastic about the idea of an index, told me he's getting questions like these from colleagues: "Are we getting hoodwinked into being a corporate shill? How can we defend this as academically legitimate research?" It'll be interesting to see if prestigious institutions like Duke and the University of Michigan lend their imprimatur to this effort.

It probably goes without saying that measuring the environmental impact of a product is a challenge. (See my last post, An Apple Juice Puzzle.) The consortium intends to use a tool called Life Cycle Assessment, which measures production, shipping, use and disposal. The consortium website says:

The Consortium has set an initial and ambitious goal of establishing the scientific standards to measure the sustainability of consumer products and is committed to ensuring that the system it establishes is credible, transparent, and user-friendly.

Measurements of sustainability will be holistic and account for both environmental and social imperatives throughout the entire life cycle of the product including manufacture, distribution, consumer use, and post-use. These measurements will be derived from four areas: energy and climate, material efficiency, natural resources, and people and community.

Notice the reference there to "social imperatives." Wal-Mart wants "people and communities" to be part of the index, meaning that such squishy questions as wages and factory conditions in the developing world will have to be factored into the accounting. "There are all sorts of thorny issues," an insider says. "Do you use U.S. working standards in the developing world?"

Matt Kistler, Wal-Mart's sustainability leader, has a presentation on the website that makes for interesting reading. He says the objectives of the index are to:

• Facilitate selection of an exciting basket of preferred products
• Drive innovation and continuous improvement
• Continuously track Walmart's supply chain performance
• Empower Walmart's buyers/suppliers and make them accountable

On that last point, his presentation includes a list of 16 specific questions for Wal-Mart suppliers–as I recall, the company has about 60,000 suppliers–asking if they have measured their greenhouse gas emissions, set public targets for reducing waste, tracked the origin of the things they make and managed social compliance at their factories. No wonder the consumer goods makers are nervous about the index, my sources tell me.

The index, Kistler says, is being designed to "create a race to the top."

If all goes according to plan, this will be be an amazing race to watch.

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