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Wal-Mart Ramps Up Standards for Suppliers in China, Around the Globe

Wal-Mart CEO Lee Scott with the company's head of international operations and the firm's business chief in China delivered a stern message to suppliers of the world's biggest retailer: Go green the Wal-Mart way or Wal-Mart will take its business elsewhere.

The company executives outlined their expectations this week at the Sustainability Summit the firm held in Beijing for 1,000 top officials from its leading global suppliers, the Chinese government and NGOs.

Wal-Mart's stricter standards include requiring suppliers to certify compliance with local laws and regulations as well as "rigorous social and environmental standards," the company's executives said, underscoring the firm's new policy.

Other requirements include verifiable demonstration that suppliers are auditing factories and subcontractors, and giving Wal-Mart leave to conduct more unannounced audits and send in third-party auditors. Environmental performance under review is to include factory air emissions, wastewater discharges and management of toxic substances and hazardous waste.

Suppliers are to sign agreements regarding the requirements, which also prohibit child labor, forced labor, unpaid labor and paying workers less than the local minimum wage.

"Our goal is for the supplier factories to meet or exceed all social and environmental laws and regulations" Wal-Mart President and CEO Scott told the gathering on Wednesday. "I want to be direct: My intention here is to send a strong message about how serious we are. Meeting social and environmental standards is not optional."

Suppliers are to address any problems that arise as well as document remediation plans and progress, said Scott and Mike Duke, who as vice chairman of Wal-Mart's International Division oversees operations in China and 13 other countries. They said the company will work with suppliers in their efforts and it expects results.

"If they still do not improve, they will be banned from making products for Wal-Mart," Scott said.

Scott and Duke emphasized the stepped up standards will apply to company suppliers worldwide, but they did not soft-pedal Wal-Mart's decision to focus first on China, which has been under increasing scrutiny by regulators and the global marketplace for a series of scandals involving lead and fatal levels of melamine in products made in the country.

The new rules take effect in January among suppliers in China that serve Wal-Mart stores in the United States, the United Kingdom and Canada, Duke said. Three months later the requirements will be extended to other suppliers around the globe that ship to the three markets, he said.  And all suppliers to other Wal-Mart markets are to comply with the new standards within three years, Duke said.

In addition to requiring greater environmental and social business performance and transparency in operations, the new policy calls for Wal-Mart to work with its stores in China to improve energy efficiency and water conservation.

"At Wal-Mart China, we stand at the intersection between the 15 million customers who visit our stores every week and thousands of suppliers," said Ed Chan, the president and CEO of Wal-Mart China. "We see an opportunity to be a catalyst for change."

Wal-Mart's moves this week represent its latest actions in recent years to address criticism of the firm's environmental, social and labor practices domestically and abroad.

Though the firm has been praised for some of its measures, especially its advancement of environmentally friendly practices, watchdog groups were wary about the company's tougher stance with suppliers.

"Requiring foreign suppliers to meet workplace and environmental standards is the right thing to do," Stacie Lock Temple, the senior director for strategy and communication at Wal-Mart Watch, told GreenBiz. "The problem with Wal-Mart's demands is that the company doesn't adhere to the standards itself."

"Wal-Mart's business model is the root cause of many of the problems the company claims it wants to address," Temple said in a statement provided to GreenBiz Thursday. "Until Wal-Mart is willing to make substantive changes to its business model, it is difficult to imagine how these issues can be resolved. It is encouraging that Lee Scott is setting goals for the company's foreign sourcing, but whether or not the company will attain these goals remains to be seen."

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