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Two Steps Forward

Walmart sustainability at 10: An assessment

It's been 10 years since the behemoth from Bentonville launched is sustainability quest. So, how's it doing?

It’s been 10 years since Walmart set out on its quest to become a leader in sustainability, beginning with three bold, aspirational goals. This is the second of a two-part series that takes stock of the company and its progress, as well as its sustainability journey over the past decade. Part One looked at the history of Walmart’s sustainability initiative. Part Two looks at the company’s sustainability performance.

This morning, at a Global Sustainability Milestone Meeting held in its Home Office auditorium in Bentonville, Ark., Walmart is unveiling the latest results in its decade-long journey to address its environmental and social challenges, and to be seen as a sustainability leader.

It’s an impressive update. Among the data Walmart is releasing today is that the company has exceeded the goal, set in 2010, to eliminate 20 million metric tons of greenhouse gas emissions from its global supply chain. Today, the company is announcing that it exceeded that goal, eliminating 28.2 million metric tons to date, the equivalent of the emissions of nearly 6 million cars over a year.

It is also announcing that it has doubled the fuel efficiency of its fleet since 2005, through innovations in loading, routing and driving techniques, as well as through new tractor and trailer technologies, saving $1 billion along the way. Other achievements have to do with the food it sells, the company’s biggest product category, including improving food affordability; increasing access to food; making healthier eating easier; and improving safety and transparency in the supply chain.

There’s more — dozens if not hundreds of initiatives the company has taken on since October 2005, when its then-CEO, Lee Scott, in a speech on “21st century leadership” — given in the same auditorium as today’s meeting — set three bold goals:

  1. To be supplied 100 percent by renewable energy. 
  2. To create zero waste. 
  3. To sell products that sustain our resources and environment.

(Note that the wording of last of those goals has been tweaked since 2005. In his speech, Scott referred to products “that sustain our resources and environment.” These days, the company refers to products “that sustain people and the environment,” though I wasn’t able to find out who made the change, or why.)

So, how is Walmart doing? Over the past few weeks, I’ve spoken with a score of interested parties — company executives, nonprofit supporters and critics, consultants and suppliers — to take the pulse of progress beyond the numbers.

Walmart’s sustainability initiatives are having a real impact, both on its operations and those of the companies in its supply chain, though some of that progress is offset by the company’s growth

My conclusion: Walmart’s sustainability initiatives are having a real impact, both on its operations and those of the companies in its supply chain, though some of that progress is offset by the company’s growth — about 50 percent since Lee Scott’s 2005 speech.

Let’s begin with a status report on the three big goals.

1. 100 Percent Renewable Energy

Currently, 26 percent of Walmart’s electricity globally is supplied by renewable energy, though amounts differ from country to country — more than 60 percent in Mexico, for example, though only 14 percent in the United States.

According to the company’s 2015 Global Responsibility Report, of that 26 percent, 10 percent is from “Walmart-driven renewable energy projects” and 16 percent is renewable energy from the grid that happens to contain renewable energy produced by local utilities. In 2014, Walmart says it produced more than 3,000 gigawatt-hours of “Walmart-driven” renewable energy globally.

It’s a good start, though other companies have done better and set bigger goals. For example, Google says it uses renewable energy to power 37 percent of its operations, which, notably, are much smaller than Walmart’s. Walmart has set a goal to purchase 7 billion kilowatt-hours (kwh) of renewable energy by 2020, a 600-percent increase compared to 2010. Google, for its part, said in 2013 that it generated 8.7 billion kilowatt-hours of renewables — far more than it needed for its own consumption.

The Solar Energy Industries Association cited Walmart as having deployed more on-site installed solar capacity than any other U.S. company in 2014 — 327 onsite solar projects in the U.S. and Puerto Rico — though the top-10 list also includes many of Walmart’s retail brethren: Kohl’s, Costco, IKEA, Macy’s, Target and Staples. Still, Walmart’s solar capacity was more than twice that of Kohl’s, the number-two company.

It’s frustrating that the data Walmart reports are intensity, not absolute values. That is, the retailer may be using a higher percentage of renewable energy year over year, but its overall energy use is likely rising, too, as it opens new stores — 511 new locations globally during just the fiscal year ending January 31, 2015. That’s 32,530,381 additional square feet that needs to be lit, heated, cooled, refrigerated or otherwise plugged in.

Walmart does not disclose its total energy consumption, says Kevin Gardner, the company’s Senior Director, Global Responsibility Communications. That makes it impossible to truly assess the company’s progress.

On a brighter note, Walmart says it is on track to hold its absolute greenhouse gas emissions flat over this decade, even with its continued growth. However, this represents only Scope 1 and 2 emissions, not Scope 3, which are the emissions created in its supply chain. Walmart has previously estimated that supply-chain emissions account for 92 percent of its overall environmental footprint.

How and when will the company achieve its goal of 100 percent renewable? It’s a complex puzzle, as Mark Vanderhelm, Walmart’s Vice President, Energy, and David Ozment, its Director, Energy, explained to me.

Ozment called it a “multi-pronged attack.” 

Because of Walmart's size and scale, there is no one-size-fits all energy solution. Instead, it’s probably closer to all-of-the-above.

As SEIA pointed out, the company has a great deal of solar installed on its facilities — about 105 megawatts’ worth, according to SEIA’s data for 2014. The company has 46 Bloom Energy fuel cells in operation in the United States, 42 in California and four in Connecticut. In September, Walmart agreed to buy more than half of the electricity generated for the next 10 years by a new wind power facility in Texas, which will cover more than 25 percent of the electricity needs for 380 stores. There’s also a utility-scale wind turbine at a distribution center in Red Bluff, Calif., which provides roughly a megawatt of power, or 15 to 20 percent of the distribution center’s annual electricity use.

There’s also storage, which the company is beginning to explore and test with some of its solar installations.

Utility purchases are another matter. Walmart has stores in all 50 U.S. states and about 25 other countries, meaning hundreds, even thousands, of utility service areas, each with its own regulations and appetite for renewable energy.

“We're probably not as far along as we want to be with utility purchases, but we spent a lot of time with utilities over the past year trying to really crank them up in the area of being able to provide us renewable opportunities,” said Ozment.

“You can either look at it as challenges or opportunities,” he continued. “And because of our size and scale, and our presence in all of those states, we can take somewhat of a measured approach,” taking advantage of opportunities in each state as regulations allow. The company has a small team focused on energy policy and gets involved in utility proceedings, Ozment explained. “We can help influence the rules of the road in various states to begin to open them up where we can move into those states at a later date.”

“We're constantly looking for that opportunity where there's things that are both good for us and the utility,” adds Mark Vanderhelm. “We don't see it necessarily happening as much as we'd like to, but we also don't seek to be combative with that relationship.”

We're working to innovate the technology, to lower the cost of installations, to create more of a policy environment that's more reflective of what we would call the true cost of energy.

Walmart’s relentless push to lower its costs, and those of its customers, may be helping to push down solar prices for other customers. “We're trying to create a market that's going to be more viable for everybody,” Kathleen McLaughlin, the company’s chief sustainability officer, told me. “We're working to innovate the technology, to lower the cost of installations, to create more of a policy environment that's more reflective of what we would call the true cost of energy.”

When I asked McLaughlin what it might take for Walmart to increase its renewables purchases more quickly, she demurred. “We're getting as far and fast as we had hoped in the game plan. We're going to 2020 right where we thought we would be.”

2. Zero Waste

In the United States, Walmart diverted 82.4 percent of its waste in 2014 across stores, clubs, distribution centers and other facilities. Outside the U.S. it achieved 68 percent waste diversion. The company says it’s on target to eliminate all landfill waste from U.S. Walmart and Sam’s Club locations by 2025; globally, it will take a little longer.

There’s little that the folks at Walmart hate more than waste, which costs the company money to dispose of, not to mention to manage and sort. Like everything else, reducing waste has to be cost-effective; the company has little appetite to pay extra to do the right thing. That means that for some material streams, it’s still simply cheaper to toss it.

Getting to zero will mean the company will need to find solutions to hard-to-recycle materials. “We have a pretty robust and detailed roadmap market by market, material stream by material stream,” notes McLaughlin. “We've got to chip away at it and continue progressing.”

Some of Walmart’s more recent efforts in the waste arena have to do with helping to increase streams of recycled materials available for their suppliers to use in products and packaging. Last year, it helped launch the Closed Loop Fund, a group of large companies seeking to invest in recycling infrastructure and, in the process, put more recycled materials into manufacturing supply chains.

Nine companies invested in the fund, but it was Walmart that played a key role in its launch. In 2013, it convened a supply-chain summit, with 30 recycling, consumer product and supply-chain experts, to discuss how to increase recycling in the United States. Rob Kaplan, who was Walmart’s point person on the fund in his role as director or product sustainability, left the company in June to join the Closed Loop Fund as its managing director.

As part of that effort, Walmart last year began pushing suppliers to utilize an increasing amount of recycled content, putting forth specific targets. McLaughlin estimates “we'll have about a billion pounds more of recycled content in packaging and products by 2020.” To reach that goal, “We're trying to get at other parts of the chain to reduce waste, not just in our own operations, which was the original aspiration.”

In 2014, Walmart also launched an internal “food waste and damage reduction campaign.” It set a year-end 2015 goal to reduce food waste in emerging-market stores and clubs by 15 percent and in other markets by 10 percent, using a 2009 baseline. The company is a bit behind on emerging markets, diverting only 11 percent in emerging market stores (Argentina, Brazil, Central America, Chile and Mexico).

“I think we need to go faster,” Kathleen McLaughlin acknowledged.

Food waste is a relatively small component of Walmart’s overall waste stream, but it has outsized environmental, social and economic importance: in a world of hungry people, food waste is bad optics for a company that hates to waste. Indeed, McLaughlin says that she’d like to get food waste down to zero. “It's in line with the philosophy that Lee Scott set out, which is we shouldn't be having waste in our stores.”

3. Greener products

This is, as just about everyone acknowledges, the squishiest of the three goals — and, as a result, the hardest one to hit. It also is the one with the biggest world-changing impact, given Walmart’s vast reach — more than 60 percent of Americans shop there every week, according to the company, with growing numbers in other countries.

Unfortunately, Walmart’s approach to product sustainability isn’t particularly transparent and is difficult for consumers to understand, let alone assess.

In some ways, it comes with the territory. As I’ve written about for years, one of the big challenges of marketing sustainability to consumers is that some of the biggest improvements in a product’s impact aren’t part of its value proposition. So, if a food company uses less fertilizer to grow crops, less energy to process them, less packaging to protect them and optimized logistics operations to reduce fuel consumption in bringing them to market — well, that’s environmentally significant, but it’s hard to explain to consumers who may just want, say, frozen peas. And yet those peas are arguably, um, greener than those brought to market just a few years ago, when those practices weren’t yet in place.

How do you explain all that to the pea-buying public? It’s no small matter.

The Sustainability Consortium, which Walmart helped launch in 2009, was created to establish the metrics and mechanisms for assessing products’ sustainability, with the idea of creating standards or rating systems to help bring all this complexity to consumers.

It’s a work in progress.

The Sustainability Index created by the consortium is an assessment tool now being used by 1,300 of Walmart’s suppliers to evaluate the sustainability performance of the their products’ life-cycle; all told, they account for 65 percent of U.S. sales at Walmart stores. (This year, the company began rolling out the index for use by Sam’s Club suppliers.) Walmart has said that by the end of 2017, it will buy 70 percent of the goods it sells in its U.S. stores “only from suppliers who use the Sustainability Index to evaluate and share the sustainability of their products if they produce goods in categories where the Index is available.”

When you parse that sentence, it’s not a particularly high bar. The company seems to be rewarding metrics and transparency, not necessarily any particular level of environmental performance.

Walmart has been experimenting with ways to communicate sustainable products to its customers. In March, it launched a Sustainability Leaders page on that identifies products from companies deemed “sustainability leaders.” Walmart’s definition of “leader” is based on how suppliers score on Walmart’s Sustainability Index in each of several product categories, not on the products themselves.

As I explained in an article at the time, Walmart’s methodology, however rational, is more than a little confusing. For example, the same company — Unilever, for example — can be deemed a “leader” in some product categories but not others.

And leadership on Walmart’s website pertains only to the company, not the product in question, though it may be assumed that some of the leadership qualities filter down to the product level.

That’s led some critics to ask whether Walmart is giving a de facto green seal to products that are far from it.

Elizabeth Sturcken, managing director, corporate partnerships at Environmental Defense Fund, who leads the organization’s Walmart engagement, believes the company deserves credit for its efforts to push suppliers toward more sustainable products and processes. When I asked her to grade the company on this goal, she proffered an A-minus — “for the creation of science-based tools to evaluate product categories across the store with The Sustainability Consortium; for the broad-based efforts across all product categories focusing on the biggest impacts; for being the first to bring product category-level assessments broadly in front of the retail customer on with their Sustainability Leaders badge; and for driving continuous improvement.”

Sturcken added that the “minus” in her grade was “for not rewarding leading suppliers enough or punishing those suppliers who don't care to act.” That is, to be more aggressive in using the Sustainability Index as both carrot and stick.

The idea of a more-aggressive Walmart may send shudders down the spine of some of its suppliers, including some of the world’s biggest brands, which have been buffeted for years by Walmart’s pokes and prods to continually cut prices while absorbing all the costs of R&D and retooling needed to do so. None of the suppliers I spoke with agreed to air their frustrations on the record, fearing retribution from the behemoth from Bentonville.

Still, after a few years of fits and starts, Walmart’s Sustainability Index seems to be having an impact, encouraging suppliers to continuously improve the sourcing and manufacturing of their products and packaging, as well as the environmental performance of using those products and at the end of their useful lives.

What’s unclear is whether and how identifying “Sustainability Leaders” is changing consumer behavior. That remains elusive.

Nonetheless, Walmart is finding multiple benefits from all this: many greener products are cheaper to bring to market and, thus cheaper for Walmart to buy and sell; customers are variously saving money or reducing their environmental impacts; and Walmart is burnishing its sustainability reputation.

As I said, most consumers aren’t aware of most of these activities, and the results of these initiatives, however significant, often don’t show up in the products themselves — or, if they do, they can be difficult messages to communicate.

What’s unclear is whether and how identifying “Sustainability Leaders” is changing consumer behavior. That remains elusive.

Still, the Sustainability Index is finding growing value among both the company’s buyers and suppliers, says McLaughlin. “Our suppliers are using this, and it’s been invaluable because it has given us a heat map that is science-based and pretty helpful to set priorities category by category across the major issue areas. It's allowed us to be much more strategic and much more focused, and also drive collective action with suppliers and others on issues that require everybody to work on simultaneously to make progress. That's our philosophy; that's our approach.”

20 Million Metric Tons

To accurately assess Walmart’s progress over the past decade means going beyond these three goals and their associated metrics. Since the company’s sustainability push began a decade ago, but particularly over the past five years, Walmart has spun out several notable cross-cutting initiatives.

For example, it is encouraging that the company is looking beyond energy to carbon emissions. That’s led it down a number of interesting paths that don’t necessarily map directly to its three original goals, and has opened up a suite of new initiatives.

In 2010, Walmart announced a goal to cut 20 million metric tons (MMT) of greenhouse gas emissions from its lifecycle and supply chain by the end of 2015. The 20 million figure represented 150 percent of the company's estimated global carbon footprint growth from 2010 to 2015.

Like many of its initiatives, this one was a collaboration — primarily with EDF, but also with external advisors PricewaterhouseCoopers, ClearCarbon, the Carbon Disclosure Project and the Applied Sustainability Center at the University of Arkansas. The team set out to identify projects, quantify reductions, engage suppliers and ensure the integrity of each GHG-reduction claim.

EDF’s Elizabeth Sturcken called the goal “a good example of an issue that we pushed and an area where we felt like they needed to lead on. And that did result in the first-of-its-kind supply-chain carbon-reduction goal and was made by a company that could actually drive that change.”

Reaching the 20 MMT goal required the company to look further into its buildings and fleets but, perhaps more significantly, into its factories in China, its agricultural supply chain and other areas.

“We thought this goal would be fairly easy to meet — that there's a lot of supply-chain carbon waiting to be just gathered up out there — but that really wasn't the case,” said Sturcken. “It was a lot harder than we thought and we fumbled along trying a few different things, many of which failed.”

For example, Walmart and EDF attempted to work with one big company to raise the temperature on its “cold chain” — the system that moves cold products such as ice cream from production to retail. The idea is that a small temperature change wouldn’t affect the products but could lead to a significant drop in energy use and, therefore, greenhouse gas emissions.

The manufacturer didn’t agree, fearing deleterious effects on products and, possibly, consumers. The temperature setting remained, well, frozen.

To find high-value opportunities to cut carbon, EDF overlaid carbon-reduction opportunities with Walmart sales data. “We tried to look across all product lines and focused on where the big impact was, just not per individual product but in aggregate when you considered what products Walmart sold,” explained Sturcken.

One area that rose to the top of the list was agriculture, in particular the use of fertilizers on crops. Liberal fertilizer applications by farmers aren’t just a waste of resources. The nitrogen and oxygen molecules that crops need to go eventually make their way into rivers and streams, and eventually to oceans, where they fertilize blooms of algae that deplete oxygen and create vast “dead zones.”

Moreover, soil microbes convert nitrogen-rich crop fertilizers, including manure and synthetic fertilizers, into nitrous oxide, a greenhouse gas with 300 times as much heat-trapping power as carbon dioxide.

EDF had been working for years with farmer networks, trying to help farmers optimize fertilizer use, one of their most expensive inputs. Farmers have a natural incentive to optimize fertilizer, but often lack the information and technology they need to do it effectively. “Walmart decided it would send the demand signal that it wanted its suppliers to optimize their fertilizer used in food products,” explained Strucken. “And that has created this system transformation that has touched many suppliers, all the way down to the farm level.”

Another carbon-reducing collaboration involved trucks — those big-rig Walmart and Sam’s Club fleets that traverse the highways. In his 2005 speech, Lee Scott committed the company to double the efficiency of its entire fleet in 10 years — by 2015. He projected this alone would save the company more than $300 million a year in fuel costs.

“By being the leader, we will not only change our fleet, but eventually change trucks everywhere in the world,” Lee said. “We will do ourselves a big favor, clean the air for our children, create new jobs, improve U.S. productivity, positively impact our country’s energy security, and more.”

Like many of Scott’s other goals, this was easier said than done. “It required kind of a collaboration with our vendors that we hadn't done before,” Elizabeth Fretheim, Walmart’s Director, Logistics Sustainability, told me. “We purposely wanted a showcase vehicle that was jumping forward 20, 25 years, versus something we could get in the next couple of years.”

Last year, the company unveiled the Walmart Advanced Vehicle Experience concept truck, the result of a partnership between many vendors. It combined aerodynamics, mictroturbine-hybrid powertrain, electrification, advanced control systems and advanced materials like carbon fiber in one vehicle.

But it also turned out there was also a lot that could be done with Walmart’s existing fleet. There were three big buckets of efficiency: optimizing how trailers are loaded and filled; reducing overall miles that trucks need to travel; and technology improvements that improve efficiency and reduce emissions.

There’s considerable complexity to all this, as Fretheim explained, ensuring that products are delivered to distribution centers or retail outlets exactly when they are needed, not a moment too soon or too late. And that the most efficient trucks operate as full as possible when they travel from point to point, and that the routes they take are as efficient as possible.

As the company announced today, it has achieved Lee Scott’s fleet-efficiency goal. And Scott’s cost-saving estimate turned out to be grossly underestimated. The combined efforts of changing loading, routing and driving techniques, as well as collaborating with tractor and trailer manufacturers on new technologies, will save the company nearly $1 billion this fiscal year alone, compared to a 2005 baseline, more than three times Scott’s projection at the time. And it will avoid emissions of nearly 650,000 metric tons of carbon dioxide.

At the end of the five years, announced today, the company exceeded its 20 million metric ton carbon-reduction goal by about 40 percent, reducing emissions by a 28.2 million metric tons.

Loyal Opposition

None of this is enough to appease Walmart’s biggest critics. Among them is the Institute for Local Self-Reliance, a 40-year-old nonprofit that focuses on helping communities develop local solutions in areas such as banking, energy and waste. ILSR has opposed Walmart in communities for years and provides the grist for other groups to protest or block the retailer’s entry into new territories.

This week, on the eve of Walmart’s Milestone Meeting, ILSR issued a press release: “After a Decade, Walmart Shows Little Progress on Sustainability.” It attempted to counter the company's claims, criticizing Walmart for its low percentage of renewable energy (ILSR claims just 3 percent of the retailer’s energy comes from renewables, far less than the company claims), for being “one of the nation’s largest users of coal-fired electricity” and for “producing more climate pollution today than it was in 2005.”

“I think that the temptation is to look at Walmart and say any improvement that they make in terms of reducing their environmental footprint is a good thing,” Stacy Mitchell, the group's co-director, told me. “The challenge to that viewpoint that we have consistently made is that Walmart is not a static entity. Walmart is a company that's growing quite rapidly, both in the U.S. and abroad.”

For Mitchell, Walmart’s business model is fundamentally flawed, from its ambitious growth plans, to the unsustainable nature of the products it sells, to the energy and environmental impacts of global shipping. She’d like to see the company improve product durability, accelerate its deployment of renewables and commit not to build stores on so-called greenfields — sites previously undeveloped for commercial use.

Mitchell and ILSR are right to hold Walmart to high standards, though it doesn’t seem to be doing the same to its biggest competitors — Kroger, Costco, Home Depot, Walgreen, Target, Safeway and all the others (with the notable exception of Amazon). Most of these retailers have their own sustainability programs, in most cases far less ambitious than Walmart’s. But brand leaders make better targets.

Amid such criticism, Walmart remains as it was a decade ago: bewildered as to why it is sometimes unloved despite its sustainability aspirations, achievements and leadership.

But it is moving forward nonetheless — one big box at a time.

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