Walmart Sustainability Index Means Big Business

In a run-up to Thursday's webcast with Walmart's Rand Waddoups, is exploring the business opportunities -- and the challenges -- that companies are facing in trying to get up to speed on the Sustainability Index's requirements.

Some of Walmart's top suppliers in the U.S. will begin sharing their environmental impact data with the world's largest retailer next week.

Oct. 1 marks the official start of the first phase of Walmart's Sustainability Index. That's when "top-tier" consumer product companies must return to Walmart a 15-question assessment form (PDF) with details about their carbon footprint, resource use and ethical business practices.

While many large suppliers have tracked this data for years, some estimate the prepared few represent just 10 percent of the roughly 100,000 global companies who sell to Walmart.

Walmart's sustainability assessment offers both a huge business opportunity and a potentially huge environmental business. Walmart suppliers will likely find opportunities to wring inefficiencies from their operations through the process of assessing their environmental footprints, while a bumper crop of consulting and accounting firms is springing up to help suppliers navigate the journey.

"I think this is a game changer," said Kyle Tanger, the president and CEO of a carbon management firm that once helped Walmart size up its own mammoth carbon footprint.
Just the Facts

Background: Walmart announced in July the creation of its Sustainability Index initiative, meant to measure the sustainability of its products in four areas: energy and climate, natural resources, material efficiency, and people and community.

Timeline: The initiative is broken into three phases.

• The first phase is the supplier assessment, a survey the company's 100,000 global suppliers with 15 questions. Walmart's top-tier suppliers in the U.S. must complete the survey by Oct. 1; timelines for the remaining suppliers have not been announced.

• The second phase involves the creation of a lifecycle analysis database by a consortium of universities that will work with suppliers, retailers, government and nonprofits.

• The third and final step calls for delivering the information to the consumer on how products rank, possibly through a numeric score, color code or other label.

Tanger's company, ClearCarbon Consulting, is one of many businesses stepping forward to help fill the knowledge gap for thousands of Walmart suppliers in the wake of its Sustainability Index announcement in July. The retailer's overarching goal is to rate the sustainable attributes of the products lining its shelves, keeping costs low in the process while also burnishing Walmart's green cred.

The sheer size of Walmart's reach makes the initiative a big deal, said Nancy Hirshberg, vice president of natural resources at Stonyfield Farm, a New Hamshire producer of organic yogurt and other dairy products that are sold at Walmart.

"It's the biggest customer in the world asking you questions about things you should be thinking about," Hirshberg said. "Not anyone else has that power."

A 'Game-Changer?'

In addition to the sustainability index, Tanger sees three other significant events this year that could forever alter the intersection of business and climate change: potential new climate change disclosure rules mandated by the U.S. Securities and Exchange Commission; a climate change bill passing the Senate; and the adoption of an international climate change treaty that will succeed the Kyoto Protocol.

"Those are the four game-changers," Tanger said. "Every professional services firm should have a strategy around those four. You have to make sure you're doing the right kinds of preparation for your customers so they can thrive under those conditions."

ClearCarbon's strategy involves the launch of a web page with resources for Walmart suppliers shortly after the announcement in July, followed by a webinar. The company also is automating its data outputs to reflect the Walmart assessment format, and is considering producing a series of white papers that offer strategy and insight. An additional webcast offering a primer on carbon footprinting will take place Oct. 8. Along the way, ClearCarbon has picked up several contracts.

Newcomer Greener Dawn wants a piece of the action. The consulting company, formed in January, originally targeted the real estate sector, performing carbon footprint services for investment owners, but it is now trying to expand into the retail industry. It sent out a press release shortly after the original Sustainability Index announcement explaining the business case for corporate carbon footprinting.

"We started with a focus on real estate, but realized there was a need for carbon management solutions in multiple industries," said Michael Chang, an energy and carbon specialist with the Solana Beach, Calif.-based company. "With government mandates and global momentum toward sustainability, the Walmart Sustainability Index is another piece that can drive this change. The main goal of the press release was to express the notion that everything is moving in this direction." {related_content}

Many Walmart suppliers need all the help they can get, according to Marc Major, cofounder of ClearGreen Advisors, a newly launched consultancy formed specifically to target Walmart suppliers. The company also plans to hold a webinar for Walmart suppliers Thursday.

"The majority is unprepared," Major said. "It seems like suppliers are waiting for some kind of signal from Walmart that this is serious. I don't know what it's going to take for some to figure it out."

Misconceptions abound, Major said: The initiative might just go away, much like Walmart's RFID (radio frequency identification) and "Made in America" requirements. Assessing environmental footprints costs too much with no short-term ROIs for suppliers to seize without unmistakable signals from Walmart.

But those who look at this as a cost center instead of a profit sharing center, Major said, are really missing the boat.

"The economic times are such that people are risk averse. The reality in a recession is that weak players will fade away," Major said. "Those who spent the recession investing will be the ones to score."

Over the next six months, the Sustainability Index will cause senior executives to boost their current investment levels for things such as energy audits and strategy development, predicted Paul Baier, vice president of consulting at Groom Energy Solutions, a Massachusetts firm that helps companies reduce their energy consumption. He estimates just 1 in 10 Walmart suppliers are prepared to completely answer the 15-question assessment, while about 40 percent weren't planning on investing the capital on measuring their carbon footprints now because of the recession.

The company, along with Pure Strategies, held a sold-out Walmart supplier readiness workshop last week during a green supply chain conference that was attended by representatives from companies such as Hasbro and Ocean Spray. The Sustainability Index, Baier said, has re-energized stalled sustainability projects and increased the chances of additional investment as 2010 budgets are finalized.

He predicts more vendors will introduce additional resources and events for Walmart suppliers in the fall. "Fortunately we had an event and saw an opportunity to move aggressively," Baier said.

Uncovering Inefficiencies

The Sustainability Index sends a signal not just to Walmart suppliers, but also to its competitors, according to Larry Goldenhersh, president of Enviance, a maker of carbon and environmental accounting software.
Advice from the Experts
• "Outside resources such as experienced consultants, NGOs, and universities can be a big help, especially for getting started, but at the end of the day, the folks inside a company that know and own the key data inputs or a carbon footprint are critical to the project’s success." -- Kyle Tanger, president and CEO of ClearCarbon Consulting

• It's not free, but the way to look at it is as an investment ... If it's an energy efficiency investment, don't take all the savings and throw it back into a big pot. Start a special investment fund for future projects. Smart executives are starting to do this." -- Marc Major, cofounder of ClearGreen Advisors

"Our biggest recommendation is for suppliers to calculate their basic carbon footprint.  This is the most labor and data intensive step and suppliers will increasingly look like laggards in 2010 without this information." -- Paul Baier, vice president of consulting at Groom Energy Solutions

"Don’t get lost in the minutia. Find a really good consultant so they can leapfrog you so you don’t get stuck in the weeds." -- Nancy Hirshberg, vice president of natural resources at Stonyfield Farms

"Go to the Carbon Disclosure Project's website and find other like businesses and see what kind of information they are providing now." -- Rich Becks, senior vice president of strategic supply-demand solutions at E2open

"The Walmart Sustainability Index constitutes the firing of the starting pistol of latching the market to the quest for the climate solution," Goldenhersh said. "If we engage large retailers in competition to green the supply chain, I believe we can achieve a massive amount of planet-protecting behavior through market-driven conduct."

The move ushers in what he has dubbed a new era of "Supply Chain Environmentalism."

"Competitors in this newly minted era of Supply Chain Environmentalism will discover massive new market share opportunities and will face massive market risks, all associated with the fact that commodity products -- which today seem to be differentiated almost exclusively on price -- will now be capable of differentiation along a set of easy-to-understand greenhouse gas and other sustainability factors," he said

The process of collecting the environmental data included in Walmart's assessment will benefit suppliers in the short- and long-term, said Tanger, noting the ordering of the questions in the assessment makes sense, with carbon footprint and energy questions first.

"Carbon continues to be one of the best proxies for finding operational efficiencies," Tanger said. "Trucks, refrigerants, all of these things add up to money and how you can make your products better."

It will also yield surprises.

"Walmart is one of the best examples of this," Tanger said. "They knew electricity was going to be a gigantic source (of greenhouse gas emissions), but didn't know their second biggest source would be refrigerants."

As a result, improving refrigerant efficiency became a key component of its sustainability strategy. Similarly, Stonyfield Farms thought energy use would be the biggest direct impact of its carbon footprint when it began analyzing its supply chain, but learned milk was No. 1, followed by packaging, and distribution. Energy use was No. 4.

"We were stunned," Hirshberg said. "Up until then, we were obsessed with facility energy use."

The newfound insight prompted Stonyfield to embark on partnerships to reduce these large impacts, both in and outside its operations. Internally, the company has halved its transportation emissions since 2006, saving the company $500,000, while working with suppliers to reduce packaging improved its bottom line by nearly $800,000.  

A ClearCarbon client was able to increase its market share because it was able to offer its products at a lower price because of efficiencies gleaned through projects related to energy and water use, transportation and solid waste reduction, Tanger said.

"It knew these projects would return a certain cost savings," Tanger said. "It passed the cost savings directly to its customers, and won a large contract because of it, which also increased its market share. They don't want to talk about it because they feel like they have such a leg-up on their competition in that market."

Based on past experience with Walmart suppliers, Tanger believes suppliers are more prepared to fill out the assessment form than they give themselves credit for, with their best resource being the team they already have. "In every company, there are plenty of people who know a lot about that company. They need to get people in all parts of the company together and say, 'We need to be involved in this process,'" Tanger said.

Small Steps

Suppliers are lucky to have access to many more resources today than was available to Stonyfield when it began assessing its environmental footprint in the 1990s, Hirshberg said.

"They aren't going to have to do as much figuring out as we had to do," she said. "On the other hand, don't get lost in the minutia. Find a really good consultant so they can leapfrog you and you don't get stuck in the weeds."

Take small steps, advised ClearGreen Advisors' Marc Major. "Sequence your investments properly and find investments that pay back in the short-term," Major said. "Do things you can do quickly and build momentum, rather than get bogged down on big projects. Take the savings and invest it in future projects."

He compared choosing a consultant to picking a doctor: Do your homework.

"I would caution companies that there are a lot of people coming out of the woodwork who may not know what they're talking about, but are well intentioned," he said. "Any time you have a gold rush … "