Wal-Mart: Doing Right by the Planet?
Retail giant Wal-Mart sets bold goals to lower carbon emissions in its supply chain, but needs to go further to achieve ambitious targets
Climate change and its impact on Wal-Mart
Many might not have expected Wal-Mart, a discount retailer, to be a first mover in addressing climate change. However, the most compelling business case for Wal-Mart to act on climate change is precisely the ability to keep prices low in the long term. As government policies try to price or limit carbon emissions, fossil fuel prices could rise, along with cost of energy and transportation[1]. Erratic rainfall, declining freshwater availability, and salinization of cropland from sea level rise could reduce crop yields and drive up food prices[2]. These effects directly impact Wal-Mart’s ability to keep costs low. On the demand side, extreme weather events caused by climate change disrupt not only supply chains, but also communities and customers’ purchasing power. Having been among the first to restore operations and provide relief after Hurricane Katrina, Wal-Mart began to consider the long-term implications of climate change and the role it could play in its communities[3].
Given its scale, Wal-Mart can meaningfully mitigate not only its own impact on climate change, but also that of its suppliers. It is the world’s biggest retailer with nearly 12,000 stores in 28 countries, annual revenues of $485.9 billion[4], and a network of 60,000+ suppliers[5]. It is also the largest consumer of electricity in the U.S.[6].
Reducing emissions: Increasing focus on suppliers
Since 2005, Wal-Mart has doubled its own truck fleet efficiency and shifted its energy mix to 25% in renewable energy[7]. It aims to double its renewable energy mix and decrease power consumption by 20% by 2020, which will save the company $1 billion per year[8]. Despite progress in its own operations, however, 90% of the emissions reduction potential lies in its supply chain[9]. Indeed, most of its 28.2 million metric tons of emissions reduction from 2010-2015 resulted from asking food suppliers to work with farmers to improve fertilizer use[10]. However, influencing suppliers is no easy task, as most don’t even measure their own GHG emissions. As such, Wal-Mart began collaborating with the Carbon Disclosure Project (CDP) in 2007 to help suppliers measure and manage their carbon emissions. As a large customer for many small- and medium-sized suppliers, Wal-Mart can use its size to encourage compliance[11]; as of 2011, thousands of suppliers have signed on to the CDP.
Project Gigaton
In 2017, Wal-Mart announced an even more ambitious effort to remove emissions from its supply chain. Project Gigaton aims to reduce 1 billion metric tons of emissions by 2030 (equivalent to taking 211M passenger vehicles off the road for a year), mostly through its suppliers[12]. To help its suppliers achieve these targets, Wal-Mart has teamed up with NGOs like Environmental Defense Fund to provide supports such as an emissions reduction toolkit. The toolkit articulates both the business case to reduce emissions (increase efficiency and innovation while reducing costs), and emission mitigation strategies in six areas: agriculture, waste, packaging, deforestation, and product use and design[13].
What more can Wal-Mart do?
Project Gigaton is ambitious, aiming for more than a 10x increase in emissions reduction than its previous target (adjusted for time). To ensure the success of Project Gigaton, management should expand its support to suppliers and move systemic levers like policy and industry standards:
- Expand its support to suppliers beyond just providing the toolkit: The toolkit encourages more incremental changes, e.g., increasing efficiency, rather than innovating new and better approaches. If Wal-Mart truly believes in the cost-saving potential of an emissions reduction strategy, it could consider co-investing with its suppliers to develop innovative approaches and technologies, e.g., in agro-ecological farming.
- Align public incentives: Given the enormity of the climate change challenge, efforts would need to span beyond the private sector. Given its economic power, Wal-Mart could work with governments around the world to ensure favorable policies are in place to support suppliers’ efforts to reduce emissions, e.g., tax credits to spur development of renewable energy or new farming approaches. For many of these new approaches, increasing scale and infrastructure could help defray costs, and public incentives upfront could play a pivotal role.
- Lead effort to set industry standards: Wal-Mart could collaborate with other retailers to create additional pressure for suppliers to act and maximize collective emissions reduction.
At the same time, many questions still remain for the retail giant. For example, most of Wal-Mart’s climate change strategy has focused on climate change mitigation rather than adaptation, although its disaster response was efficacious during Hurricane Katrina and it has shortened its supply chain in some products[14]. What other strategies could Wal-Mart take to adapt to climate change beyond disaster response? How might Wal-Mart balance efforts to adapt to vs. mitigate climate change? Can it keep costs low while doing so?
794 words
[1] Hauke Engel, Per-Anders Enkvist, and Kimberly Henderson. “How companies can adapt to climate change”, McKinsey, July 2015. https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/how-companies-can-adapt-to-climate-change
[2] Rebecca Henderson et al. “Climate Change in 2017: Implications for Business”. Harvard Business School, June 2017. http://www.hbs.edu/environment/Documents/Climate_Change_2017.pdf
[3] Kathleen McLaughlin and Diane Regas. “Walmart’s ‘ah ha’ moment on climate change”. CNBC, June 6, 2017. https://www.cnbc.com/2017/06/06/walmarts-ah-ha-moment-on-climate-change-commentary.html
[4] David Craik. “Case study: How Walmart uses blockchain.” CIPS, June 9, 2017. https://www.cips.org/supply-management/analysis/2017/june/case-study-walmart/
[5] Andres R. Edwards. Thriving Beyond Sustainability: Pathways to a Resilience Society. New Society Publishers. 2010.
[6] Edward Humes. “How Walmart Pushed Its Suppliers To Do Better.” Fast Company, May 12, 2011. https://www.fastcompany.com/1753107/how-walmart-pushed-its-suppliers-do-better
[7] Marc Gunther. “Walmart is slapping itself on the back for sustainability but it still has a way to go.” The Guardian, November 18, 2015. https://www.theguardian.com/sustainable-business/2015/nov/18/walmart-climate-change-carbon-emissions-renewabe-energy-environment
[8] Kelsey Lindsey. “Why Wal-Mart is a retail sustainability leader (but doesn’t really want to talk about it).” RetailDive, August 9, 2016. https://www.retaildive.com/news/why-wal-mart-is-a-retail-sustainability-leader-but-doesnt-really-want-to/423713/
[9] Erica L. Plambeck & Lyn Denend. “The Greening of Wal-Mart.” Stanford Social Innovation Review, Spring 2008. https://ssir.org/articles/entry/the_greening_of_wal_mart
[10] See [7]
[11] “How the CDP is Pushing Supply Chain Carbon Reporting Forward.” Reuters, July 26, 2011. https://www.reuters.com/article/idUS152407271620110725
[12] Matthew Boyle. “Wal-Mart Wants Suppliers to Eliminate a Gigaton of Greenhouse Gases by 2030.” Bloomberg, April 20, 2017. https://www.bloomberg.com/news/articles/2017-04-20/wal-mart-wants-suppliers-to-eliminate-a-gigaton-of-greenhouse-gases-by-2030
[13] Ibid.
[14] “Wal-Mart: An Unexpected Leader in Sustainability.” RC TOM Open Knowledge Platform, November 2016. https://d3.harvard.edu/platform-rctom/submission/wal-mart-an-unexpected-leader-in-sustainability/#_ftn4
I really like your point that Walmart should not only encourage more-than-incremental advancements for its suppliers, but also invest, and participate in the R&D. Although some emissions-reduction strategy will be in line with Walmart’s core proposition of offering the lowest possible prices, they might not all. I hope that Walmart will realise that its corporate responsibilities extend further than its customer’s wallets, and that it is able to take a long term view of benefits when deciding on R&D investments.
This model of corporate responsibility over climate change is fascinating to me. As you explain, Walmart has incentives to mitigate and adapt to climate change. I’m wondering in what other ways we can adjust our economy to have the same incentives. For example, can we do more carbon emission trading tokens like we’ve studied in other cases? We see this principle all the time and it bears repeating here: if you can get the incentives right, good things will happen.
Responding to your question on what other things can Walmart do. I wrote my article about Walmart using Blockchain technology to more effectively manage the transactions in their supply chain. I believe the same technology could be applied here in order to audit the supply chain. Rolling out supply chain wide initiatives can be expensive, but using technology like Blockchain can help streamline the roll out and save on costs.
Thank you for writing this informative article!
One question I have is: what happens when the biggest potential reduction of emissions comes from Wal-Mart needing to change its fundamental business proposition? Wal-Mart certainly has a lot of suppliers that can reduce emissions, but it also has customers that make presumably billions of driving trips to their stores that are almost certainly not walkable. In my mind, any true reductions from emissions will have to come from a lower amount of trips to/from Wal-Mart, which is, of course, how they make money.
To the question of how Wal-Mart might adapt to climate change rather than mitigate, they might consider locating new stores in areas less likely to be affected by natural disasters and rising sea levels. Similarly, they may evaluate and influence the locations of warehouses and key logistic nodes. The risks related to location are particularly pronounced at JFK airport. [1]
Just as it uses it’s bargaining power to push suppliers to combat climate change, Wal-Mart can use that same influence to influence partners to adapt.
[1] https://d3.harvard.edu/platform-rctom/submission/should-the-port-authority-of-new-york-and-new-jersey-panynj-be-concerned-about-the-long-term-viability-of-john-f-kennedy-jfk-international-airport/