Walmart's Sustainability Index: The Hype and the Reality

futurelab default header

by: Joel Makower

Walmart has just unveiled its new Sustainability Index, a project that’s been in the works for more than a year, but which is — finally, after much anticipation and more than a little handwringing by industry, activists, and others — part of the public discourse.

The advance stories over the past few days have been amped up to the point of breathlessness, involving adjectives like "huge" (perhaps) and "audacious" (probably), with one story suggesting the Index will "shake the world" (um, no comment). Such hyperbole is understandable: any green commitment that Walmart makes is potentially a big deal. But now that reality has hit, it’s time to take a more sober assessment of what’s really going on here.

I’ve been watching the Index unfold over the past year. I’ve seen early iterations, talked to some of the many suppliers, nonprofits, academics, and consultants that Walmart has engaged in this effort, and viewed the final product.

My assessment: Like so many things related to both Walmart and sustainability, there is both more and less going on here than meets the eye.

The story in brief: Walmart’s Sustainability Index is geared toward creating a way to gather sustainability information about companies and, eventually, products sold in Walmart stores. The Index will result from a set of 15 questions Walmart is asking of its 60,000 or so suppliers. (You can download the questions here – PDF.) It has asked for responses by October for its U.S. suppliers, later on for those elsewhere.

The 15 questions are grouped into four buckets: energy and climate, material efficiency, natural resources, and "people and community." That last category is particularly clever, as it allows the company to demonstrate that its concern lies beyond environmental issues to the broader arena of sustainability, which includes social issues, though the five questions included in that bucket barely scratch the surface of this topic. For example, they don’t address most worker issues, like wages, health care, and the right to air grievances, among many other topics generally included in this arena.

Despite the much-ballyhooed launch, the Index isn’t exactly new. The company began using a similar set of questions with suppliers about a year ago for its own private-branded products — so-called house brands like Sam’s Choice and Great Value; the company has around 30 such brands. It started with dairy products, followed by textiles, which includes both home furnishings and apparels. Toys and electronics follow. Many of the manufacturers of those house brands are also major consumer product brand manufacturers, so this won’t be news to many of them.

Despite what the headlines have been saying the past few days, this isn’t a product-rating scheme — at least not yet, and likely not for several years. For now, Walmart will be using the results of the 15-question survey to assess companies. The questions, as you’ll see, don’t get down to the product level. In a second phase, the company plans to develop more sector-specific questions — say, for agricultural products or jewelry or electronics. Eventually, the company hopes that the Index will address individual products. But that’s not currently in the works.

Another key point: Walmart isn’t rating, grading, or ranking companies, let alone products. It hasn’t established a set of criteria or set a bar for performance. This isn’t an eco-labeling scheme. Rather, it is a means for providing transparency about companies, allowing them and others to compare companies to one another, showing how each performs. The information will be one of many factors it will use to assess companies. It may be a tiebreaker, all other factors (price, quality, availability, etc.) being equal.

Walmart doesn’t plan to say which companies are "good" and which aren’t. Its plan is to put the information out there and hope that transparency foments competition. But that won’t ensure that any company will necessarily be "good." If, for example, all of the companies in a given sector are doing poorly, but one is doing a little less poorly, the least-bad one will rise to the top, though it may be far from a "good" company. Once again, this is clever on Walmart’s part. While it can honestly say it is rewarding good behavior, it isn’t really setting a benchmark.

As for the 15 questions. Well, they’re a start. Taken together, they set a fairly middling bar, the kinds of things that some leadership companies have been doing for a decade or more. And because they deal with the company, and not its products, they omit some fairly critical details. Among them: they don’t mention toxic materials used in manufacturing or in the products themselves. They don’t talk about the energy efficiency of products or their recyclability or other disposition at the end of their useful lives. One need only compare Walmart’s Index to Nike’s Considered Index, which goes deep into product details, to see how relatively primitive it is. There are equally good examples from several other companies.

Do such shortcomings render the Walmart Sustainability Index as greenwash? No. This is a solid first effort. It’s important to note that over the past year, Walmart engaged some 20 universities, a handful of environmental activist groups, associations like Business for Social Responsibility, many of its key suppliers, and a small army of consultants. Patagonia’s iconoclastic founder, Yvon Chounaird, has played a role. It’s gone through a great deal of thinking and more than a few iterations. (You can download a backgrounder on a slightly earlier iteration of the Index here – PDF, that contained 16 questions.) This was not some slap-dash effort.

Walmart acknowledges the iterative process. Some of its staff have told me privately, and quite proudly, that this is a "ready-fire-aim" exercise — that the company wanted to get something out there, however imperfect, and improve it as it got real-world use. That’s admirable, albeit risky, but that strategy underscores how the company has been addressing most sustainability issues over the past three years: set a big goal, rally the best minds (and persuade them to do a tremendous amount of work at their own expense), make some choices, put it out there, and refine. Hey, that’s pretty much how Google made it big.

Much like Google, this effort will likely head down many innovative pathways. For example, Walmart already is talking with Microsoft about creating an open-source database and tools to make information about companies and products accessible; no doubt, for consumers there will eventually be an app for that.

And Walmart has made it clear that they don’t want to own this. They want it to live within some credible entity that will continue to develop and deploy the Index. (The company isn’t beyond starting its own nonprofit if it isn’t able to find one that suits its needs.) And the company is working to bring in other companies — Best Buy, Costco, Kroger, and Target have been part of the conversation — to adopt the Index, too, creating even more purchasing power in the marketplace.

It’s definitely a bold move, one that stands to raise the bar on sustainability and transparency, empowering both retailers and consumers to leverage their buying power to affect change. It stands to spur innovation in products and processes. And it appears to be around for the long haul. Walmart has gone well beyond talking the talk here. It’s changing the game. How quickly and dramatically the game really changes will be something we’ll all be watching, very closely.

Original Post: