In 2004, Wal-Mart, the biggest company in the world, had become a big, fat, and not particularly well-liked target, and it attracted more lawsuits than any other corporation in the world. It had become the poster child for global warming, smog, and urban sprawl. Wal-Mart’s bad reputation has caused as much as eight percent of its customer base to stop shopping there. Scott adopted a defensive mindset to shield the company from further criticism. To placate environmentalists and limit the company’s exposure, he identified some positive green gestures Wal-Mart might undertake. Even if he felt coerced, Scott was willing to embrace reasonable environmental philanthropy that would be considered meaningful corporate social responsibility. Ellison would argue that remaking Wal-Mart into an environmentally sound powerhouse could be good for the environment while not costing the company money. In fact, by pursuing energy efficiency, leaner packaging, cleaner plants, conservation, and system-wide transparency and sustainability, Wal-Mart could actually boost its profits, its image, and its market position.
When they hear the word “environment,” most American CEOs think regulations, bureaucracy, lawsuits, obstacles, added costs, and bad press, not business opportunity or competitive advantage. Inefficiency and waste not only damage the environment but also a company’s bottom line. However, waste is so ingrained that it had become invisible. Take, for instance, liquid laundry detergent. The industry standard 120-ounce bottle of detergent has one ingredient in greater supply in comparison to the smaller bottle of the ultra-concentrated version: water. The smaller bottle is better for the bottom line, more convenient for the customer, more profitable to sell, and better for the environment. Yet, in 2004, most bottles sold each year in the United States were the large ones.
That liquid laundry detergent example was enough to convince Scott to hire Ellison, and the greening of Wal-Mart began. By 2008, every Wal-Mart store in the country stocked only the bottles of concentrated detergent. In a matter of months, the greening of Wal-Mart became one of the most influential environmental initiatives in history. Other companies, including Wal-Mart’s suppliers and competitors, began to reconsider their own environmental stances. Executives began competing with one another to see who could find the next sustainability triumph.
THE SOUL OF A DISCOUNTER
When Scott took over as CEO of Wal-Mart in 2000, the environment was the last thing on his mind. He knew that success arose from a single-minded focus on low prices. Unintended consequences of achieving low prices for consumers, such as higher pollution, were not a consideration. As long as it was legal, it was not a problem.
Company founder Sam Walton laid out a culture that focused on three basic values: service to the customers, striving for excellence, and respect for the individual. Six of his ten rules for succeeding in business had to do with how to treat people. Walton enjoyed enduring popularity as a leader despite his company’s notoriety for providing mediocre pay and benefits. Low prices served as the company’s one overriding principle, because low prices represented respect for the individual as well as the best form of customer service. Scott learned quickly that in order to succeed at Wal-Mart he had to work within the company’s culture, not outside of it; Wal-Mart culture was too powerful to fight.
Low wages, skimpy benefits, and medical insurance that many employees could not afford became one of the inevitable consequences of Wal-Mart’s discount philosophy. Pressures on store managers to keep payroll costs down led to chronic and well-documented abuse of workers. When the company took heat for gender discrimination, Walton appointed Hillary Clinton to the board of directors. During Clinton’s tenure, she was appointed to the board’s environmental advisory committee, and a short-lived, small-scale environmental awakening ensued. A test case involving redundant packaging of deodorant products became the perfect demonstration that environmentalism and the bottom line could mesh, but it ultimately led nowhere. When Clinton left the board in advance of her husband’s successful run for president in 1992, no one else seemed interested in taking up her environmental cause.
Following a tidal wave of negative press that threatened the company’s well-being, Scott found himself spending more time on damage control than his predecessors had. Lawsuits were filed alleging discrimination, unpaid overtime, illegal employment practices, predatory pricing, and illegal hiring of immigrant workers. Scott promised reforms. Meanwhile, environmental groups attacked Wal-Mart for its sprawling stores, for building in sensitive habitats, and for its contributions to air and water pollution.
Scott hired an international public relations firm to help provide responses to all the criticism and media stories generated about the company. Never before had Wal-Mart employed political spinners to safeguard its image, but these were desperate times. The damage had gone way beyond mere reputation: Wal-Mart’s stock price had fallen by 27 percent between 2000, when Scott took the helm, and 2005. Additionally, worrisome customer survey results showed that Wal-Mart needed more than just good PR. It needed to actually do good. A management consultant group told the retailer that it needed to take public leadership and become a role model on a significant societal issue. As luck would have it, that was precisely when Scott met Ellison.
THE CEO WHISPERER
By age 30, Ellison achieved a reputation as one of the top river rafters in the world, and he built a network of current and former corporate chiefs who sought him to lead their company-sponsored river expeditions. He got corporate leaders away from their offices and spreadsheets and out in nature where they could see, first-hand, the impact that their businesses were having. He also taught executives how to change corporate culture to foster innovation, teamwork, and communication, and he helped companies solve problems and manage crises.
In 2000, Home Depot, which was facing mounting pressure to address its enormous environmental footprint, enlisted Ellison to help create a program for obtaining and marketing wood certified as harvested in an environmentally responsible manner. Home Depot’s CEO agreed with Ellison that embarking on a sustainability initiative could bring Home Depot new business and market opportunities, in addition to making it a much greener company. This Home Depot experience proved to be a turning point in Ellison’s career. It cemented his belief in the notion that communities, companies, and whole countries need to live within natural limits, taking only those resources that nature can replenish, and limiting harmful waste to amounts that nature can safely absorb.
Through his lens of sustainability, Ellison saw the business argument in favor of going green, an opportunity that almost no business leader was seizing. Business leaders were not interested in talking about eco-efficiency because they thought it meant complying with onerous regulations, not blazing new trails voluntarily. Their assumption would turn out to be false. Ellison knew that those who were willing to embrace a “sustainability revolution” now would gain an enormous advantage in the future, and it was Ellison who would show Wal-Mart the way.
DOING THE MATH
Ellison had one shot to prove that all this talk about profit and planet could lead Wal-Mart to the sweet spot where environmental commitment and rising stock prices go hand in hand. That chance came in the form of the corrugated cardboard box holding a toy car and truck set. Reducing the size of the box led to $2.4 million in annual savings for shipping the toys and meant some 4,000 fewer trees would have to be cut down for cardboard. About a million barrels of fuel would also be saved due to the reduced shipping volume. Ellison’s next task was to figure out where else this could be done. Because business growth and stock price were the first and foremost of Wal-Mart’s demands, any initiative had to consider return on investment first-sustainability was no exception to this rule. Ellison had to come up with a series of quick wins. It would take months of planning to figure out what those quick wins might be and to convince the company to pursue them. Ellison would have to burst the “Bentonville Bubble” where outsiders with new ideas are viewed with suspicion.
Data indicated that 90 percent of Wal-Mart’s impact on the planet comes from its supply chain, so any meaningful sustainability initiative would have to involve the company’s suppliers early on. Ellison recruited evangelists in the company for his cause. He arranged for Claire Watts, the executive vice president of apparel merchandising, to meet with cotton farmers in Turkey where the material for many of the clothes and other products Wal-Mart sells originates. The conventional cotton fields resembled a toxic wasteland, while the organic fields were beautiful and a pleasure to walk through. Affected by what she saw, Watts began working to commit Wal-Mart to buying organic cotton products. Within a year, Wal-Mart became the single largest purchaser of organic cotton in the world.
Teams of Wal-Mart managers were paired with outside experts to craft sustainability goals. Each team tried to find efficiencies in a different part of the business: energy, transportation, suppliers, waste, food, and packaging. As they looked at their operations with different eyes, they found and adopted the most efficient, least wasteful, most planet-friendly alternatives. Scott would argue that sustainability fit Sam Walton’s prime directive of efficiency and cost-cutting.
KATRINA IN SLOW MOTION
In 2005, following Hurricane Katrina, Wal-Mart trucks swooped in to deliver food, water, and batteries. Wal-Mart ended up donating $17 million in cash and used its stores and trucks to haul in free merchandise, food for 100,000 meals, and computers for Red Cross emergency centers. Wal-Mart’s assistance continued long after the first wave. Even Wal-Mart’s critics conceded that the company had played a positive role in the crisis, that its actions had eased suffering and saved lives. Nothing changes the way a company is perceived more than doing something good. The outpouring of gratitude to Wal-Mart for Katrina relief suggested that continuing to do good would generate even more public goodwill.
Two months after Katrina, Scott announced that Wal-Mart would be going green in the biggest way imaginable: embracing sustainability to become “the most competitive and innovative company in the world.” Accepting the scientific case about human-caused greenhouse gas emissions, Scott put climate change at the top of his list. He ended his speech with Wal-Mart’s long-term environmental goals:
*To be supplied 100 percent by renewable energy
*To create zero waste
*To sell products that sustain the planet’s resources and the environment
Scott’s speech made headlines, confused the stock market, and shocked Wal-Mart’s competitors, suppliers, investors, and critics. Scott was committed to transformation. He pledged a half-billion-dollar annual commitment to this transformation. The world’s biggest company was all in.
BECAUSE EVERYONE LOVES A GOOD DEAL
Following Scott’s big green announcement, the hard work of making the rhetoric real had to begin. Sustainability had to come from the inside out. The strategy had to be baked into the business, and it had to catch fire with buyers, salespeople, logistics managers, truck drivers, product designers, building and maintenance staff, and all other Wal-Mart employees. Scott’s admission that he knew very little about sustainability impressed Ellison, because Ellison knew that few people in Scott’s powerful position ever willingly admit they do not have the answers.
Blu-Skye and Wal-Mart set out to create 14 Sustainable Value Networks with their mix of Wal-Mart insiders and outsiders. The networks created a road map for Wal-Mart’s green makeover and became a model for other companies embarking on the same quest. There were networks focused on store and warehouse waste, packaging innovations, energy use, trucks and shipping, as well as networks related to their product lines: forest products, textiles, electronics, jewelry, food and agriculture, seafood, and China.
The teams utilized Blu Skye’s 4 Ds to get organized: Discover, Dream, Design, and Deploy. The discover phase provided sobering and sometimes horrifying information for the networks to consider at the outset. This baseline information did not suggest specific projects or strategies, but it showed just how unsustainable American life had become, as evidenced by collapsing fisheries, impossible amounts of packaging waste, and poor fuel efficiency. In the next phase, the teams dreamed of solutions.
COTTON, FISH, COFFEE, AND AL
Cotton fiber is the number-one nonfood crop in the world, and it is also the dirtiest crop on the planet. Cotton provided a huge opportunity for improving Wal-Mart’s environmental footprint. It was one of the first products-but not the last-that suggested Wal-Mart would have to look at the complete life cycle of its products, from field to factory to home to landfill. That meant finding ways to get the growers, producers, and customers to be more sustainable. By the end of 2006, Wal-Mart made an agreement with organic cotton growers to purchase their fully organic cotton at a good price. Seafood would be a bigger challenge, but Wal-Mart made a goal to purchase wild fish exclusively from sustainable sources by 2011.
Other Sustainable Value Networks began racking up some quick wins: the launch of an eco-friendly jewelry line, a redesigned trucking fleet, more energy-efficient refrigerators and freezer cases, reductions in food miles by stocking locally grown produce, a zero-food-waste-to-landfill initiative, and organic fair-trade coffee. Wal-Mart also introduced a packaging scorecard to drive the goal of reducing packaging of all 329,000 separate items sold by Wal-Mart by five percent. Wal-Mart suppliers were told they would have to answer the scorecard questionnaire to reveal who had wasteful packaging. Soon manufacturers saw that the scorecard could provide a path to cost savings and increased profits.
Scott and other Wal-Mart leaders soon realized that sustainability not only was a way of being cleaner and more efficient, but it seemed to be driving innovation. It led to better products, packaging, shipping, and labeling-and all at no cost to Wal-Mart. The innovations only increased profits. Wal-Mart updated its slogan from “Always the Low Price” to “Save Money. Live Better.” Then came the threat to suppliers who disposed of waste improperly or used harmful chemicals: they would be banished from Wal-Mart’s shelves. Wal-Mart’s threats have had a history of motivating suppliers on price, and they have had a similar effect in spurring sustainability efforts. The operating assumption has always been that you do not say “no” to Wal-Mart if you are a Wal-Mart supplier-if you want to stay a Wal-Mart supplier, that is.
THE COW OF THE FUTURE
Next, Wal-Mart, Blu Skye, and the American dairy industry set out to reinvent the humble gallon jug of milk. Wal-Mart’s sustainability networks encouraged farming practices that would eliminate waste, conserve energy, and reduce greenhouse gas emissions. The greatest enthusiasm was reserved for cow power-or producing energy from manure. Scaling up dairy power from manure could provide electric power for farm communities across the United States and could actually provide more than three percent of the country’s total electricity needs. Use of manure-to-electricity technology is a win for everyone. Dairy became the first entire industry in the United States to commit to going green.
ONE INDEX TO RULE THEM ALL
The Index, which seeks to measure the true environmental impact of consumer culture while giving manufacturers, retailers, and shoppers a tool and an incentive to lower the impact, is Wal-Mart’s most ambitious and controversial sustainability project to date. It is controversial because it amounts to Wal-Mart using its size and clout to impose on the business world what amounts to a sweeping regulatory scheme. The Index will be useful only if it can bring unrelenting transparency, revealing not only the good information but the bad as well. One looming question is whether enough consumers will put the information to use for The Index to matter.
There would be three phases to The Index project:
The first phase is a questionnaire on energy, waste, and ethics that goes out to all 100,000 Wal-Mart suppliers. The goal would be to get a snapshot of suppliers’ sustainability at the company-wide level, with sustainability encompassing not only energy, carbon, water use, and waste, but health and social impact as well. Wal-Mart buyers would start using this information at annual contract time.
Phase two would be the formation of an independently governed Sustainability Consortium charged with constructing the product database that would serve as the backbone of The Index.
Finally, phase three would be the creation of the public consumer-facing index-the tags and smartphone apps for shoppers to use to compare products and companies.
Wal-Mart’s goals are clear: to put the consumer in charge and to push for similar sustainability gains for all its private-label products. Wal-Mart can control the suppliers of its own brands far more easily than it can command national brands.
If successful, The Index could change the face of retail forever. The task sounds simple, but the execution of a database and software for measuring the life cycle of products is extremely complex. Disillusionment among businesses, consumer advocates, and the public has grown over the confusing array of green product labels and eco-ratings that seem to be all over the supermarket aisles. Few ratings practices or labeling claims are ever policed or verified, which leads to rampant greenwashing, or when companies use marketing to promote a false perception of being sustainable. Even respected and reputable eco-labels, such as the U.S. Department of Energy’s Energy Star certification, have let consumers down. On the plus side, the data being collected by the consortium can be used inside companies as they seize green opportunities. The effectiveness of the public side of the project-The Index-will not be known for several years.
NO FREE LUNCH AT THE NATURE MARKET
Wal-Mart’s socially responsible pursuit of sustainability is grounded in profitability and a proven return on investment, despite false assumptions that corporate social responsibility is merely a cost rather than a source of value. Although Wal-Mart’s attempts to green its supply chain amount to a kind of regulation, Wal-Mart suppliers do still have a choice. They can accept the sustainability mandate, or they can refuse and take their business elsewhere. With so much focus on sustainability, a new climate of objections to socially responsible business plans has developed, but what exactly is wrong with a company seeking to voluntarily lower its carbon footprint and become more sustainable-and asking its business partners to do the same?
Until businesses stop pretending that nature has no dollar value, their best efforts at sustainability will always be too little, too late. If people, businesses, and countries had to pay for what nature provides, no one could afford it. The next challenge is for the economy to acknowledge the value of natural services so that businesses begin to operate in ways that protect and enhance them, rather than use them up and destroy them. If that happens, the entire economy could at last become a force of nature.
Wal-Mart’s toughest critics remain unimpressed by its sustainability moves because the problem is the big-box economy itself. The irony is that the effort to provide consumers a bargain actually costs millions of people their once-prosperous livelihoods. The big-box consumerism epitomized by Wal-Mart displaced a more local and infinitely more sustainable Main Street economy. Although making Wal-Mart and the other big boxes disappear could lead to the resurgence of small businesses and local economies, it is no solution.
The opportunity to align profit and planet has always been possible. Some businesses have pioneered sustainability long before Wal-Mart, and others are taking it far beyond. Wal-Mart continues to set ambitious goals, and its latest sustainability efforts involving food have been greeted with a mixture of enthusiasm, surprise, and skepticism among environmentalists and food activists. Wal-Mart is willing to turn itself inside out to be sustainable for the next generation, which it predicts will be deeply concerned about the environment. Wal-Mart sees a true business opportunity in sustainability, and it has the results to prove it, but it is also motivated in part by fear-fear of the next generation.