Back in July, Walmart announced plans to create a “Sustainability Index.” Here is what they hoped to accomplish with this index (Sustainable Product Index: Fact Sheet):
[It] is expected to lead to higher quality, lower costs and measure the sustainability of products and help customers, live better in the 21st century.
Don’t let the fractured grammar distract you. Focus instead on the idea of this. Imagine every product in Walmart — and let’s face it, that’s wide range of products — with a score on it telling you some measure of a product’s “greenness.” How much water is used in its production or how much carbon is released in transporting it. In looking at two similar items today you may have no idea why one costs $1.25 more and settle for the cheaper. Tomorrow (OK, in 2013), you may see that the one that is slightly pricier is a much more sustainable product justifying its premium. Interestingly, Walmart is not driving this train by themselves (although it seems pretty clear that they are the only reason this train has left the station already). They are working with “universities, retailers, suppliers and non-government organizations” to move this forward rapidly. That is, they will not own this index and are aiming to have it broadly accepted as possible.
Walmart envisions this as a three step process (just like the Underpants Gnomes!):
Step 1: Supplier Assessment
Step 2: Lifecycle Analysis Database
Step 3: A Simple Tool for Customers
Fast Company reports that they have recently finished Step 1 (Will Walmart’s “Sustainability Index” Actually Work?, Feb 1), a 15 question supplier survey (here is a link to the survey). One thing is clear: There will be winners and losers at the end of the day:
Although Walmart is framing its Sustainability Index as something positive for both consumers and companies, Matt Kistler, senior vice president of sustainability, acknowledges that “it is creating a new level of competition in ways that, historically, manufacturers have not competed. And when it comes down to it, it’s going to be an algorithm that creates a score, and it will reward some suppliers better than others.” Consumers won’t be the only ones selecting or snubbing products based on their scores; Kistler confirms that high-scoring products will earn preferential treatment — and likely more shelf space — in Walmart stores.
Last October’s survey added to companies’ concerns. It touched on everything from investments in community-development activities to water-use-reduction targets, and “there’s a wide variance of how prepared suppliers are to answer these questions,” says Kyle Tanger, president and CEO of carbon-management firm ClearCarbon, who guided a number of companies through the questionnaire. More than 1,000 companies responded, according to Kistler, “the vast majority” of those asked. That said, analysts estimate that just 10% of Walmart suppliers are prepared to measure and report their sustainability.
It will be interesting to see whether they will be able to put this into a unified measuring system that will accurately reflect company performance. The article hints at some of the issues. For example, how do you weigh the relative merits of multiple, laudable goals:
But companies are just beginning to grapple with the big questions. “One fear is figuring out who gets to prioritize the different pieces of sustainability,” says Karen Hamilton, VP of vitality and environment at Unilever, a consortium member. “Who’s to decide if greenhouse-gas emissions are more pressing than water conservation?”
I think there is also a question of how things will play out both within and across categories. Within categories this could clearly create competition — and it won’t just be competition on superficial features and perks. It will be competition based on processes, sourcing, and supply chains. At the moment, the only clues a consumer has to a firm’s supply chain strategy is its price and the “made in” tag. Clear measures of carbon use etc will give consumers much more information and could lead many firms to rethink their business. But these schemes will also have implications across categories. Kid’s pajamas and men’s t-shirts are clearly not interchangeable but if a kid’s cotton pajamas can have small footprint why can’t the t-shirt? This really has the potential to alter expectations and benchmarks across a wide swath of industries.