First Steps

Savvy Wal-Mart shoppers can evaluate a price tag in a nanosecond. Within the next few years, executives at the world’s largest retailer are betting that customers will become just as discerning when it comes to labels that provide data about a product’s carbon footprint, water usage and waste.

Getting to the point where Wal-Mart and its suppliers are proficient at translating complex sustainability data into a simple label or rating system, and shoppers, in turn, are adept at assessing a product’s environmental impact may seem light years away. Yet Wal-Mart executives insist that the future of their business lies, in part, in the ability to provide customers with transparency into the quality and lifecycle of the products they sell.

In July, Mike Duke, Wal-Mart president and CEO, announced plans to develop a worldwide sustainable product index that measures the carbon footprint – the aggregate of all carbon dioxide and other greenhouse gases (GHG) emitted during manufacture and distribution — of every SKU on Wal-Marts’ shelves.

The first step called for 100,000 Wal-Mart suppliers to answer a 15-question survey about sustainability practices, including details such as water usage, carbon dioxide emissions, natural resource consumption and community involvement. Top-tier U.S. suppliers were expected to complete the survey by October 1.

The second step calls for the creation of a consortium of universities that will collaborate with suppliers, retailers, non-government organizations (NGOs) and the government to develop a global product sustainability database, covering products’ lifecycles from raw materials through disposal. There also are plans to partner with leading technology companies to create an open platform that will power the index.

The third and final step will be finding a way to translate all the product data into a simple, easy-to-understand rating system that consumers can apply to purchasing decisions. There is no plan to replicate the carbon labels now appearing on products in the U.K., but make no mistake: if Wal-Mart succeeds, environmental labeling will make its way to the retail sales floor, perhaps as early as 2011.

“The index will bring about a more transparent supply chain, drive product innovation and, ultimately, provide consumers the information they need to assess the sustainability of products,” Duke said at Wal-Mart’s Sustainability Milestone Meeting on July 16.

“I envision a day that you look at a piece of apparel, you flip a tag over, and learn about how sustainable it really is,” Wal-Mart chief merchandising officer John Fleming recently told The Wall Street Journal. “It would be like nutritional labeling is today. But there is some standardization that needs to take place.”

Actually, there’s a great deal of standardization that has to take place — which is just one of the reasons why Wal-Mart’s announcement of a sustainability index elicited equal parts anxiety and anticipation among suppliers, retail competitors and industry insiders.

“The retailers with the most advanced sustainability programs have expressed interest in looking at carbon footprint metrics that make sense for retail and address ROI,” says Dan Butler, vice president of retail operations for the National Retail Federation. “Those with less-developed sustainability see this as one area that they would like to grow into as they expand their programs in the future. Understanding the equation and metrics for carbon footprinting is a challenge for many who are really still trying to identify all of the ways their business impacts the environment, both positively and negatively.”

Industry analysts applaud Wal-Mart for leveraging its size and clout to steer sustainability standards, but cost concerns loom large. In addition, there remains trepidation among manufacturers about putting all the required information on an index that can be widely accessed, as well as questions about where the measure of carbon footprinting should begin and end, who will quantify the value of the rating and – perhaps most important – just how much consumers really care.

It was widely reported last year that PepsiCo U.K. spent in excess of $40,000 and took more than four years to complete the carbon footprint of its Walkers potato chips. Going forward, the company anticipates costs of $10,000 to $12,000 per SKU. If a typical Wal-Mart store has 100,000 SKUs, that’s a $1 billion task just for carbon footprinting – and those figures could be conservative.

Suppliers already bruised by the nation’s lumbering economy will have a difficult time absorbing this cost, particularly since the ROI is nearly impossible to quantify. What’s more, while Wal-Mart intends to create standards, none are currently in place. Numerous retailers and suppliers are collecting carbon footprint data, but typically not on individual SKUs. Part of the problem is a lack of consensus on the points at which the product lifecycle should begin and end.

A recent AMR Research report points out, for example, that the full environmental impact of goods goes beyond the product-to-shelf lifecycle and is strongly influenced by consumer actions. More than half the embodied carbon within Apple’s MacBook Air is associated with downstream energy usage and disposal; likewise, the carbon footprint of Tide Coldwater laundry detergent can be slashed by a third if the consumer washes in water that is 86 degrees Fahrenheit instead of 104 degrees.

“There’s a need to consider what’s achievable, desirable and likely to make a difference to the environment,” cautions Stephen Stokes, vice president of sustainable and green technology for Boston-based AMR. “Best practices in logistics, refrigeration, lighting, energy efficiency and packaging have prompted many to consider Wal-Mart’s evolution to be the model of a successful corporate sustainable transformation. But even the largest retailer in the world can stick its neck out too far or act incorrectly on a hunch in the confusing and complex world of product labeling.”