Wal-Mart and China: Will Sustainability Commitments Produce Results?

wal-mart store beijing chinaIf Wal-Mart is ever going to achieve the status of a company truly committed to sustainable business practices, there’s one 800-pound gorilla that it must address: China. The company’s sustainability summit on October 21 and 22 in Beijing was an attempt to do that, both from a PR perspective, but also in terms of “laying down the law” with its suppliers in China.

Green to Gold author Andrew Winston attended the summit, and listed the following commitments and statements that came out of it in a blog post at Harvard Business’ “Leading Green” blog:

  • Supplier commitments: All suppliers will sign new agreements indicating compliance with environmental laws, starting with Chinese suppliers to the U.S., UK, and Canada in just 3 months. Over the next 3 years, all suppliers globally will sign.
  • Audits: Wal-Mart will “strengthen” its surprise and third-party audit program
  • Supplier goals: The top 200 suppliers will achieve 20% energy efficiency improvement, and most importantly, “By 2012, all suppliers that we buy from directly should source 95% of product from companies that have the highest ratings in audits.”
  • Product goals and quality: Zero defective merchandise returns by 2012. Lee Scott connected quality to sustainability in very funny, specific terms: “Customers want a sock that will not fall down even if washed.”
  • Transparency: Suppliers must reveal the name and location of every factory they use to make a product, as early as November for apparel, then home goods, toys, and others by the end of 2009. As [Wal-Mart’s Vice Chairman Mike] Duke said, “If you sell us tennis shoes, we expect you to know and tell us where it was made and which sub-contractors were involved…If you don’t pose these questions, our customers will…in this age of YouTube there is no trust without transparency.” (Wal-Mart will have more insight into what’s going on at factories than ever before thanks to the work of Ma Jun who runs an NGO that has compiled compliance data on every factory. See his group’s stunning water pollution map here.)
  • Dropping suppliers: Wal-Mart will work with suppliers that fail to comply, but “if after a period of time, the supplier does not improve, we will move our business.”

Winston was particularly impressed by that last commitment: as he noted, “This profound statement is truly historic. I’ve never heard a sizable company say this out loud.” He also noted two challenges the company faced as it attempted to “green” its Chinese suppliers: the company’s internal culture, which traditionally has rewarded buyers only on the basis of purchasing at low prices, and Chinese environmental performance.

I brought up these two challenges when I participated in a conference call on Friday with Wal-Mart’s Matt Kistler, Senior Vice President of Sustainability, and asked him how the company planned to address them. In the case of guidelines for company buyers, Kistler noted that company CEO Lee Scott had told these employees that if they weren’t considering sustainability in their purchasing decisions, they weren’t doing their job.  GreenBiz.com‘s Matt Wheeland followed up with a question about specific benchmarks for purchasers, and Kistler focused on energy efficiency (i.e., televisions that used 30% less energy), and packaging (specifically, the company’s commitment to reduce packaging by 5% by 2013).

China itself, of course, is a bigger challenge: in his blog post, Winston noted that “Chinese companies use 20% more water and 40% more energy than companies in rest of world, and only 25% of waste water is treated currently…” Kistler responded to my question by noting a number of memorandums of understanding that had been signed with government officials.

Each of these moves are positive, if not as aggressive as some of us might like. In some ways, as Wheeland asked later, Wal-Mart is training Chinese government and business on how supply chains can be operated not only efficiently, but sustainably. It struck me, though, that the company’s taking on the role of business law enforcement to a large degree. China has created some ambitious goals in terms of sustainability in the last few years, but I’ve learned that province governments often play the enforcement role… and they’re not particularly good at it. If Wal-Mart holds firm to its supplier requirements, it may be able to use its size as a purchaser to implement standards that exist only on paper in China.

Of course, some will argue that the real issue here is buying from China period, especially as stories about product safety continue to make headlines. The country’s labor, human rights and environmental records are abysmal, and we only reward that by continuing to import their products.  But that’s largely academic: slowing down the flow of goods from China would require an unprecedented consumer backlash, which is unlikely to happen… especially as our economy slows. Our government could take a more aggressive role… but I’m guessing that Wal-Mart and other retailers may be able to add more weight to these demands simply because the Chinese economy is so dependent on their goodwill.

I, like others watching these developments, am cautiously optimistic. Once again, Wal-Mart’s done something pretty unique: provided a set of ambitious criteria by which we can judge them. They’ve created more responsibilities for themselves… and also more for us, as we’ve got to keep our eyes open, and make sure they adhere to these standards. Let’s praise them for taking these steps… and watch very carefully as they’re implemented.