August 4, 2009

How the Wal-Mart Eco-Ratings Will Save Money

[Post #3 of 3 on Wal-Mart's activity in the last couple of months. This appeared at Harvard Business Online]

I wouldn't normally focus on the same company twice in a week, but Wal-Mart just keeps making news in the world of sustainability — and in the world of commerce for that matter. With a major PR push, the company announced its latest initiative targeting supplier sustainability performance. After a lot of huffing and puffing, the announcement itself was fairly simple (at least for now).

In short, Wal-Mart will be asking all suppliers 15 questions about their approaches on four key issues: energy and climate, material efficiency, natural resources, and people and community. A few sample questions:

--> Have you measured your corporate greenhouse gas emissions?
--> Please report total water use from the facilities that produce your product(s) for Wal-Mart.
--> Do you know the location of 100% of the facilities that produce your product(s)?

For now, these questions are mainly for data collection, but they represent the first step toward (a) truly comparing suppliers on their sustainability performance and (b) creating a real sustainability index that consumers can use to compare products. Most of the press coverage on this was making it sound like a product green label was around the corner. But Wal-Mart, according to one top exec, is "maybe five years" away from that level of data and consumer communication.

Rather than analyze the announcement details any further, I want to put yesterday's announcement in context within the range of Wal-Mart's sustainability actions and within some larger trends. But first, let's be clear: this kind of sustainability data collection is good for business, and it's definitely good for Wal-Mart. And while it may seem like a total pain to suppliers, it will be good for them as well.

The logic is simple: knowing your business better makes it easier to find hidden value.

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