Last week Wal-Mart had a big meeting near its headquarters which it called a Sustainability Summit. Lee Scott, the CEO, invited the CEOs of the giant's biggest suppliers. And they came. I was part of the "other" group invited — green people from all over. The centerpiece of the day was a two hour presentation/meeting led by Lee talking about how sustainability fit into the new Wal-Mart slogan, "Save Money. Live Better." I had half expected a big announcement, but the reality was something more interesting. (There were a couple of interesting, fairly vague targets: Wal-Mart wants 20% of the items on the shelf to be "influenced by Live Better innovations" and Sam's Club wants 100% of its products to be touched by the "lens of sustainability"...but these were not the centerpiece of the day by any means).

First, Scott's opening comments confirmed everything I've been thinking/hoping. He answered the question "Is this a fad?" definitively. He pointed out that Wal-Mart is saving money, driving profitability, involving employees, and improving reputation "more than we dreamed." As he said, sustainability will mean better products helping customers create a better life. The message was "we're committed." It's not a fad, Scott said, and not a marketing ploy, but a "remarkable business opportunity." (For a longer excerpt of Scott's comments and another perspective, see Joel Makower's take on the day here.)

So it was almost a regular, everyday operational meeting (with the unusual aspect being all CEOs in a room of course). Wal-Mart was just asking suppliers to innovate and provide products to help it go green — the company wants 100 products like the CFL light bulbs it has sold 100 million of. No big fancy targets, just hard work. It struck me that this movement is really happening now.

Lest this blog turn into an all Wal-Mart discussion (which is almost hard to avoid given how much of a driving force they are right now), let me comment on another aspect of the meeting that was really fascinating to me. The day also included a medium-sized trade show of sorts — booths set up by all the organizations that Wal-Mart thought could help its suppliers go green. It was a mix of mainly NGOs and consulting firms for the most part (full list here). The latter group is exploding, including consulting arms from Interface and Wal-Mart itself. This may be a bit insular, but this certainly was interesting to me since I do consulting in this field, often with partner DOMANI.

The mad dash of companies trying to come to the aid of the Fortune 1000 in their new green quest reminds me of any gold rush throughout history. The consultants are now competing to offer picks and shovels for this new green age. And no matter how many there are, who knows if it will be enough to satisfy the growing demand.

The New Year is always a time for taking stock, looking both back and forward. How did your company handle the shifting sands for business in 2007, the greening of society? Companies across many industry groups were scrambling and strategizing about how to best manage the environmental impacts of everything they do. Green issues were huge in '07 (see my upcoming strategy e-letter on the crushing flow of media to green issues in 2007 here in a few days).

But 2007 was just the beginning. It was not a fad — or a bad dream for some — but a fundamental shift in how we all do business. Why? Well the Green Wave was a big part of it: the two big forces of the natural world — real resource constraints like water shortages and climate change — and the rising pressure from stakeholders got stronger. But what was the strongest reason to belive it's not a fad (and one that became much clearer in 2007 )? In short, green business is better business — companies are slashing costs, driving new revenues, reducing risk, and enhancing brand value. Why go back if your business is better?

But the tipping point year is over now and the game is on. So what environmentally-driven challenges and questions will your business face in 2008 and how will you handle them?
I could pick many trends (I believe that most aspects of the Green Wave are getting stronger and still changing fast, even in tougher economic times), but I'll highlight just a few of the forces that will grow stronger in '08 and the coming years.

The "greening of the supply chain" grew legs this past year with Wal-Mart adding its substantial weight to a movement that had been gaining steam for years. The leviathan started asking suppliers to redesign packaging and reduce fossil fuel use, and even demanding more information on exactly how much energy a product used in its creation, from procurement to manufacturing to distribution. The B2B greening pressure means every company will need to track much more data on its operations. This is where we're headed: a world where every product will carry information with it about how it was made — the energy, water, resource use — who made it and where, how much they were paid, and on and on.

Clearly this won't all happen in '08, but it has already begun in earnest. The pressure for more data is part of a larger movement toward transparency in all we do. Dole now puts a sticker on its organic bananas with a farm number on it. Go to Dole's website and pick the farm number and watch as Google Earth zooms you to a satellite view of the farm itself. This is a fun use of transparency.

Other stakeholders are using the same tools for more critical uses, to expose much more information about where your products, or your energy, come from. Look at Appalachian Voices, a small but very smart NGO that works to combat mountain-top removal mining practices. Put in your zipcode at their site, and see a very clear picture of the mountains that were cut down to power your life. I spoke to Mary Ann Hitt, the director of this group, and for good reason, companies should be nervous about what she and other innovative NGO leaders will do with new technologies. Google is enamored with this kind of interesting use of their tools and has built Appalachian Voices' data into the popular Google Earth program. Every version includes an overlay of all the mountains destroyed anywhere (along with some other overlays under the "Global Awareness" check-box including WWF maps, biodiversity hotspots, etc).

Are you ready for this level of exposure and expectation of openness?

So next December, when many of your resolutions have fallen by the wayside and you're not as organized or as on-time as you hoped (I'm shooting to fully adopt the Getting Things Done workflow approach and we'll see how it goes...), will you be able to say that you made your business better? That your company is on a more profitable path using the green lens? Will you have an action plan to stay ahead of the curve on this critical business issue?

Good luck and Happy (Green) New Year!

You might think that the powerful green wave changing business will subside in a recession. True, some investments might wait a bit, but most companies I talk to are pushing ahead with the sustainability agenda. One important example is Wal-Mart, which doesn't seem to be slowing down.

I recently attended the Wal-Mart Sustainability Summit in Beijing. There are times you know you're watching something special. The point of the meeting was to bring Wal-Mart's Chinese suppliers (some 900 of them) together to hear Wal-Mart's sustainability agenda and the specific goals for the company's biggest supply partner. To put the relationship in context, if Wal-Mart were a country, it would be China's sixth or seventh largest trading partner (clearly the scale of both China and Wal-Mart is shocking).

After some opening talks that were fairly typical for these kinds of events, things took a historic turn. Wal-Mart's Vice Chairman, Mike Duke, explained what the event was really about. His "bad cop" talk covered a range of issues, and later CEO Lee Scott elaborated on some of the themes, but the critical discussion laid out what the world's biggest company was going to expect of its suppliers. Here are a few of main the commitments/ statements:

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 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."

This last commitment is the one that gives all the others teeth and its worth repeating: for suppliers that do not live up to the standard, Wal-Mart will stop buying from them. This profound statement is truly historic. I've never heard a sizable company say this out loud. As Lee Scott said later, the companies that don't improve "will be banned from making products for Wal-Mart." Again, this clarity is unprecedented, but Scott made a business case for sustainability as a key screen for suppliers:

"A company that cheats on age of labor, dumps chemicals in rivers, or does not pay taxes will ultimately cheat on the quality of products...that's the same as cheating on customers and we will not tolerate that at Wal-Mart."

Scott is saying that sustainability ties directly to quality and serves as an indicator of a good or bad producer. This attitude demonstrates just how deep sustainability has gone at Wal-Mart. Execs truly believe that sustainability ties to core performance. Lee Scott said that "over the life of a product, it costs less to make product that passes testing, and over the life of the product it costs less to make one that's socially responsible and builds a loyal employee and customer base."

Clearly all of these commitments will not be easy to meet by any stretch of the imagination. First, Wal-Mart has to change the internal culture -- as one of the suppliers told me, "They sound serious, but with buyers it's still price, price, price." Lee Scott did address the associates directly during his talk and reinforced the message, but until buyers are paid or promoted differently, it's just talk.

Second, China is China. I met one of the keynotes speakers, Liz Economy, head of the Asia program at the Council on Foreign Relations and author of The River Runs Black, a book about China's environment. As she pointed out in her speech, 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 (which makes the goal of having 95% in compliance by 2012 all the more aggressive).

I don't know a lot about the country, but the general feeling I got from the suppliers and China-watchers I met there seemed be a cautiously optimistic attitude of "we'll see." Many organizations, including the Chinese government itself, have been surprised at how hard change in the provinces really can be.

Lee Scott did not gloss over the challenges, but painted a picture of the promised land: "A year from now, each of you who chooses to make a commitment will be a more sustainable company and that will make a huge difference for you, Wal-Mart, China, our customers, and, yes, the planet."

The challenges are vast, but if, in a number of years, we see a cleaner manufacturing sector in China, and thus a cleaner country and world, Wal-Mart's Summit will be seen as one of the turning points.

This post first appeared at Harvard Business Online.

It's always fun to predict what's going to happen. The risk of being spectacularly wrong is very high, but that's what makes the exercise so entertaining. 'Tis the season for dwelling, quickly, on what we learned last year -- de-leveraging is really painful and when gas prices are high, people want smaller cars -- and for pontificating about what to expect in 2009.

For my predictions, I'll stick to my area of knowledge, the greening of business. Over the past two years "green" has become part of nearly every serious business discussion. But what will happen now in this damaged economy? It would be silly to suggest that the intensity of the focus on green will continue unabated. But we'll see a form of what I'll call "light green" this year.

Some of the green pressure on companies will lessen, but I believe that the underlying forces driving the green wave will continue over the coming years - from volatile commodity prices (which will rise again aggressively after the recession) to a rise in transparency to tougher questions from key stakeholders (such as your business customers, consumers, and employees). Those big picture trends will continue over years, but here now are a few specific predictions for 2009.

"Light Green" will focus primarily on cost reduction...

Going green drives innovation and creates value in four fundamental ways: cost reduction, risk mitigation, revenue growth, and brand value enhancement. But for 2009, the top priority will be the first one, lowering costs (primarily through so-called "eco-efficiency"). Few companies will have the stomach for deep investments in R&D to create new green products.

...but, companies (and banks in particular) will also broaden the definition of "risk"

If we learned one thing in 2008, it's that the business and financial communities are not so great at measuring and accounting for risk. It's in our nature to overestimate some risks and drastically underestimate others (like the possibility that housing prices could actually drop). On climate change, we're realizing that the risk of inaction is too great.

Citigroup, JP Morgan and Morgan Stanley launched the Carbon Principles early in 2008. In short, this agreement committed the companies to look very hard at any coal investments and ask tough questions about how climate change and a cost on carbon would affect the risk profile. And at the end of '08, other financial and insurance giants -- including HSBC, Munich Re, Standard Chartered, and Swiss Re -- created the Climate Principles. These guidelines are admittedly aspirational, but they also increase awareness of the impact of climate change on all aspects of their businesses, including their investment portfolios.

Leading companies (read: Wal-Mart) will continue pressing suppliers.

To be a bit cynical for a moment, greening the supply chain is perhaps the easiest path to take in hard times. After all, you basically push the problem and cost onto others, and if you're as big as Wal-Mart, you get your way. To be less cynical, the companies that have learned to take a value-chain perspective have discovered real value in lower costs and better products. So why go back if you've discovered a better way of doing business? Wal-Mart and others clearly believe that reducing environmental impacts up and down the chain creates value for all. The retail giant convened a historic meeting in Beijing, China in October 2008 (see my first-hand account of the meeting here). Wal-Mart's top execs made it very clear that the green agenda was not going away and, in fact, that it was accelerating. Of course global recessions can put a damper on anyone's plans, but there are few indications the big guns are pulling back on supply chain pressure.

Innovation will become even more important.

This may sound like a contradiction to my "cost reduction will rule" prediction. But innovation is about more than just flashy new products; it's also central to reducing costs in a smart way. But beyond getting lean, 2009 will be a good time to truly rethink business models and ask new heretical questions. Innovation guru Clayton Christensen recently told the Wall Street Journal that the economic downturn "will have an unmitigated positive effect on innovation." Say what? By his counterintuitive logic, tight times "force innovators to not waste nearly so much money."

So use 2009 to seek out green innovation opportunities. Find ways to drastically reduce energy and other resource use both in your own operations and through your products (that is, help customers reduce theirfootprint). Even if investment dollars remain scarce, be ready to run with good ideas when cash frees up. We may look back at the end of 2009 and see that staying green during the recession, at least in mindset, not only drove creativity, but even saved some companies.

Yes, 2009 will be a tough year. But the Green Wave, albeit a bit diminished, will roll on. The smartest companies will continue to pour the foundations for a new form of capitalism - one that takes into account the resource constraints we face. After this recession, when capital is more readily available, green investments will begin in earnest again. Sustainable business will no longer be a side pursuit, but the core focus of successful companies.

This post first appeared at Harvard Business Online.

[Post #2 of 3 on Wal-Mart's activity in the last couple of months. This appeared at Harvard Business Online and then on BusinessWeek online]

In the last month, what event had the greatest potential for changing business as usual forever? If you said the passage of the climate change bill in the U.S. House of Representatives, it would be hard to argue with you. But I'm going to make the case for another event as the most influential (or at least a very close second): the Wal-Mart Sustainability Summit held in Sao Paolo, Brazil.

Following the model of the historic meeting Wal-Mart held for its Chinese suppliers last year, the President of Wal-Mart Brazil, Héctor Núñez, decided to hold a similar event for his suppliers. (Full disclosure: I was hired to give a keynote about the greening of business for larger context setting, but I have no consulting relationship with Wal-Mart).

Speakers at the event included the Brazilian Minister of the Environment and the director of Greenpeace Brazil, an organization that just a few weeks ago produced a damning report titled "Slaughtering the Amazon" that points the finger at the cattle industry as the primary cause of deforestation (growing soy is another leading cause). I had an interesting talk with Hector about his conversations with the aggressive NGO. He commented that "when you talk to Greenpeace, it's hard to argue with what they're saying."

But, I thought, arguing with the environmentalist perspective is exactly what business leaders normally do. But the world is changing fast. In fact, Hector's speech at the summit, with its soaring rhetoric about global environmental damage, made him sound more like a Greenpeace activist than a hard-nosed manager.

At the Summit, Wal-Mart announced significant goals and mandates to tackle some of the thorniest environmental and social problems in the world. Wal-Mart Brazil will now, in essence, ensure that its supply chain uses...

— No companies that employ slave labor; "forced" labor (read, slavery) is a rampant problem in developing countries.

— No soybeans sourced from illegally deforested areas; 20% of the world's carbon emissions (and 70% of Brazil's emissions) come from burning down trees.

— No beef sourced from any newly cleared Amazonian land; globally, deforestation emits more carbon than all vehicles. Brazil and Indonesia are at the heart of this enormous challenge.

[For the rest of this column, please see BusinessWeek]

A couple posts ago, I talked about the ways you can use green data — footprinting information on your products and services up and down the value chain — to create enormous value for your company. As they say, you can't manage what you don't measure. And those with the best information can cut costs, reduce risk, answer customer questions on environmental and social impacts, and help customers reduce their footprints.

But it's a fair question to ask how you might gather this data, especially when budgets remain very tight as the economy gradually recovers. Conducting a full, detailed lifecycle analysis (LCA) is likely to be a time-consuming, resource-draining affair. But luckily there are some shortcuts. Here are a few principles and guidelines for getting smarter about your footprint with the least resources possible:

1. Qualitative analysis is good. In fact, it's better to start with a more strategic view on your products or services than to dive right into detailed numeric analysis. Map out your value chain for a quick view on resource use. Then ask really top level questions that aren't part of the normal day-to-day thinking for most functions in a company, like what comes in the door, and what did it take for suppliers to produce it (are there processes energy or water intensive, for example)? What do we do with our inputs, and how much energy and resources do we use? How much energy and resources do our customers use? What happens to our products after customers are done with them?

You're looking for directionally-correct answers on where the biggest risks and opportunities are...or at the very least, where your data gaps are and how best to fill them.

2. "Back of the envelope" analysis is also okay. Top-line numbers on your own impacts and energy use, from departments like IT, facilities, and distribution, can give you sense of where cuts are most needed or valuable. The data may not be readily available at first, but it certainly isn't capital intensive to find it.

3. Use data that's already out there. A truly detailed LCA is, frankly, a pain. Following a product through every stage of its creation and use is difficult. Luckily, the resources available to help you are multiplying. Industry groups and academics have conducted LCAs on many products. You can extrapolate numbers from similar categories to save time and at least understand where the biggest issues lie. For example, let's say you produce food products, some of which have a big dairy component. The dairy industry has conducted an extensive LCA on a gallon of milk. That study can tell you that the methane produced by livestock may dominate your life-cycle carbon footprint as well.

Another option: public (or quasi-public) databases. See the wonky-sounding Economic Input-Output Life Cycle Assessment (EIO-LCA) data at Carnegie Mellon, or the data collected by AMEE in the UK. Without going into too much detail, the EIO-LCA captures data on flows of goods in and out of all sectors of the U.S. economy, along with data on energy use in each sector, and allows for big picture estimates on impacts. It's a back-of-the-envelope calculation — on a very big envelope. But if you don't want to dig into databases yourself (and who does), then you'll be glad to know that some smart developers have embedded these data sources into handy software products, so...

4. Seek out tools to help you. There is also a wealth of options for software that can help you get a handle on your impacts, including those throughout your supply chain. There are a few now classic providers of product LCA software, such as Ecobilan's TEAM and GaBi Sofware. But new niche players and products that focus on a company's carbon footprint include offerings from both the usual suspects and new entrants: Carbon Impact (formerly Clear Standards, now part of SAP), Planet Metrics, SAS for Sustainability Management, Computer Associates eco-Software, and two open source solutions Carbon Counted and Earthster (in beta).

I've worked with, or been taken through demos of most of these players — all are offering good tools and expertise. But I'm sure I've missed many others so please send me tools you've found useful (andrew@eco-strategies.com).

On top of these carbon modeling tools, companies are offering a range of other green data-tracking services: a sustainability dashboard from Microsoft, Google PowerMeter to measure energy consumption (for homes, but how far off are business-targeted versions), and a cool new product from AngelPoints (working with Saatchi S) that puts the Wal-Mart Personal Sustainability Project program into tracking software so companies can show employees what all their pledges of behavior change add up to.

Beyond these more self-help methods, there is an ever-growing number of consultants that can guide you (including partners of mine such as Domani). You may need to start small with my guidelines above and estimate if resources are too tight, but if you can, working with experts can provide you with a much deeper picture of your company's data-gathering capabilities.

Finally, a larger investment in getting smarter — building that internal capacity to understand footprints on an ongoing basis, and even real-time — will pay back in ways you can barely imagine. Those with the best data win.

This first appeared on Harvard Business online.

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The 2010 Fortune 500 list just came out and I'm completely blown away by Wal-Mart's size. We all know that the retail giant is the largest company in the world. But it's by how much that gets me.

Wal-Mart clocked in at $408 billion in revenues in 2009. The second-ranked Exxon Mobil, brought in $285 billion. If the difference between the two --$124 billion -- were a company, it would be ranked 7th on the list. Let me say that again: Wal-Mart is bigger than the next largest company by the equivalent of an AT&T.

Let's exclude the oil companies from the list for the moment, since their revenues depend heavily on the price of oil and swing wildly -- Exxon's revenues were over $400 billion last year. Looking at companies that make anything but oil, Wal-Mart is basically three to four times the size of the largest ones, including Ford, HP, Citigroup, GM, IBM, and so on.

All of this scale matters a great deal to the green movement. Wal-Mart's pursuit of sustainability in its operations, and in particular in its supply chain, is changing the way products are made globally. The company's five-year shift in strategy and in its approach to the external world (which I consider the largest strategic shift that we've ever seen) has spread beyond Wal-Mart's own walls and is influencing how the rest of us do business.

The company has improved fleet fuel efficiency 30%, and started experimenting with new fuel and engine technologies for its fleet, creating a very large impetus for truck manufacturers to build new models. Its push to adopt lighting technologies and energy management systems is helping to drive scale into new technologies that everyone can use.

But it's the supply chain pressure that really matters. I've covered this topic many times (see my pieces on Wal-Mart's trips to China and Brazil (here and here) to put pressure on suppliers). From my conversations with people in the retail space recently, including a top consumer products exec this week, it seems that nearly every other retailer is behind on this front. Sure, many are working on their own energy and waste projects, and doing well at it.

But only Wal-Mart has built tools of scale like the Sustainable Value Networks (bringing together partners in the value chain to work on big sustainability issues) and the packaging scorecard it made everyone fill it out, or got so involved in the sourcing choices of its suppliers.

Many people will, perhaps rightfully, still find fault with Wal-Mart on many social issues, such as health care or pay (and this week they even got fined on the environmental front for not handling hazardous waste well in California). But still, it would be very hard to find another company doing more. The race is on, even during and coming out of the recession, and Wal-Mart is winning. But it doesn't matter, as their scale will force everyone else to speed up as well.

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[This appeared first on my Harvard Business Review blog]

Pepsi recently demonstrated its commitment to reducing its environmental impacts up and down the value chain with two rapid-fire announcements about new initiatives. The old-school approach to greening is to focus on operations within the proverbial "four walls." But Pepsi, like other leaders, is approaching sustainability more holistically, with much greater impact.

I recently spoke with Tim Carey, Pepsi's Director of Sustainability for Beverages in the Americas, about two big initiatives in which he's playing a key role.

First, on the downstream side, Pepsi looked for ways to raise the recycling rate of beverage containers from a relatively paltry 34% to 50% or higher. Working with GreenOps, a division of Waste Management, Pepsi launched a new program called "Dream Machine." These "reverse" vending machines, now being placed in high-traffic areas such as gas stations and stadiums, take back those often-abandoned and often-unrecycled empty bottles and give users points toward rewards from sponsors or local merchants.

But Pepsi has gone beyond those relatively minor incentives to add on a social mission. The program will also help fund Pepsi's donation to a group called Entrepreneurship Bootcamp for Veterans with Disabilities (EBV), which trains vets at business schools around the country. Pepsi expects that the combined immediate points and larger mission will drive new, greener customer behaviors — and help solve one of the beverage industry's most intractable value chain problems.

Second, Pepsi has embarked on a very unusual supply chain effort to reduce the carbon emissions associated with its Tropicana orange juice. After conducting a full life-cycle analysis of the product line, the company was relatively surprised to find that the biggest portion of the carbon footprint was found not in manufacturing, or distribution, but actually back in the agriculture stage — primarily the result of the heavily natural-gas dependent process of making fertilizer (see chart).

The analysis showed Pepsi execs where the largest impacts were, and thus where they'd get the biggest bang for their buck on carbon reductions. The company started working with suppliers and farmers to find new ways to make and apply fertilizer. For example, instead of using natural gas from as far away as Russia (which then requires shipping heavy fertilizer across the world), Pepsi is using biomass from closer to home. Wood waste and agricultural by-products are two sources, but execs are hopeful they can also use the large number of their own orange rinds left over in manufacturing, which would fully close the loop.

The company is also working with scientists on the root chemistry of orange trees, applying fungi and bacteria to increase the uptake of nutrients. All that techno-speak means that the trees will need less fertilizer in total, which means less manufacturing and shipping of that fertilizer and, voila, a smaller footprint.

A 100-acre test run of these new methods of working with new, low-carbon fertilizer is underway. A few years from now, Pepsi and its suppliers will know what's working and what isn't.

But here's the best part: the cost of these changes to consumers and growers will be about zero. And it had to be. Let's face it, this kind of carbon reduction isn't easy to convey to consumers, so the market benefit may be small for now. So the sustainability team needed to find ways to lower the fertilizer footprint without causing any additional cost to suppliers or farmers. How did they do it?

By focusing its efforts on the real footprint — identified through a solid lifecycle analysis and good data — Pepsi found the approach with the highest payback. As sustainability exec Tim Carey put it, "It's not unusual to spend tens of millions of dollars removing some carbon from a manufacturing process at returns that can be 10% or less...or we can take 15% of total carbon out in the fertilizer step without costing anything."

The impacts of these tests — and future rollout — will not be small; Pepsi buys a fairly shocking one-third of the Florida orange harvest. And the recycling work could shift millions of bottles out of landfills. Pepsi's full value chain view on sustainability is deep green stuff — this is how you implement green thinking.

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A few days ago I posted a blog about Pepsi's work with suppliers on new low-carbon fertilizers for Tropicana orange juice.

But there have been other major announcements lately about new supply chain demands as well. My monthly e-letter came out this week and covers Pepsi briefly, but also a few other stories from IBM, P&B, and Kaiser Permanente (some of which i'll delve into in more detail soon).

The full e-letter is here, but below is the opening...

For the last few years, if you said "greening the supply chain," a lot might come to mind, but most of it was about Wal-Mart. The pressure the retail giant has put on its 100,000 suppliers is now legendary (in the sustainability world).

Of course other companies have had programs for years, but often were behind the scenes. No longer. Just in the last month, we’ve seen some important, large-scale announcements that I wanted to review here briefly. Companies such as IBM, P&G, Pepsi, Ikea, Ford, and Kaiser Permanente are setting new, tougher standards. In some cases, they’re getting directly involved in how suppliers operate and how they make their products.

To understand a couple of these initiatives better, I spoke to key executives to get the scoop on what they're trying to do.

The overarching theme of these new initiatives, as I see it, is transparency. It's all about gathering, publicizing, and acting on lifecycle data. But in the trenches things have gotten much more tactical. The age of gathering green metrics – and acting on what we learn from them – is definitely upon us.

What's also interesting to me is that the Wal-Mart focus has been most relevant to consumer products, food, and a few other sectors. Now, with companies like IBM, Ford, and Kaiser Permanente raising the bar, other large value chains will feel the pinch as well. It's rippling through every sector and every company of any size.

To get my head around the recent announcements, I put them in a few big categories, in roughly ascending order of impact and change demanded:

- Asking for data and filling out scorecards to rate suppliers
- Setting standards for how suppliers manage environmental issues (this is about both systems and capabilities development)
- Driving operational and product changes in supplier companies

[see the rest here, and sign up for my monthly e-letter at my site]

While the "greening of the supply chain" has been in the works for decades, the movement has really taken off in 2010. In the last few months, a number of corporate giants have announced new initiatives that pressure suppliers to do much more to measure and manage their environmental impacts. The big guns asking the questions include Pepsi, P&G (more in a future post), and IBM.

For years, most supply chain programs have included a similar, somewhat narrow range of demands: stay on the right side of the law, keep operations within regulatory levels of air and water pollution, avoid child labor, and so on. Wal-Mart has already pushed that envelope to dive much deeper into supplier practices (packaging, fossil fuel use, and even how some things are sourced). These new announcements also expand the demands in different ways. In recent years, most of the high-profile supply chain initiatives like Wal-Mart's have taken hold in the consumer products and retail arenas, and Pepsi and P&G are no exception.

But IBM brings a new value chain — electronics and IT — to the discussion and thus broadens the movement. Other electronics companies are also pressuring suppliers; the biggest players in the industry launched the Electronics Industry Code of Conduct (EICC) for suppliers in 2004, and members now include Apple, Cisco, Dell, Hitachi, HP, IBM, Intel, Microsoft, Sony, Xerox, and many more.

But IBM is helping expand the definition of a green IT supplier by upping the demands. To get a sense of what IBM is asking of its 28,000 first tier suppliers, I spoke with Wayne Balta, IBM's VP of corporate environmental affairs and product safety.

Balta described IBM's work as "just the latest step in a long-standing continuum." In 2004, the company launched its own IBM Supplier Conduct Principles, which helped define the EICC standards. Even earlier, in 1998, IBM asked suppliers to consider adopting the international green operating standards, ISO 14000. But the new announcement makes this "request" more of a mandate, and that's at the core of the new demands.

In short, IBM is asking for four things and telling suppliers they must:

1. Define and deploy an environmental management systems (EMS).

2. Measure existing environmental impacts and establish goals to improve performance.

3. Publicly disclose their metrics and results.

4. "Cascade" these requirements to any suppliers that are material to IBM's products.

The mandate for deploying an EMS helps suppliers build their own capacity to manage environmental issues. But most of the biggest suppliers already have some EMS in place, and that means they will have some metrics already. So I find the third and fourth elements even more important. These demands differentiate IBM's program from most of what's come before. They give heft to the requirements and expand their influence.

The third element makes companies publicly disclose their data — they don't just need to report their information to IBM; they need to make it clear for all to see. Transparency is a very powerful tool, and the new openness will benefit every customer of these suppliers. It will encourage improved performance like no other incentive (good, open data, drives competition and results in many ways - see my post Five Ways to Use Green Data to Make Money).

The fourth component, "cascading," means that IBM's requirements will ripple up the supply chain. Businesses will move a step closer to the holy grail of environmental measurement — knowing the footprint of every product without conducting a costly and time-consuming lifecycle analysis. In essence, if every link in the value chain tracks its footprint closely, and uses the tools of cost accounting to distribute these impact measurements across components, it becomes much easier for companies to estimate the value-chain impacts of their products.

IBM didn't undertake this initiative lightly. Balta explains that "we thought carefully about how we would feel about having these requirements ourselves from our customers." In essence, they're not asking anyone to do anything they have not already done themselves.

IBM execs know that the green path is a profitable one, so they're pushing suppliers to operate leaner, better, and smarter. As Balta says, "Our goal is not to punish people, but to have them succeed."

(This post first appeared at Harvard Business Online.)

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