Wednesday, September 26, 2007

Thursday Talking Points Memo

The Wal-Mart Environmental Moment: The Green Epiphany of CEO Lee Scott and Wal-Mart

In his column in today's New York Times, "Lead, Follow or Move Aside," Thomas L. Friedman talks about what he calls the "Wal-Mart environmental moment" (there actually are two "environmental moments") for Wal-Mart CEO Lee Scott.

The first "environmental moment" Friedman describes this way: "The first Wal-Mart environmental moment starts with the Ceo (Scott) adopting a green branding strategy as a purely defensive, public relations, marketing move. Then an accident happens--someone in the shipping department takes it seriously and comes up with a new way to package the latest product and saves $100,000. This gets the attention of the CEO, who turns to his P.R. advisor and says 'Well, isn't that interesting? Get me a sustainability expert.' Let's do this some more."

Friedman continues, "The company then hires a sustainability officer (They did), and he starts showing how green design, manufacturing and materials can save money in other areas. Then the really smart CEO's realize they have to become their own CEO--chief energy officer--and they start demanding that energy efficiency become the core to everything the company does, from how it's employees travel to how its products are manufactured."

This is the transition that Lee Scott, Wal-Mart's CEO, has presided over in the last few years, says Friedman in the column. We generally agree with Friedman's thesis on Scott's green transition and that of Wal-Mart.

In the column, Friedman then sites Scott's second "environmental moment," which was told to him by that sustainability officer, Wal-Mart's vice president for sustainability Andrew Rubin. Rubin tells Friedman a story from a trip Scott took in July to Las Vegas to look at stores on a day when the temperature in the desert city was over 100 degrees.

Rubin tells Friedman CEO Scott noticed styrofoam coolers--a Wal-Mart staple--weren't being promoted in the store that day despite the 105 degree temperature outside. "Lee walked into the store and said, 'It's 105 degrees. Why aren't we selling any coolers?' The associates said, 'We don't want to sell styrofoam coolers because of their impact on the environment,' Rubin told Friedman. "So Lee called us afterward and said: 'We're going to have to figure this out.' By that he meant innovation of a different kind of cooler that doesn't come from petroleum-based styrofoam, which is not biodegradable and usually not recycled," Rubin told Friedman.

Talking Points Memo believes this second "environmental moment" was the real epiphany for Scott. He realized Wal-Mart's green program not only had become more than a P.R. and marketing devise to him but also to the retailer's employees--all the way down to store-level. As such we believe Scott realized at that point (the epiphany) there was no turning back. In fact, he realized it was time to move forward even more on the environmental initiative front at Wal-Mart.

Others disagree of course and continue to say Wal-Mart's green strategy remains merely a P.R. and marketing campaign. What has come to be referred to as greenwashing. For example, a coalition of 23 environmental and civic groups recently released a report ("Wal-Mart's Sustainability Initiative: A Civil Society Critique") in which they essentially conclude the chain's environmental sustainability program isn't living up to Scott's commitments and that it is more show than reality. (You can read a summary of their critique and comments here. There's also a link to the full report there.)

We've read the group's report, and although we do think they make some good points, we don't agree with their conclusions vis-a-vis Wal-Mart's environmental seriousness or progress on the chain's green initiative. Perhaps they could move faster, as the report says, but that is arguable by reasonable people. The key point we believe is that Wal-Mart is moving. For example, this week CEO Scott made three important announcements as part of the chain's overall green initiative and program.

The first was that Wal-Mart would begin selling its own private label CFL light bulbs in over 3,000 of its stores. On the face of it this isn't such a big deal. Is it? However, the fact the bulbs will be considerably cheaper at retail then current brand name bulbs--which Wal-Mart already sells--is important since it will allow many middle and lower income consumers to purchase the energy-saving floresent light bulbs. Wal-Mart also is a retail leader and we expect to see other chains follow with their own private label CFL brands, which will over time lower retail prices on the items even more.

The second announcement Wal-Mart made this week was that the chain would begin selling (in May, 2008) only concentrated liquid laundry detergent products in the liquid laundry detergent category in its U.S. stores. (read more here.) We see two important environmental developments this announcement will lead to. First, in the short term it will save water, plastic and cardboard. (Wal-Mart says the initiative will save more than 400 million gallons of water, 95 million pounds of plastic and 125 million pounds of cardboard. Not bad. The chain says they obtained these estimates with the help of an independent source. The statistics haven't been disputed as of yet.)

Far more important though is that because Wal-Mart is the largest retailer in the world--and sets the pace with consumer packaged goods supplier companies--this initiative will serve as a shot fired across the environmental bow in terms of sustainability by manufacturers and other retailers. Imagine if 80% of U.S. (not to mention gloabal) retailers adopted this initiative. Then multiply the amount of total retail sales in the laundry detergent category this 80% represents and pretty soon we have saved a significant amount of water, plastic and cardboard use. Now that Wal-Mart has made this initiative part of its sustainability program we believe the 80% will follow--and soon.

Wal-Mart's third environmental announcement this week--and by far its most significant--is that the retailer is partnering with the non-profit Carbon Disclosure Project (CDP) and will measure its own and its suppliers carbon emissions. Wal-Mart and the CDP will begin by measuring seven product categories--DVD's, toothpaste, milk, soap, beer, soda and vacuum cleaners. From there they said they will move on to additional product categories. (More on the Wal-Mart/CDP partnership here.)

Regardless of what the critics say, this not only is a major global environmental initiative for Wal-Mart but, for developed societies and nations as well. In fact in his column today Friedman suggests China should use the Wal-Mart/CDP program as a model to begin doing something about the rapidly developing country's series environmental issues.

We think the U.S. and other countries should follow suit, not only China. The fact is Wal-Mart's partnership is more aggressive in the carbon emission's arena than that of the U.S. federal government and most other western countries with the exception of the United Kingdom.

The state of California also recently passed a comprehensive law which involves carbon measurement. Additionally, a few other states in the U.S. are currently considering similar initiatives. Retail chain Tesco in the UK, and to a slightly smaller degree Mark's & Spencer, are the only other two retailers in the world presently embarking on carbon measurement programs equivelent to Wal-Mart's. But we believe others (and not just retailers) will follow soon on the heels of Wal-Mart's announcement.

Talking Points Memo sees this last Wal-Mart initiative--carbon emissions measurement--as a key point or sea change in global business behavior viv-a-vis the environment. It's critics will disagree with us, perhaps even call us bias--which we aren't. They also might say it's too little at too slow a pace.

We aren't alone in this assessment either. On the same day he made the announcement of the carbon measuring partnership with CDP, Wal-Mart's CEO Scott shared a stage in New York City on the opening day of the Clinton Global Initiative conference with former U.S. President Bill Clinton, Vice President Al Gore, President Karzai of Afghanistan, the President of the Philippines, African Archbishop Desmond Tutu and Robert Zoellick, president of the World Bank. The esteemed group's topic of discussion was titled "The Need For Global Action."

The global environment was front and center during the discussion. President Clinton said he invited Scott because he believes Wal-Mart is "the eco-leader" in the global business community in terms of environmental issues and initiatives. At one point in the discussion Clinton suggested to the World Bank's Zoellick that Wal-Mart's environmental practices could be used by the international bank as a template for developing countries.

We believe Scott has had his green epiphany--perhaps on that sweltering day in the Las Vegas Wal-Mart when a handful of associates told the big boss they didn't want to sell styrofoam coolers because they didn't like the negative environmental impacts the stuff made. A wise man once said about leadership--either lead, follow or get out of the way. It's too late for Wal-Mart to follow, and they aren't about to get out of the way. Rather, the world's largest retailer has the opportunity to also be the world's corporate leader when it comes to positive environmental behavior and initiatives.

So far we believe the retailer is pretty much on track--especially after this week. We also hope this week's announcements weren't the exception but rather are a harbinger for more to come. We also believe other industry companies are going to follow the carbon measurement program--and do some leading themselves--like Safeway Stores is doing with solar power and Marks & Spencer is doing in Scotland with its new eco-stores. However, those that choose to merely get out of the way when it comes to environmental initiatives are likely to find themselves with a shrinking bottom line. Green leadership is coming to mean more than just environmental leadership--it's also increasingly becoming the color of money, profits and jobs.

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