Last week, Wal-Mart announced that it will be creating a new sustainability index. The discount retailer wants its products to get sustainability scores, so that consumers can have greater information to decide which products to purchase. After all, in today's world more matters to some people than price. I applaud the effort, but had several concerns that I outlined in a blog post, the day before their announcement. After that announcement, I sought additional detail regarding those questions. A spokesperson from Wal-Mart responded.
Will Anyone Care?
Naturally, without some really good prophets, it's hard to be sure how people will react. But I pointed out that the biggest issue that could lead people not to care would be if products with high scores turn out to be more expensive. In response to that possibility, a Wal-Mart spokesperson said:
We believe the index will help lower costs, raise quality and bring transparency to the supply chain. Energy is a cost, water is a cost, excess packaging is a cost. As the amount of energy or water used the manufacture, shipment or use of a product or the amount of packaging used on a product is reduced, so is the cost.
If Wal-Mart is right, then I agree. However, if it's right, then I'm not sure why all companies wouldn't already have perfect sustainability scores already -- wouldn't they naturally want costs to be minimized? Is using recycled packaging more expensive? Are cheaper chemicals used in production not as good for sustainability? I can't know all the costs involved for each company, but if the lowest costs result in the best sustainability, I'm not sure why Wal-Mart's index would need to drive them to that end. That would just be smart business.
Producers Have Reason Not To Participate
Will producers participate? Wal-Mart tells me that compliance is not mandatory. But their spokesperson also referred me to the New York Times article that I mentioned. In that article, the Times quotes a few large producers, including Unilever and Procter & Gamble. They're on board. But that makes sense: if these measures turn out to be costly, the bigger the firm, the less that cost will be felt.
Putting a sustainability index like this in place is essentially like non-government imposed regulation. It forces companies to behave in a certain way. If they don't and others do, they will look bad. And like most regulation, it will favor the bigger firms who, given their high production levels, can more easily bear the cost of a few sustainability-driven tweaks here and there. Some of the smaller producers Wal-Mart works with will not be as excited.
Auditing Producers' Claims
I also worried about how Wal-Mart could be sure that its producers honestly answer the surveys it provides in order to determine their sustainability scores. After all, there would be an incentive to lie. Would it conduct audits to ensure veracity? A Wal-Mart spokesperson responded:
We expect our suppliers to answers these questions honestly. We will have ways to verify, both internally and through independent third parties, the responses to our questions, but we don't plan to audit every answer from every supplier.
It sounds like Wal-Mart is working on a sort of web of information verification through third-parties within the supply chains of firms. That's good news. This might not plug every potential hole, but it will keep producers on their toes. Will there be producers that stretch the truth a little? Probably some, at times. But if that's the exception, and not the rule, then I don't see this as a major problem for the index.
Will Competitors Follow?
Clearly, Wal-Mart can't be sure about this, and neither can those competitors. They'll be waiting to see how the index comes together, customer reaction and other factors needed to evaluate it. For this one, only time can tell.
I'll do my best to keep my eye on the progress of the index. I certainly hope it turns out to be a success. If everything works out the way Wal-Mart hopes, it sounds like it could be.
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