Wal-Mart's Sustainability Index: Thoughts from an (almost) insider

Fresh out of Wal-Mart’s quarterly “Sustainability Milestone Meeting,” where the company announced its intention to create and support a Sustainability Index to measure and rate the environmental attributes of products, I’m left with a lot of questions – and also a lot of hope for the future.

I won’t attempt to recap the discussions already swirling around the blogosphere about whether or not this effort is real (Joel Makower’s blog does a pretty good job of summing up the issues). Instead, I’ll give a sample of what I heard today and why we need to help ensure its success.

Amidst the normal hullabaloo of a Wal-Mart event – part business meeting, part tent revival – two key executives reinforced that they understand the imperative of sustainability and why the company needs to act.

In the prelude to announcing the Index itself, CEO Mike Duke very clearly articulated three key challenges facing the company and how a focus on sustainability helps Wal-Mart address them:

  • First, the economic crisis has brought about a “new normal,” where people need to get by on lower incomes – sustainability helps keep prices low for consumers.
  • Second, the rise of social networking and instant access to information makes transparency essential for survival. In his words, “when businesses are not transparent, they cannot have the trust of their customers.”
  • Third, increasing population and decreasing natural resources make greater efficiency imperative for a company’s survival.

Chief Merchandizing Officer John Fleming, who will be largely responsible for execution of the effort through Wal-Mart’s army of buyers (or "merchants" in the company's parlance), put an even more interesting twist on the imperative: the next generation of consumers demands it – he sees this as an issue of the retailer remaining relevant.

Fleming stated, “Throughout the history of retailing there has never been a retailer that has successfully transitioned from one generation to the next. We see sustainability as our opportunity to do just that.” He has a point. Anyone been to a Montgomery Ward lately? I bet your grandparents bought a sofa there.

All of these points tell me that Wal-Mart is putting this index together for all the right reasons – it is not window dressing, or green washing. Instead, the company is sinking significant resources into this effort because it understands the business case and knows its (and the planet’s) survival depends on changing the way the world buys and sources products.

Both Duke and Fleming are right. Wal-Mart’s announcement of the Index – and its desire to see it revolutionize retailing beyond Wal-Mart's walls – is an incredibly important piece of the puzzle to a thriving modern business.

The real importance of the index is that it is a shift in the way we define and design consumerism (I made this point in a Marketplace interview yesterday). It will be no longer just about the product, and what it does and how much it costs – but now about the whole system of global commerce that goes into each product. That’s huge.

Global supply chains are chaotic.  Our hope is that the index that emerges out of this process will help buyers make better sense of the production systems that supply their goods. If constructed properly, it will add a credible, science-based approach and a consistent definition of sustainability.  It will take out the guess work for consumers and merchants about what products are environmentally preferable and better for their families and ecosystems.

Improved information disclosure is about making markets function better and correcting market failures. That is what EDF is all about.