Wal-Mart Threatens Factories: Clean Up or Get Out!


CEO Lee Scott addresses the Beijing audience. Photo by Alex Pasternack
Blogging from the Summit
Perhaps the world's biggest, boldest convert to sustainability, and the company about which we're most ambivalent, Wal-Mart announced today its most ambitious green plan yet: to raise environmental and social standards at every factory along its supply chain, just as suppliers in China and elsewhere are already struggling to survive rising costs and lower demand.

Top executives who had come to Beijing for the company's annual sustainability summit told an audience of some 1,000 suppliers (and, to soften the blow, Cameron Diaz) that green practices could be achieved and costs could be reduced through simple initiatives, like reducing packaging and removing harmful chemicals. But the plan is much larger than that: Wal-Mart is insisting on keeping close track of every step of its supply chain, raising product safety and quality standards, and requiring that its top 200 suppliers in China reduce energy by 30 percent over the next two years.

And here's the clincher: By 2012, the big-box retailer, once the scourge of environmentalists, will require suppliers to draw 95 percent of their production from factories that receive the highest ratings in environmental and social responsibility audits.

But considering the economic climate, and notorious transparency problems in China, how will the world's penny-pinching behemoth make it work?CEO Lee Scott, who has been on a half-decade crusade to improve the company's environmental chops, is branching out of the store's old gospel of "lower prices every day," Wal-Mart's motto."We've developed a better understnading of the second part of our mission: live better."
Now, the Details
But when pressed, Scott and other executives would not detail how exactly the new system would be implemented, nor could anyone say how the program would absorb added costs -- a pressing question for a company known for forcing suppliers to deliver rock-bottom costs. For instance, will Wal Mart lower its profit margins or ask its suppliers to swallow the costs of going greener?

Scott dismissed the spirit of the question.

If you think about sustainability only from the standpoint of adding costs and adding a layer of difficulty to business then I understand why people would have that question," he said. "If you think about the social consequences that we talked about, if the economy is bad, should companies like wal mart not live up to China's labor laws? Should we not pay people appropriately, or let people not be treated decently, or let human rights standards go?

That argument won't quell concerns among some suppliers, who are already bearing the brunt of the global credit crunch.

But Scott insisted that the program would involve a shared "partnership." (Though if they want to partner with Wal-Mart, they don't have much of a choice but to comply, or face excommunication.)

I'm not the least bit concerned that Chinese factories are going to be put out of business because of sustainability. It's not going to happen. It is a partnership. The expectation of how goods are made and how they perform. What were doing is going to make it so that Chinese factories are still relevant to the world.

Safety Scares
Though the company had been working on the plan for some time, the announcement comes just after a string of incidents have raised questions about the safety of Chinese products. Last month's milk-tainting scare has overturned the country's food regulatory process and led to widespread concerns in and outside China.
"I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products," Scott said at the conference.

"And cheating on the quality of products is the just the same as cheating on our customers. We will not tolerate that at Wal-Mart."


Growing Market
The country is also an apt target for sustainability reforms with its world-beating levels of greenhouse gases and massive, growing consumer class.

That group is also precisely what makes China one of Wal-Mart's fastest growing markets, and a place that could easily surpass the U.S. in long term sales. Scott has before indicated that Wal-Mart is pursuing sustainability not to please environmentalists but because it is good for the bottom line. "We are not green," he told a conference this year.

Wal-Heart?
At times however, extolling the virtues of green for all, Scott sounded more like a philanthropist -- not the CEO of a company long accused of pressuring suppliers to provide the cheapest possible goods at any cost.

You can't say, you can't afford to do this, you can't dress in these kind of clothes, you don't have enough money to pay the upcharge. As critical as people can be about us, it is about people not having to sacrifice their aspirations to have a quality life and provide for themselves and their family. Improve the environment, sustainability and improve social responsibility without making the poorest people in the world the ones who have to sacrifice.

Throughout the day, the CEO tried to toe the line between a feel-good green beneficence and a hard-nosed green-equals-green business sense. But it's okay to blur that line. Scott's under pressure from both the greens and the greedy, and sounds serious about bringing the two together so everyone can benefit.

Ultimately, it's impossible to blame Wal-Mart for operating from a business perspective. That is its job, its basic responsibility to shareholders.

But it recognizes other concurrent responsibilities too. If it can keep enriching its business perspective with sustainable practices, all the better -- for their bottom line and for everyone's health. And if we assume that producers and consumers in the developing world are going to be making and buying more stuff in the coming decades no matter what, certainly it's optimal to ensure that they're doing so with the environment in mind. Wal-Mart, with its massive influence, is after all well positioned to change many minds.

Questions Remain
Of course, there is a long way to go, and the details of this ambitious plan remain sketchy. While it begins implementation this year in China with worldwide implementation in 2011, for now, it's just a plan.

"We're at the beginning," Scott said.

More coverage to come. But once again: do you buy this? Can any of you critics out there, like a number of former skeptics I spoke to at the conference, be converted to the other side of the Wal?
Also on Treehugger
Read more about the corporation's efforts in green roofing, its purchases of green power, its sustainable fish targets, and its purchases of forest lands for conservation.

Tags: China | Walmart