Wal-Mart CEO Mike Duke delivered upbeat news to the company’s semi-annual Sustainability Milestones Meeting in November 2009. The world’s largest retailer was on track to hit 36 of the 37 energy and environment goals Duke’s predecessor set for the company in 2005. Not everyone in the audience responded with glee.
“When Mike Duke made that statement, my ears turned bright red. I felt my face flushing,” said Charles Zimmerman, Wal-Mart’s vice president of international design and construction. He was in charge of the one initiative among 37 that was failing to deliver. “I felt eyes in the auditorium turning to me.”
The goal that Duke was unable to report progress on in 2009 was a pledge to reduce greenhouse gas emissions 20 percent by 2012 from the Wal-Mart stores, Sam’s Clubs and distribution centers that existed in 2005. “This has been a target on my forehead for the last seven years,” Zimmerman said.
Three years later, the final results are in. Not only had Zimmerman caught up, but he hit the goal a year early. The company’s 2011 data showed a drop in emissions 20.02 percent below its 2005 baseline for the existing facilities. Overall emissions have risen in the same time period as the company continues its global expansion, from about 19 million tons of carbon dioxide equivalent in 2005 to 22 million tons in 2010, the most recent year with published data. Its revenue has increased more than 50 percent since then, to $447 billion in 2012.
How Zimmerman, 52, and his colleagues hit the mark a year early offers three key lessons in corporate sustainability: Make individuals responsible for specific sustainability goals and tie their compensation to it; reduce energy demand through more efficient products and practices; and switch to renewable energy where it’s cheaper than conventional power.
A Journey Begins
Lee Scott, Mike Duke’s predecessor as Wal-Mart CEO, fired the starter’s pistol for corporate sustainability globally on Oct. 24, 2005, when he delivered a landmark address called “Twenty First Century Leadership” [pdf]. In it, he set out three aspirational goals -- think of them as Wal-Mart’s North Stars for sustainability -- to buy 100 percent renewable energy, to create no waste and “to sell products that sustain people and the environment.” Thirty-seven specific initiatives followed.
Every time someone at Wal-Mart makes a decision, there are 100 unintended consequences,” Andy Ruben, Wal-Mart's first sustainability executive, has said.
The sustainability program started out as a two-person office. Their job: Get the rest of the company to internalize the new goals and make sure they achieve them.
Andrew Ruben was the Wal-Mart’s first vice president for sustainability and is now a co-founder of Yerdle.com, a website that helps people tap their social networks to find and give away used goods. He organized the Wal-Mart kingdom into groups called Sustainable Value Networks, which encourage managers to interact with each other, suppliers and experts from universities, NGOs and governments. These structures broke Lee Scott’s massive challenge into easier-to-consume pieces.
“At some point we realized that every time someone at Wal-Mart makes a decision, there are 100 unintended consequences,” Ruben told the Wal-Mart Sustainability Case Project, at the University of Arkansas Sam M. Walton College of Business. “So our goal became to help every business leader understand more of the unintended consequences so they would simply make better business decisions.”
Charles Zimmerman spent the first few years of Wal-Mart’s sustainability drive helping design more energy-efficient U.S. buildings. He was “captain” of the Sustainable Buildings Network, the work group (Sustainable Value Network) for Wal-Mart’s facilities managers. In 2009, he helped the company knock off in 2009 its goal to build facilities that are 25 to 30 percent more efficient and that reduce greenhouse gases at least 30 percent below the 2005 baseline.
Zimmerman had been in his new role at Wal-Mart for just a few months before the November 2009 sustainability powwow. In response to it, he founded what he called “Project 37” and purchased on his own dime what he admits are “cheesy buttons” emblazoned with a green 37 for colleagues to wear when meeting on the subject. “In 2009, it didn’t look good,” he said. In fact, in 2010, the company considered telling the NGO community and the public that it wouldn’t be able to meet the goal.
Zimmerman had more than professional pride at stake. Progress toward the 20 percent goal alone was responsible for as much as 15 percent of his performance-review metrics.
The group would meet once a quarter -- 6 a.m. Bentonville time to accommodate all the time zones -- so that country leads could compare notes on what was working, and what wasn’t working, in the quest to reduce emissions.
A few markets, Brazil and Japan in particular, were further behind the rest of the group, lacking the money to upgrade their facilities. When Doug McMillan, CEO and president for Wal-Mart’s international stores, heard about this, he pulled out his checkbook. It was a no-brainer; upgrades pay themselves back in two or three years.
Zimmerman told General Electric, 'If you develop something that meets our expectations, we’ll blow this through the roof for you.'
Bentonville offered Brazil and Japan more than $50 million to pay for the energy-efficiency and greenhouse-gas reduction projects. Last year, Wal-Mart stores in Japan last year put installed LED bulbs on its sales floors. Brazil did lighting retrofits and put doors on its refrigerator cases.
A Changing Rate of Change
The pace of change has accelerated over the course of Wal-Mart’s sustainability enterprise. It takes less time today, as Zimmerman put it, “to globalize a good idea,” particularly when it comes to deploying new, energy efficient technology.
In 2005, sustainability planners decided to change the lighting in stores’ freezer cases. Replacing existing bulbs with more efficient models served the dual purposes of reducing the energy needed for lighting and for refrigeration, since LEDs don’t heat up like incandescent bulbs. It took three years from beginning the replacements in the U.S. until the last market completed it.
In 2009, stores started doing the same with parking lot lighting. Early work turned out not to be worth the effort in the continental U.S., where electricity is relatively inexpensive. Puerto Rico’s higher utility rates made the project pay for itself there. They retrofitted the island’s stores and then moved on to some 350 parking lots in Central America. “By scaling this up one market at a time, it helped drive down the cost of the technology,” Zimmerman said. By the time they’d re-lit the rest of the world, the price had come down sufficiently that it finally made sense to do the U.S. They completed the project globally in 15 months.
“It’s very easy for them to produce headlines that are very appealing, and seem hard to argue with," said Stacy Mitchell.
Along the way the lights themselves improved. Wal-Mart told General Electric, which manufactures road and area lights, “If you develop something that meets our expectations, we’ll blow this through the roof for you,” he said.
‘Over the Top’
Wal-Mart is the fifth-biggest U.S. user of clean energy in the U.S., according to a ranking by the Environmental Protection Agency. While just four percent of the company’s electricity comes from what the EPA calls “green energy,” Wal-Mart’s scale means that translates into a lot of energy -- more than 751 million kilowatts a year in the U.S. alone, enough to power about 65,000 homes. “I think that’s one of the things that really put us over the top,” said Greg Trimble, Wal-Mart’s senior director of global energy development and reporting.
Some leading companies source vastly more than four percent of their own electricity from renewables. Intel, Staples and Kohl’s Department Stores buy 100 percent green energy. Clean power makes up at least 30 percent of the electricity purchased by McDonald’s, Lockheed Martin and Microsoft.
Not all environmentalists are on board with the greening of Wal-Mart. Stacy Mitchell is a senior researcher at the Institute of Local Self-Reliance and author of the 2006 book Big Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses. She published a critical report about Wal-Mart in March 2012, called "Wal-Mart's Greenwash" (which Sustainability journalist Marc Gunther has written about here). Mitchell emphasizes that Wal-Mart’s emissions overall have grown as it continues to open stores around the world. The company’s most recent Global Responsibility Report, released in April, said that by the end of 2010 it had cut emissions 12.74 percent at the existing facilities’ 2005 baseline. The total greenhouse gas footprint grew 13.8 percent in that time.
“What Wal-Mart is doing on sustainability, I would argue, is more dangerous than greenwashing because to a degree there is a real impact to what their doing. What they do is they make improvements on the margin and because of the size of the company, they can often tout very big numbers in terms of waste reduced and that kind of thing,” Mitchell said.
“It’s very easy for them to produce headlines that are very appealing, and seem hard to argue with. But when you really step back and look at the bigger picture, you see as a company that it really is in effect using sustainability as a growth strategy," she said. "And Wal-Mart’s growth is very bad for the environment.”
Many on Wall Street are skeptical that sustainability efforts at global companies are reflected in stock performance. Asked if sustainability is ever a factor in research, either as a proxy for management, or as a risk factor, Colin McGranahan, a retail sector analyst at Sanford C. Bernstein & Co., said in an email, “Never a factor. Ever. Cannot rise to the level of materiality to the stock performance, which is our sole focus."
No Rest for the Weary
Charles Zimmerman bought cigars for Project 37 team members when their goal was in reach, last September. The cigar band carries the same green 37 that’s emblazoned on their buttons. “We celebrated for a few minutes and now we’re moving on to the next set of goals,” he said.
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Zimmerman’s Arkansas license plates bears the word “SUSTAIN.” He drove a Honda Civic hybrid until less than a year ago, when he swapped it for a BMW that bears the same plates. The car, like the cigars, is a mark of success along the way.
The next big goal: Getting the companies that supply Wal-Mart with goods and services to cut 20 million metric tons of greenhouse-gas pollution a year. That’s pretty close to all of Wal-Mart’s own direct emissions. They want to do it by 2015.
Analyses and commentary on The Grid are the views of the author and do not necessarily reflect the views of Bloomberg News.
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