Move Over Government, Walmart's the New Regulator in Town

Retailer Dictates Guidelines From Greenhouse Gas Emissions to Sodium Content

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Manufacturers of everything from laptop computers to shampoo have been given some requests they dare not refuse: Report their greenhouse gas emissions and establish targets for reducing them, invest in community-development activities where their plants are located and participate in creating an index by which the consumers can judge how sustainable their products are. If they make food products, they're also required to reduce sodium 25%, sugar 10% and all vestiges of industrially produced trans-fatty acids by 100% by 2015.

These may sound like government mandates, but they're actually not: They're from $400 billion-plus behemoth Walmart Stores, which has also become the biggest and most vigorous of a new breed of private-sector regulators.

A new style of self regulation? Walmart has become a de facto regulator on many issues for many products.
A new style of self regulation? Walmart has become a de facto regulator on many issues for many products. Credit: Illustration: John Ueland

While manufacturers might have expended hundreds of millions of dollars in lobbying or campaign contributions to fight similar efforts by governments, they haven't been complaining publicly at all about such mandates from earth's biggest retailer.

Andrea Thomas, senior VP-sustainability for Walmart, the flagship U.S. retailer of the Walmart Stores, which also includes Sam's Clubs and numerous chains overseas, said it's really consumers setting the agenda, not the retailer. "Our customer is becoming much more articulate about needs in this space," she said. "The best way to do it is to work together as an industry."

Walmart, however, clearly has been out in front of the rest of the industry on many issues. And unlike a government, it isn't bound by constitutional due process that bogs regulations sometimes for years. No Tea Party representatives are trying to withhold funds for its greenhouse-gas reduction plans. And with billions of dollars at business at stake for its biggest customers, Walmart wields a bigger stick than any fines a government can impose.

To be sure, Walmart notes that its supplier-sustainability assessment, for example, isn't mandatory. Then again, it also notes: "We do intend to reward those suppliers who have measured impacts and show progress toward meeting stated reduction goals."

But for all the advantages of being the biggest retailer, even Walmart faces some challenges, particularly on what may be its most ambitious effort-a Sustainable Product Index that distills the complexities of determining which products and companies are the greenest into comprehensible ratings for consumers.

More than 19 months into the process, the index remains a work in progress. The retailer at the outset turned development of the Sustainable Product Index over to the Sustainability Consortium, led by academics at Arizona State University and the University of Arkansas and now with 65 members in total, including most of the major packaged-goods marketers, a couple of other retailers including Ahold and Marks & Spencer, and the U.S. Environmental Protection Agency and World Wildlife Fund.

Committees are developing pilot indexes for laundry detergent, laptop computers and strawberry yogurt among other things. But while some pilots are expected to begin this year, in a December Q&A on the Facebook page of the Business Civic Leadership Center, Walmart Sustainability Director Jeff Rice said some categories may not have indexes for consumers for at least five years because of the complexity of getting, analyzing and reporting data.

"I'm feeling pretty good on the progress," said Ms. Thomas. "We really took the approach that we needed to have not just the retailers and manufacturers but also a place for academics and [non-government organizations]. If we can get all the right people around the table to begin with, it may be slower upfront but it won't be so rough as we start to get the data in."

Walmart in January also sharpened its focus on nutrition, aligning itself with Michelle Obama's anti-obesity efforts and pledging to reduce sodium, sugar and fat by 2015 while developing criteria for a front-of-the-package seal to identify healthful foods. There, however, the retailer raised some questions about whether it's really going much beyond what was already being done.

Ms. Thomas acknowledged that many of the targets are similar to those set by major suppliers in recent years, but said not all industry players had set such targets.

With the healthful-food seal, Walmart rankled some other members of a Food Marketing Institute committee it has served on, which, along with the Grocery Manufacturers Association, proposed a similar seal in October, said Burt Flickinger, principal of the consulting firm Strategic Resource Group.

The FMI/GMA seal was set to appear early next year. Walmart plans to get is out by the end of this year.

"We're not trying to create a proprietary solution," said Ms. Thomas. "We're just trying to solve a problem that our customers have articulated to us." She said Walmart's effort is meant to be complementary to the industry effort.

While Walmart has led the sustainability charge, almost every major company now has sustainability criteria in its procurement guidelines and is subject to similar criteria from customers, said Jim Nail, principal analyst with Verdantix, a market-research firm that focuses on sustainability, and principal of Speaking Sustainably, a sustainability communications firm.

"And it's driving the companies nuts," he said, "because every company has a different way of approaching it."

Clearly without Walmart acting as referee, though, some things would be less likely to happen. When Procter & Gamble Co. concentrated some of its cleaning products in the 1990s, it lost significant share when competitors didn't follow suit and its products looked more expensive on the shelf as a result. Walmart has prevented that in recent years, pushing compaction of liquid and powdered detergents first by giving triple-concentrated All detergent favorable merchandising treatment and later by saying it won't buy the non-concentrated versions after a cutoff date, generating major material and energy savings.

Environmentalist Paul Hawken envisioned such moves in his 1993 book "The Ecology of Commerce" where he argued that corporations, not governments, would have to drive environmental change because governments lack the resources or global scope for the job.

"That was probably the most depressing book I'd ever read," Mr. Nail said, because at the time companies defined environmental responsibility mainly as compliance with government regulations. "But Hawken was quite visionary," he said, "and businesses are starting to catch up."

Most major marketers in the Fortune 1000 now are on the sustainability bandwagon, but echoing recent statements by an Environmental Defense Fund executive, he said, "the thing we now have to worry about is the next 50,000 companies."

Influencing them, he said, may be where Walmart's efforts are most useful.

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