BUSINESS

Walmart acted on warming. Here's how it made money, too

Second in a two-part series. Read the first story here.

Can businesses ease the threat of climate change and be more competitive at the same time?

That's the major question arising from experiments by Walmart and several environmental groups, which together are testing "sustainable" practices while measuring their impacts on companies.

The result of these changes has extended Walmart's global reach and created a new dialogue at business schools about the influence of climate-conscious companies. The topic has its own course at Harvard Business School called "Reimagining Capitalism."

It took an abrupt philosophical shift in Walmart's outlook in the spring of 2005 to begin this process. The speed of that change might be unusual for most companies. But Jib Ellison, who runs a small environmental consulting firm in California, says that's one of Walmart's peculiar skills: It's an organization that can "move very quickly, when they choose to."

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Part of this came from Sam Walton, Walmart's founder, who created a familylike feeling among his store's 1.6 million employees in the 1980s (since grown to 2.3 million). He was known for his folksy stories and Saturday morning meetings with top managers that opened with a football cheer: "Give me a W! Give me an A! Give me an L!"

Sometimes he invited celebrities to the meetings. They included Warren Buffett, the stock market guru; Jonathan Winters, the comedian; and the legendary boxer Sugar Ray Leonard. Once Walton even organized a persimmon seed spitting contest using Walmart's general counsel as a target.

David Glass, who led Walmart after Walton died in 1992, used the Saturday meetings to remind people of Walton's laserlike focus on its stores and customers. "Our business is to buy and sell merchandise to customers, and we'll ignore all the outside distractions. That will take care of itself if we do the right thing."

But, as Ellison recalled, Lee Scott, who was the company's CEO in 2005, became very interested in climate change in the wake of Hurricane Katrina. He saw it as an issue that would inevitably affect Walmart's future business and was thinking of forming a philanthropy to help deal with it. Others were telling him that he could have more power over the issue by using Walmart's sprawling influence directly. The company's 11,695 stores now serve almost 260 million customers a week in 28 countries.

Ellison was hired to help Scott explore climate change by introducing him to leaders of environmental groups. In September 2005, he organized a trip to an observatory on top of Mount Washington in New Hampshire where scientists monitor climate changes in the region. The group included Fred Krupp, the president of the New York-based Environmental Defense Fund; Scott; Ellison; and Steven Hamburg, then a professor of environmental science at Brown University.

They spent a chilly night on bunk beds in the observatory's dormitory working out their differences. Hamburg and some other environmentalists thought companies used environmental policies to boost their public image — a practice called "greenwashing." Krupp, Ellison recalled, felt Walmart could and would do much more than that. "People like Fred were saying there's a ton you can do and you'll be a better business as a result."

"The reason we got into it was impact," recalled Krupp. He remembered reading statistics that said making and selling consumer goods accounted for 60% of the world's greenhouse gas emissions. He knew Walmart dealt with tens of thousands of suppliers around the world.

Governments were just beginning to consider climate regulations, but few companies were involved. "I met a guy on Wall Street who told me we would be lucky to have Walmart involved because it can go beyond borders," noted Krupp.

Lightbulbs and a big idea

In late September, after the meeting on top of Mount Washington, Scott made a closed-circuit television speech to Walmart's employees announcing that the company was going to use its size and reach to reduce its greenhouse gas emissions. It would encourage its suppliers to do the same. Katrina had produced an upbeat moment. Walmart was being praised for donating supplies and using its truck fleet to help New Orleans and other cities recover from the deadly storm a month earlier.

Scott had decided to build on that momentum by announcing a new climate-related policy.

"What would it take for Walmart to be that company, at our best, all the time?" Scott asked during his speech. "Could we do it? Is this consistent with our business model?"

There were skeptics among his managers, and Hamburg, the Brown professor, shared some of it. He and Krupp urged Scott to try some experiments that might demonstrate that sustainability policies could reduce climate emissions and be good for Walmart's business.

Krupp convinced EDF donors to open an office in rural Bentonville, Ark., home to Walmart's headquarters. EDF began to work with Walmart managers.

The first experiment was to set a much higher goal for sales of energy-saving compact fluorescent lightbulbs. It worked. Walmart sold over 100 million a year, enough to save $2 billion in electricity costs.

In late 2005, Scott — who had risen to become CEO through Walmart's transportation department — tackled another experiment: to make Walmart's fleet of 6,000 trucks more efficient. The effort improved routing, technology, product packaging and loading. Over 10 years, Walmart managed to cut $1 billion in annual delivery costs and reduce the fleet's emissions by 650,000 metric tons.

Hamburg became a believer — along with many Walmart managers — and joined EDF to become its chief scientist. Since then, EDF has helped Walmart develop calculators and websites to make it easier for suppliers to launch experiments to reduce their own climate emissions. In 2010, Scott set a goal to reduce the company's greenhouse gas emissions by 20 million metric tons. It blew by that. By 2015, it had cut 36 million tons.

Then, in 2017, Walmart took its biggest leap by launching "Project Gigaton," a pledge that the company and its worldwide suppliers would cut their emissions by 1 billion metric tons by 2030, roughly the equivalent of taking 212 million cars off U.S. roads for a full year.

So far, the initiative has reduced 93 million metric tons. In 2018, as the Trump administration continued its campaign to weaken U.S. policies intended to reduce greenhouse gas emissions at home, Walmart's sustainability campaign crossed multiple borders and found international support, including from suppliers in China and Canada.

Making a difference — and making money

Meanwhile, business academics have shed more light on Walmart's success. One study released in 2014 by Harvard Business School and London Business School divided 180 businesses into two groups. Half of them encouraged corporate sustainability practices like lowering emissions, increasing energy efficiency, and reducing deforestation and wastes. The second group of 90 companies "adopted almost none of these policies."

Over a 16-year period, the "high sustainability group" far outperformed the second group on income and stock market value.

A second study released in 2014 by McKinsey & Co., a global management consulting firm, examined 40 companies that outperformed their industry averages and concluded that while business practices built around environmental and social considerations are "often seen as a luxury investment or a public relations device," there is a growing body of evidence "that sustainability initiatives can help to create profits and business opportunities."

Sheila Bonini, a co-author of the study, left McKinsey to join the World Wildlife Fund, where she helped Walmart set up some of its long-term scientific goals. She said the impact of Project Gigaton has been "really huge."

Some of the most damaging practices in the world, she explained, are agricultural efforts that result in deforestation, and remote factories in places like Vietnam and China that paid no heed to the extent of their emissions. "What's so ambitious is that these are what Walmart is trying to tackle in this project."

Rebecca Henderson, another McKinsey alumna, left to teach at Harvard Business School, where she wrote a case study called "Greening Walmart: Progress and Controversy." That helped lead her to design a course she co-teaches titled "Reimagining Capitalism: Business and the Big Problems."

She uses examples of companies' sustainability efforts, including Walmart's, to spark discussions. Her first class attracted 28 students in 2012. Now it draws around 300.

These are "incredibly lively discussions," she explained. "Walmart is precisely at the intersection between doing the right thing and building a new business model, because I think if we're going to solve problems like climate change at scale, it's really important for the nation to understand that uncontrolled carbon emissions are harming the long-term stability of the whole system."

The idea clashes with conventional theories developed by economists at Chicago University in the 1950s. Milton Friedman, a Nobel Prize winner, made a strong laissez faire argument that the sole obligation of businesses is to make profits for stockholders.

Henderson said she believes that argument is dated and can be "comically unrealistic" in a world under threat by climate change. She finds that her students worry about how to explain this because some of their peers and their future managers might see them as "tree-hugging greenies."

Because Walmart was originally founded to provide better and cheaper products for people who live in rural areas, it gave employees and managers a sense of mission. Henderson thinks it helped later to make the company a more modern, "purpose-driven" corporation.

She predicted that those characteristics will help Walmart be more competitive in hiring younger managers.

"Most of the people I meet in business are deeply concerned about climate change and want to make a difference," Henderson said. "One of the differences with Walmart is that they're giving people the tools to actually make a difference.

"They are further advanced than most of their competitors, and their commitments are much larger and much more concrete."

Email: jjfialka@eenews.net

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