Wal-Mart’s announcement of its new sustainability index marks the dawning of the age of ecological transparency in the marketplace. This is not just idle speculation; Wal-Mart has signaled that suppliers who ignore the requirements for ecological transparency will become “less relevant” to them. In other words, suppliers may one day compete for shelf space on the basis of their transparency about the ecological impacts of their products.
The retailer’s 100,000 suppliers around the world will have to calculate and disclose the total ecological costs of their products — and that data will be boiled down into a single rating that shoppers will see right next to the price tag. For consumers, this will drop to zero the “effort cost” of finding an item’s ecological impacts, which today often means digging through a confusing forest of rating systems online, then trying to recall that information while strolling the aisles of a store.
As consumer surveys have shown for years, only a small portion, maybe ten percent, of shoppers are passionate about shopping their values; around 25 percent couldn’t care less. The action is the two-thirds in the middle, who say they would value shop if they didn’t have to make any extra effort, and if prices are comparable. And Wal-Mart has the knack for keeping costs down.
The sustainability index will be built from answers to detailed questions about impacts that range from a company’s greenhouse gas emissions and solid waste reduction targets to worker’s wages and human rights — and positive contributions to the local community. Third party certifications will be built into the system. As the 900-pound gorilla of retail presses its suppliers for greener products, it is also inviting other huge retailers like Target and Cosco to adopt the same sustainability index. That will simplify things for both suppliers and consumers. And as more and more major retailers join in, we will see a growing business imperative for perpetually upgrading the ecological impacts of consumer products.
The value chain concept gauges how each step in a product’s life adds to its worth. But value can be seen from another angle, as embodied in the index: all the environmental, health, and social impacts of a product throughout its life cycle. By creating a single standard for evaluation, Wal-Mart opens a window on products that reveals any negatives — what might be called the “devalue chain” — and puts them into competitive play.
The strategic value of these metrics is that every negative value offers a potential for upgrading, as each upgrade improves the item’s overall score. Assessing the ecological pluses and minuses throughout a product’s life cycle offers a metric for business decisions that will boost the pluses and lessen the minuses.
The new metrics Wal-Mart imposes on its suppliers suggest a performance standard for ecological impacts all along the supply chain and throughout a product’s life cycle. This reinvents “green” as a process, not a static label, a verb rather than an adjective. To stay competitive in this arena, companies need to think of themselves as greening, continually looking for ways to improve their ecological footprint.
Andy Ruben was appointed by Wal-Mart CEO Lee Scott as the first vice president of the company’s sustainability initiative. Now he heads Wal-Mart’s private brand sourcing strategy; we spoke while I was writing Ecological Intelligence: How Knowing the Hidden Impacts of What We Buy Can Change Everything. His perspective, as quoted in the book, was telling:
“To me, all negative impacts of products are a discovery about unintended consequences. There can be thousands of consequences from a single decision, and we may be seeing just ten of these unintended impacts. The most competitive companies will engage to uncover these unnoticed impacts and make better decisions. Simply put, they will become more competitive by seeing their business in a broader light.”
The potential business upside here for upgrade innovations is enormous. As Ruben also told me, “This is the largest strategic opportunity companies will see for the next 50 years. This is the most exciting time to be in business, with more opportunity to create change in the world than ever.”