Wal-Mart and the U.S. government have announced plans to start tracking the sustainability profile of their suppliers as well as their products and services. As two of the largest buyers in the world, the directives from these companies have the potential to impact many companies in the U.S. and around the globe.
The U.S. government buys more than $500 billion worth of products and services each year from roughly 230,000 different companies, according to USAspending.gov. It is the world’s largest buyer of goods and services. Wal-Mart, as the largest consumer products retailer in the world, buys roughly $300 billion each year in products that it sells in its retail stores from more than 100,000 different companies.
If your company sells products and services to one or both of them, expect that you will soon be required to provide more information about your environmental impact.
The President’s Executive Order
On October 5, President Barack Obama signed an executive order that outlined a series of actions that federal agencies must take to reduce their environmental impact. The environmental goal is to “reduce greenhouse gas emissions, increase energy efficiency, conserve water, reduce waste and use environmentally responsible products and technologies.” This is intended to benefit taxpayers through “substantial energy savings and avoided costs from improved efficiency.”
There are many actions specified by the executive order that affect the way the agencies operate, such as:
- Establishing 2020 targets for the percentage reduction of Scope 1 (direct emissions from sources owned or controlled by you) and Scope 2 (indirect emissions from use of purchased electricity, heat or steam) greenhouse gas emissions, as compared to 2008 baseline emissions.
- Reducing the use of fossil fuels by government agency vehicle fleets.
- Reducing energy consumption of government facilities.
- Improving energy efficiency of data centers.
- Improving water efficiency and management.
- Reducing water consumption.
- Doing more recycling, pollution prevention and waste reduction.
- Integrating a sustainability performance plan into the overall strategic planning and budgeting process.
- Defining metrics and implementing information systems for accounting and reporting to measure and manage progress toward these goals, including preparing and publishing scorecards.
- Appointing a senior sustainability officer to oversee these activities.
There are also actions specified that affect anyone that sells products or services to the federal government, such as asking agencies to look at the feasibility of:
- Requiring vendors to report on the greenhouse gas emissions of the products and services they are providing to the government. From the government’s perspective as the buyer of these products and services, these are called Scope 3 emissions (indirect emissions from the products or services purchased).
- Using purchasing preferences or other incentives to encourage suppliers to provide products that are manufactured using processes that minimize greenhouse gas emissions.
Wal-Mart Sustainability Index
On July 16, Wal-Mart introduced plans to create a worldwide sustainable product index. The plans are to roll this out in three phases.
Initially, Wal-Mart will ask each of its suppliers to answer 15 questions to evaluate their company’s overall sustainability profile. The questions are divided into four areas:
- Energy and climate,
- Natural resources,
- Material efficiency and
- People and community.
For example, there are questions asking suppliers to report on their greenhouse gas emissions and reduction targets. Similarly, there are questions about water use by facility and water-reduction targets.
As the second step of this plan, Wal-Mart is providing the initial funding for the creation of a third-party consortium whose goal is to develop a database of information about the environmental footprint of the entire lifecycle of every product sold through Wal-Mart and other retailers. This consortium is being administered by Arizona State University and the University of Arkansas. The fact that this is open to including other retailers is significant, because it is likely to grow to encompass most products sold through any retail channel.
The third step of this plan is even more forward looking. Wal-Mart has asked the sustainability consortium to develop a product rating system that would make it easy for customers to identify the sustainability attributes of products. The stated intention is to develop some kind of labeling system, possibly like the nutritional labels we have grown accustomed to on food products, to provide simple, easy-to-understand information about the environmental impact of the product.
Why Should You Care?
Why should someone who reads Information Management be interested in these developments?
Basically, this is a big information management challenge.
In order to readily provide the information that the U.S. government and Wal-Mart will be expecting, any supplier will need to start tracking much more information about their products, how they are produced and distributed, and how the components of their products are produced and distributed throughout their complete lifecycle.
Additionally, in order for companies to make progress toward the sustainability related targets, they will need to track this information on a regular basis, not just as an occasional event. As with any significant business issue, it’s important to start with a good base of information and track it regularly over time with enough detail to allow managers and company leaders to make effective decisions and actions. Companies will need to consider implementing new business intelligence applications in order to provide the information needed to make decisions about sustainability, such as:
- Sustainability scorecards reporting and analytic solutions allow enterprise-wide monitoring of a broad set of key sustainability metrics.
- Energy intelligence reporting and analytic solutions allow detailed trending analysis of energy use and related greenhouse gas emissions by facilities and their subsystems. This could be applied to facilities in general and to specific types of facilities like data centers.
- Sustainable manufacturing intelligence reporting and analytic solutions allow tracking of detailed sustainability-related information (water used, energy used, chemicals used, waste produced and greenhouse gas emissions) about your manufacturing, processing or assembly activities.
- Sustainable sourcing intelligence reporting and analytic solutions allow tracking of detailed sustainability-related information about your vendors and the raw materials and parts they provide an organization or business.
- Sustainable logistics intelligence reporting and analytic solutions allow tracking of detailed sustainability-related information about the distribution of products and services, inbound to your operation and outbound to your customers.
Can you see the impact of these U.S. government and Wal-Mart initiatives on your company or customers? If not yet, I suspect you soon will. It’s a good time to start working with the appropriate people within your company to plan your strategic response to these market triggers.
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