Wal-Mart as Carbon Enforcer?

The Financial Times, in “Wal-Mart seeks emissions data,” reports that the Bentonville behemoth is out to make it suppliers greener:

Wal-Mart is to ask its suppliers to measure and report their greenhouse gas emissions, in the biggest move to disclose emissions from businesses.

Few companies disclose their emissions, making it difficult to judge which are “clean” and which are “dirty”.

Paul Dickinson, chief executive of the Carbon Disclosure Project, a group of institutional investors that asks companies to report their emissions, said reporting was the first stage in cutting emissions. “You can’t control what you don’t measure,” he said.

Wal-Mart could eventually use the data, compiled using the CDP’s methods, to cut costs by comparing similar companies to spot which are less efficient.

Emissions data can also be used by investors to judge which companies are most at risk from climate change, by governments wishing to regulate greenhouse gases, and by environmental campaigners to spur companies into becoming greener.

Wal-Mart will start with a pilot group of about 30 companies in seven product categories, with a view to rolling out the measurement and reporting to its 68,000 suppliers, which would be the biggest group of companies yet to disclose their emissions. The product categories are DVDs, toothpaste, soap, milk, beer, vacuum cleaners and soft drinks.

Jim Stanway, head of Wal-Mart’s global supply chain initiatives, said: “Our objective is to find efficiencies in the supply chain. If we remove carbon, which equates to energy which equates to cost, we fulfil our objective of getting low prices to the customer and having a positive environmental impact.”

While it’s easy to dismiss Wal-Mart’s efforts at image burnishing, um, social responsibility, the company has been clever and persistent in pushing its suppliers, and this extends to its do-gooderism.

For example, Wal-Mart has a very well designed program to promote diversity in the legal departments of its vendors. Yet the irony is that Wal-Mart is currently a defendant in the largest class-action discrimination lawsuit in history, brought on behalf of 1.6 million women. And it also has a terrible record of employment practices in general, including successful prosecution for requiring employees to work “off the clock,” meaning without pay. This from a company already notorious for rock-bottom wages. So it is hard to regard these programs as anything other than cynical.

Whatever you thought of its motives, however, the minority promotion program has been a clear success:

When it wrote to its top 100 law firms in June 2005, the letter wasn’t about billing….The letter asked for statistics on hiring and retention of women and ethnic minorities….”Wal-Mart will end or limit our relationships with law firms who fail to demonstrate a meaningful interest in the importance of diversity,” it said…

After discovering that talented minority and women lawyers were often not getting access to its business, even while a firm’s overall diversity profile looked good, Wal-Mart took a look at the way the firms assigned business. It noticed that 82 of the key “relationship partners” who assigned its work in the firms were white males.

As a result, Wal-Mart asked each company to nominate at least three candidates for the job of “relationship partner”, and to include at least one woman and one black, Hispanic or Asian lawyer on the list…

As a result of the review, Wal-Mart made 40 changes and moved $60m of business from white male to minority and female relationship partners, putting them into a position of influence in the firms in an unprecedented move that reflected its influence as one of the biggest legal customers in the US private sector. It also stopped doing business with two firms.

Wal-Mart seems to be taking a similarly intrusive, um, hands-on approach with greenhouse gases, but we doubt that any resulting program will be much better than a “garbage in, garbage out” exercise.

The reason is simple. It’s impossible to verify what companies choose to report as their carbon emissions. Even if the retailer can force its suppliers to cooperate, the cost of third-party verification would be prohibitive.

By contrast, for the law firms, Wal-Mart could cross-check results against Martindale Hubbell, so the ease of getting caught gave them good reason to be forthcoming.

Companies have every incentive to lie about their greenhouse gas emissions, particularly since Wal-Mart clearly intends to use that as a consideration in allocating business. Wal-Mart may be able to look for certain proxies, like taking certain conservation measures, but many will be impossible to verify (how can you be certain, say, that thermostats are turned down? Motion detectors used to turn off lights in empty rooms?) Most companies will be smart enough to lie within ranges that are plausible for their industry.

The carbon trading and carbon offset business are rife with misrepresentation. Despite Wal-Mart’s clout, there’s no reason to expect better here.