Global Influence Translates into Major CommitmentWed, 02/19/2014 - 12:44
Walmart’s journey toward sustainability began in 2006 when its global CEO launched a series of ambitious goals to be applied across all of Walmart’s operations. This contrasts with the approach of many corporations, where sustainability practices are often drawn up in their home country first, before being progressively rolled out to other markets. The three pillars of Walmart’s global sustainability plan were announced in the US, Mexico and everywhere else. These pillars aim to make the retail giant powered by 100% renewable energy, to generate zero waste and to sell environmentally friendly products. Given Mexico’s increasing acceptance for renewable energy sources, the first of these pillars was of particular interest to Manuel Gómez Peña, Walmart’s Sustainability and Energy Director in Mexico. In 2009, two Walmart stores in Aguascalientes and Baja California became supplied by solar energy. This was just a drop in an ocean as in April 2010, Walmart kicked off a partnership with EDF to build the 67.5MW La Ventosa wind farm in Oaxaca. Gómez Peña explains that this wind farm provides energy for 378 stores in the Mexico City metropolitan area. The company has also modified these stores to ensure optimum water and energy efficiency, seeking to make its outlets sustainable in more ways than one.
Mexico has played a leading role in Walmart’s global sustainability practices, a role that was reinforced further in April 2013. “In April, we launched our 2020 Strategy which was defined globally. That strategy seeks to reduce our energy intensity by at least 20% by 2020, as compared to 2010. This will see us supplied by at least 7,000GWh of renewable energy worldwide and 3,000GWh in Mexico,” explains Gómez Peña. Should these figures be reached, Mexico would provide more than 40% of the total amount of renewable energy used by Walmart worldwide, which speaks volumes about the company’s renewable energy expectations in the country.
Walmart, although having started off with solar, decided on a massive commitment to wind but Gómez Peña explains this did not mean solar was being totally excluded. In 2012, three more stores were powered by solar, bringing the total number to five. Gómez Peña states that Walmart wants solar to be as competitive is possible and use it on a large scale, adding that there are high hopes that this will become possible as solar becomes more competitive in the next few years. In the meantime, the reality is that speed is of the essence, and that it is easier for Walmart to commit to large renewable energy projects, allowing hundreds of stores to be converted at one time. “We will be adding three new projects in 2014, two wind farms in Oaxaca and one hydro project in Veracruz. We will add 222MW from the wind farms and 30MW from the hydro plant, allowing us to connect 886 stores.” Aware that the wind sector in Oaxaca is beginning to be crowded, Walmart’s pipeline of projects is eyeing up wind projects in Tamaulipas and Baja California. Economically, renewable energy has proved popular since the company doesn’t pay premiums and makes savings since it is not paying the public utility rate. Gómez Peña points out that a long-term impact of this decision is to pay more predictable rates and to escape the volatility that has been seen in CFE’s rate. Renewable energy sources are not the only way Walmart is seeking to change the footprint of its stores. LED lighting and closed refrigeration are just some of the latest technologies that Walmart has harnessed to make its latest stores 30% more efficient than the ones it opened in Mexico five years ago. Energy control and measurement systems are also installed on a wide scale, helping to identify equipment that is functioning outside parameters.
Although its sustainability goals have come straight from the top, they would have little chance of succeeding without incentivizing and encouraging store managers and employees to take part. “We have found that two stores with identical technology can have differences in energy consumption of up to 20%,” says Gómez Peña. “This can occur in the way staff operate the store, such as leaving doors open or lights on. That engagement has been critical, both through training and through campaigns where they have to follow simple steps, leading to a ranking of stores. We then highlight the store manager with the best performance in important meetings. No technology can be better than an engaged store manager.”
As commendable as this commitment is, Walmart still has to rationalize whether these decisions make economic sense. For Gómez Peña, the two go hand in hand. Since the ultimate objective is to offer customers the lowest prices possible, Walmart aims to be a low-cost operator across the board, and sees sustainability as a great way to do that. “Reducing waste, being energy efficient, enjoying the tariffs of renewable energy all helps us be competitive as possible,” says Gómez Peña. He explains that the first challenge was environmental but the retailer worked hard to reconcile its environmental and financial priorities.
For all its successes, Walmart knows it is not alone in this fight. A retailer of its size works with thousands of suppliers and sees it as mandatory to help incentivize its suppliers to follow its lead. Gómez Peña quantifies the importance of such a strategy, explaining that when looking at the footprint of the entire supply chain, Walmart’s direct operations account for about 8-9% of the total. More than 90% of the carbon footprint in the Walmart supply chain comes at other stages of the process. As such, Walmart has devised strategies to work with different sizes of suppliers. “With large corporations that have their own sustainability goals, we develop joint programs to improve packaging, transportation and processes at distribution centers,” he states. Packaging has been a major area of achievement, as the company seeks to fulfill its zero waste pillar of sustainability. Reducing packaging eliminates waste that would otherwise go to landfills but also saves on costs. Cutting down on packaging by half allows twice as many products to fit in every truck, thus also saving on fuel costs and emissions.
“We also work a lot with SMEs. We strongly believe that sustainability is not only for the large corporations, and that it does make sense for businesses of all sizes,” says Gómez Peña. He dismisses concerns that sustainability is not relevant for small companies that are worried about paying their next month’s salary. To overcome such doubts, Walmart has started training programs that over 250 SMEs have gone through so far. These workshops identify viable sustainable projects for these firms to put in action, while also having a financial payback. While Gómez Peña insists that sustainability can help to reduce costs in the long run, he acknowledges that smaller companies may lack the financing to make the initial investment in more efficient technology and processes.
A large part of Walmart’s involvement with its suppliers also happens directly at the agricultural level. Walmart’s foundation works with very small farmers, by offering specialized technical advice to allow these smallholders to develop the capabilities to join Walmart’s supply chain. This technical advice includes the development of sustainable practices. For slightly larger farms, Walmart acts as a hub between suppliers, passing on best practices from one to another or bringing certain suppliers to visit the base of another and establish dialogue. Gómez Peña adds that Walmart will also soon begin drawing up a sustainability index, which will seek to methodically identify where the best sustainability opportunities are in the supply chain, divided into various categories. Suppliers will then be ranked in the categories most relevant to them. “There will be no direct commercial benefit stemming from these rankings, but they will allow suppliers to have a stronger long-term relationship with us. We also believe this will help sustainable practices to spread, making suppliers more efficient and more competitive. But for its customers, Walmart does not necessarily believe it is its role to educate them. Although it does have certain awareness campaigns, Walmart seeks to avoid customers having to choose between an ecological product and an affordable product. As a retailer, it seeks to “offer them the best and cheapest products, to which sustainability contributes.”