by Marc Gunther

Wal-Mart's mixed 'green' bag

Results from the giant retailer's audit of its social and environmental practices show just how hard it is to grow a company and be eco-friendly at the same time, writes Fortune's Marc Gunther.

By Marc Gunther, Fortune senior writer

Wal-Mart CEO H. Lee Scott says there's "no conflict" between maintaining a low-cost business model and embracing eco-friendly policies.

(Fortune) -- Here are some things you probably didn't know about Wal-Mart. Last year, the world's biggest retailer:

  • Generated 20.4 million tons of carbon dioxide emissions
  • Improved the efficiency of its fleet by 15%
  • Sold 100 million compact fluorescent light bulbs
  • Stopped doing business with 2.3% of 8,873 overseas factories it audited because of poor labor conditions
  • Paid an average hourly wage of $10.76
  • Employed 15,695 American Indians
  • Gave away $301 million in charitable contributions
  • Encouraged its employees to lose weight, and heard back that they lost, collectively, 184,315 pounds

These are among the findings in Wal-Mart's new sustainability report, a 59-page fact-filled document that should demonstrate, once and for all, that the company is serious about becoming more ethical, responsible and environmentally sustainable.

That's not to say that the report brings unalloyed good news. In fact, it offers ample evidence of how far Wal-Mart (Charts, Fortune 500) still has to go as it tries align its business model of "everyday low prices" with its social and environmental responsibilities.

On the plus side, this is the first time Wal-Mart has published a comprehensive audit of its social and environmental practices. That's an enormous undertaking for a company that has 7,000 stores in 14 markets around the world and booked $345 billion in revenue last year.

The scope of Wal-Mart's activities is impressive, especially around environmental issues. It is buying solar power, making its trucks more efficient, selling organic food and cotton, reducing its waste, trying to bring more sustainable practices to industries as diverse as gold mining and packaging, and going beyond legal requirements to get potentially hazardous chemicals out of the products on its shelves.

"The company is moving in the right direction, and learning as it goes" says Gwen Ruta, director of corporate partnerships at Environmental Defense, an advocacy group that has two employees working full-time at Wal-Mart's Arkansas headquarters.

On social issues, Wal-Mart has improved its employee health insurance programs. A Hewitt survey reported that Wal-Mart's health benefits were slightly above average, when compared with 20 unionized and non-unionized retailers and grocers. It has also stepped up its monitoring of overseas factory conditions, an area where the company was vulnerable in the past.

A consultant who worked with Wal-Mart on the report, and asked not to be identified, told me: "They are doing some absolutely great work, and are not getting sufficient kudos."

But the report also shows that Wal-Mart faces enormous challenges on its path to sustainability. One example: The company can operate its stores and its fleet more efficiently, but as it opens new locations and adds more trucks -- in other words, as Wal-Mart keeps growing -- it will tend to pollute more.

Last year, the report says, Wal-Mart's greenhouse gas emissions actually rose by 8.6%. Whether this is good or bad for the planet depends on whether Wal-Mart took business away from less efficient competitors. That's all but impossible to know, but clearly there's a tension between growing the company and reducing its environmental impact.

Another example: The company has a long-term goal of generating "zero waste," but to date doesn't have an accurate measurement of how much garbage it dumps. So, again, there's no way to know how much of a difference Wal-Mart is making.

Environmental Defense also points out that lots of data in the report lack context. The report says that newly-installed restroom sinks in stores reduce water flow by 80%, but doesn't say how many new sinks were deployed or in what percentage of Wal-Mart stores.

The company reports that it sells 22 seafood products that are certified as coming from sustainable fisheries, but doesn't say what percentage of its seafood products, or overall sales, they represent. "You can't make sense out of some of the numbers," Ruta says.

Similarly, while Wal-Mart deserves credit for encouraging its employees to take on "personal sustainability projects" -- they volunteer to recycle, cook healthier meals and exercise more -- knowing how much weight some lost isn't meaningful unless we measure it against the weight that others gained.

More broadly, the most interesting sentence in the report is probably this one, from Wal-Mart CEO's H. Lee Scott's introduction: "We have found that there is no conflict between our business model of everyday low costs and everyday low prices and being a more sustainable business."

In a sense, that's surely true. Wal-Mart has always been a business superpower when it comes to efficiency. It's no wonder that the company can get mobilized around the idea of saving energy and reducing solid waste.

But Wal-Mart's business model, as currently practiced, also means sourcing products in global markets at the lowest possible costs. The company imports billions of dollars of goods from China, where labor and environmental laws are poorly enforced and where dirty coal powers the economy. Even if China can be persuaded to clean up its act, "shipping things all over the world is environmentally problematic," the Wal-Mart consultant notes.

Still, everyone who has worked inside Wal-Mart, without exception, tells me that the company is willing to grapple seriously with such questions. That's why the greening of Wal-Mart, however imperfect, remains a very big deal. To top of page

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