Walmart will assign “green” ratings to every product on its shelves, starting in two to five years. While the metrics have yet to be determined, the labels will factor in greenhouse gas emissions; waste output and water use; raw material purchasing; and “ethical production.” If all goes well, this process will spit out an easy-to-understand, readily comparable tag attached to every item in the store.
Think of it like nutrition facts for the environment. Just a decade ago, hardly anyone knew, or cared, how many calories were in a Big Mac. Now it’s almost impossible to eat anything without facing the reality of calorie counts. This has spurred chains to advertise healthier food for consumers, like Jared at Subway and salad options at fast-food chains.
The labeling will likely be imperfect at first, just as a calorie count doesn’t reveal bad ingredients like high-fructose corn syrup. Walmart says it will release the raw data, like carbon-dioxide emissions and supply chain information, allowing citizens, sustainable investors, and activist groups to do their own analysis – and let Walmart know if the labeling system is skewed.
The impact of Walmart’s program could be huge -- so much that the “Walmart effect” might be the new “California effect” in private environmental regulation.
California has historically set its auto emissions standards higher than other states and even the federal government. Carmakers would have lost money by making one car for California and another for the other 49 states, so they often changed their production practices. Additionally, the federal government has tried to keep up with California’s stricter regulation, leading to a “race to the top” for environmental standards. David Vogel, a business professor at UC Berkeley, called this “upward harmonization” of regulations the “California effect.”
The “Walmart effect” will drag other companies to environmental-labeling plans, whether they like it or not. Walmart will require environmental-impact disclosure at its 100,000 suppliers, who will push their other customers to adopt green ratings so that they are not at a competitive disadvantage. Walmart and its suppliers will also have an incentive to push for more regulation: if every retailer had to do green labeling, Walmart would be ahead of the curve and wouldn’t be the only one spending more money.
How do we know that green labeling will be meaningful? The strength of the proposal is that Walmart shifts the cost burden of compliance onto its suppliers. Walmart simply acts as a judge of suppliers’ sustainability. Walmart will face higher prices in the short run as its suppliers try to pass on increased costs, but its huge bargaining power can keep these to a minimum and eke out efficiencies. Pressure from NGO’s and government will be important to ensure the labeling system works properly.
Why is Walmart doing this, anyway? Its board is certainly worried about “optics,” or public perceptions, of Walmart as a soulless corporate behemoth. Dozens of labor lawsuits around 2004 led to tough political rhetoric, and their CEO was tasked with burnishing the company’s image. The company has come a long way since then: promoting energy-efficient lightbulbs, selling only concentrated detergents, and donating to Democrats. Recently Walmart said it would support an employer mandate for health insurance, a big enemy for other business groups.
Another reason is profitability. Walmart could pre-empt more restrictive environmental legislation by writing its own. It could capitalize on growing environmental-movement goodwill, in dollars and decreased resistance to store expansion. The Wall Street Journal theorizes that Walmart’s environmental progressiveness will mute support for the Employee Free Choice Act, a pro-union bill that might hurt Walmart’s bottom line. Or perhaps Walmart has figured out that, as a market heavyweight, it often doesn’t do badly for itself to do good.
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