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Thursday, July 16, 2009

Yanking the supply chain

Wal-Mart has announced a long-term initiative to score the environmental credentials of the products it sells.

Wal-Mart will be asking companies that sell products at their stores to provide information on environmental characteristics of their operations and supply chains. The information gathered about the environmental impact will eventually be summarized in scores available to consumers alongside the prices. (The Times calls it "the environmental equivalent of nutrition labeling," which seems an apt analogy.) Wal-Mart is hoping to have other retailers adopt the index, as well.

When consumers try to make environmentally-sound purchasing decisions, it's actually pretty hard. A company may tout its innovative biodegradable material, but you wouldn't know if this new material required twice the raw materials and resulted in more emissions of CO2. Are you concerned about deforestation? Water consumption? Air pollution? There are so many aspects to sustainability that consumers rarely have access to information about all of them for a given product. Even if they did, it's not practical for individuals to process and act on that information for the huge range of products and things that go into them along the way. Having an index number (or several for different types of environmental impacts) would be a simplification, but it's a necessary one. (A better way is to put yourself in a position to see the entire supply chain, like buying milk from a local farmer. But this is not practical for most products. Though the very best thing to do, of course, is to buy less crap.) When consumers are armed with understandable scores of environmental impact, manufacturers might actually start to to get some market feedback on consumers' preference for sustainable products.

In the near term, the most influential aspect of this initiative may simply be Wal-Mart expressing its interest in these issues. The first round of questions to suppliers is pretty basic, but just having Wal-Mart ask could be a paradigm shift for many companies who have previously only answered questions about how many more fractions of a cent they can shave off the unit cost and if they can deliver on time. Just introducing environmental considerations into the discussion could have substantial impacts.

We just have the initial steps to look at now, and it will require a lot of follow-through for Wal-Mart to accomplish what it's talking about. Even in the best case, it will be impossible to create a true quantitative measure of sustainability, because it won't be able to capture every consideration and nuance. But it could be a lot better than the total lack of reliable and comprehensible information that we have right now.

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