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Dangers And Broader Implications
Of Wal-Mart’s Sustainability Index

Our piece, Wal-Mart Must Include Adequate Return On Capital In Its Sustainability “Index” Or It Will Do More Harm Than Good, brought both comments simple and sweet:

Great article…

— Rob Mumma
Vice President Sales and Marketing
Belair Produce, Inc.
Hanover, Maryland

And more explanatory:

Wonderfully written article with very thoughtful and thought-provoking responses to one of today’s hottest topics in agriculture. I applaud your articulation of the facts and circumstances surrounding sustainability for both the common good and corporate prosperity.

S. Garrett Patricio
Vice President of Operations, General Counsel
Firebaugh, California

As we detailed in our article, Wal-Mart’s sustainability initiative is extensive. So we focused in on one glaring problem: Wal-Mart’s decision to exclude the economic sphere from its proposed index.

Sustainability is typically considered to contain three spheres of responsibilities: The environmental, the social and the economic. We would go so far as to say that speaking of sustainability without all three of the spheres makes no sense.

After all, if you only care about the environment, there is no logical limit to what can be demanded. Why ever use a pesticide — synthetic or non-synthetic — if you only care about the environment?

Equally, if your only focus is social, there is no logical limit as to what people should be paid or how much time off they should get or how much philanthropy a company should give.

What makes sustainability make sense is the triad: Environmental, social and economic. Now, if someone proposes a change in growing practices or labor practices, the proposal gets balanced against all three legs of the triad, and the real world tension between these responsibilities allows for a reasonable solution.

The great danger of Wal-Mart’s approach to this sustainability index is that by excluding the economic sphere, it is encouraging companies to make investments that allow them to score better on the Wal-Mart index but that actively waste financial resources. This means the world is poorer and thus less able to deal with its problems.

Wal-Mart’s initiative is far broader than retail produce. We wanted to examine how it might interact with other industry initiatives in sustainability. To do so, we asked Pundit Investigator and Special Projects Editor Mira Slott to explore the topic more by speaking to an industry member active in sustainability and from the foodservice side of the business and thus more free to speak about Wal-Mart’s effort and its intersection with efforts active in the produce industry:

Tim York
Markon Group
Salinas, California

Q: You’ve shown tenacity in driving industry-wide coalitions, first with food safety, and more recently with sustainability. What will Wal-Mart’s sustainability initiative mean to the industry? How will its plan to develop a world-wide sustainability index have an effect on sustainability programs underway? Is it compatible or at odds with the Stewardship Index?

A: Wal-Mart has indicated their support for the Stewardship Index. We just had a meeting with the Coordinating Council. There were about 30 different companies participating to get updated on our project and further develop the metrics. It was almost a year ago, September, since our first meeting. This was the next face-to-face meeting. We tried to wrestle with the sticky issues, which always happens when you get multiple stakeholders.

Q: Did Wal-Mart participate and provide input based on its own strategic plan? How will Wal-Mart’s sustainability program impact produce suppliers? Are industry suppliers prepared to meet the new demands?

A: Wal-Mart was not there, but Wal-Mart is part of our Coordinating Council. We’re metrics-driven and they’re metrics-driven. Our processes are compatible.

My understanding of the way it will work is that Wal-Mart will give a sustainability number on a product, judged by a list of sustainability criteria. In a sense it parallels Hannaford Brothers’ system of grading from a nutrition standpoint; product receives a red, yellow, or green light based on its health and nutrition value.

Q: What you describe here is consumer-centric. Won’t consumers have difficulty ascertaining what that number means? What defines one product as more sustainable than another? Isn’t it highly subjective depending on what one values? Will the consumer accept Wal-Mart’s assessment?

A: You never want to bet against Wal-Mart. Wal-Mart is smart and has a lot of money.

If you encompass all the environmental and social aspects of sustainability, research PMA has done indicates labor issues are high on the list of importance for consumers.

Depending on how Wal-Mart assigns weighting to it, say you do terribly on labor issues, but do great on reducing greenhouse gases, it doesn’t speak to other concerns or priorities, but gets you a good score from Wal-Mart. I’m not sure what a single-digit represents, and how it will capture consumer interest. It may not speak to all consumers. It almost doesn’t seem transparent enough..

Q: In what ways?

A: If all I see is a number, I as a consumer don’t know what that means from an employee standpoint, from water use, packaging, soil-health preservation, pesticide minimization, community aspects, etc. All get rolled into one. If I have asthma, air quality is important to me. If I’m a Hispanic worker, immigration and labor are important, whereas for a fisherman, water quality is a big thing.

As a consumer, I don’t approach sustainability holistically but from my own set of interests. I’m not sure if a single number score is enough.

Q: When Wal-Mart unveiled its sustainability mantra via a global webinar, it emphasized the supplier’s integral role and the need to examine the complete lifecycle of the product, from its origins through the manufacturing process and distribution chain. Reaping environmental benefits coincided with dissecting processes and creating a more efficient and innovative business model to take costs and waste out of the system. Marketing sustainability to the consumer seemed to be just one aspect — an end product of a multifaceted business strategy…

A: Sustainability is not a consumer-driven issue for the most part, to a substantial extent this is because consumers don’t have the information available. Therefore, consumers tend to take a simplistic approach — local good, long-distance bad, small good, large bad.

Consumers are not heavily engaged in sustainability. It’s a college-campus phenomenon as well as a business phenomenon. The business approach could be — I don’t want to get nailed by the Immokalee workers for bad labor practices or get blamed because my supplier decided to dump waste into the river.

Q: Implementing sustainable measures to avoid a potential lawsuit or bad press implies little real commitment to sustainability, just a commitment to staying out of trouble. Is that an excessively pessimistic view of human nature or just the way it is?

A: Three key reasons are driving sustainability: One reason is from a defensive standpoint. With media today, if a company is dumping waste, it’s going to be posted on YouTube for the world to see again and again.

The second is taking costs out of the system. As consumers become engaged, the third benefit comes from companies willing to talk about what we want done as an industry.

Q: In your sustainability efforts, you emphasized the importance of creating a set of commonly defined, measurable metrics as a means for companies to set goals, monitor and verify progress for self-improvement. At the same time, you have voiced opposition to national standards. You’ve questioned the viability of making an absolute judgment or determination on what constitutes the right standard, when sustainability is comprised of many subjective variables. Isn’t Wal-Mart going that route with its sustainability ranking system?

A: Wal-Mart is making a determination of value in its metrics development, on where labor is weighted, where water use is weighted, etc.

Q: What is the significance of Wal-Mart’s strong sustainability mandate?

A: For me, it lays down the line in the sand. It challenges the rest of us to stay with them, moving as an industry into sustainability. The largest retailer is approaching sustainability with commitments and resources behind it.

Wal-Mart is taking on sustainability with science- and metrics-based measures. This will involve a lot of work getting suppliers educated, not just for Wal-Mart, but we all must do this for the industry.

Q: How is the Stewardship Index progressing? Are you working with Wal-Mart and other entities, namely ANSI, to insure compatibility?

A: Around the fall, we’re getting ready to pilot. We believe the whole idea of what we’re trying to do is create a common way of measuring. We’re not setting the standard that greenhouse gas needs to be below X amount. What we don’t want are different measurements for air quality, labor, etc. That certainly can inform the work that Wal-Mart is doing, and what the Leonardo Academy is doing. The industry’s worst nightmare is that Wal-Mart’s metrics and those of other buyers are not mutually compatible.

Wal-Mart could help to drive it, and help define what is sustainable or what isn’t. It’s a trite definition of what we’re looking for in this young journey of sustainability. It’s not that we’ve all arrived today, but that we’re at least making improvements. The idea of benchmarking and measuring is a common purpose.

Q: With all the different stakeholders working on the Stewardship Index, are you finding consensus in the formation of metrics? What areas pose the biggest challenges?

A: We have 15 different metrics that we’ve worked toward, and we have updates on about 11 of them that we’ve made progress on. Tools are already developed for how to measure greenhouse gases. Some of the difficult ones are the softer science, community, human resources, procurement and fair pricing. We won’t solve that in a day.

Those are the issues we’re trying to tackle.

Q: How do you best go about it?

A: We have very strong advocates and some proposals are non-negotiable, or non-starters for some. In reaching solutions, we need to ask, what are the things we can agree on? For example, we all agree on sanitation in the field, appropriate water use, and rest breaks for employees. With labor practices, there are common interests to build from.

We have lots in common with environmentalists — we want to preserve farmland, they want to preserve farmland. We want to reduce chemical usage to reduce costs while they want to reduce chemical usage for other reasons, but the end goal is the same.

Remember the role of the Natural Resources Defense Council (NRDC) in the Alar Scare? We have an NRDC representative on our Stewardship Index Council, which makes for strange bedfellows. Can’t we all get along? It’s too easy to fall back on what we do in politics, paint Republicans all bad or Democrats all bad when there are common goals in medical care, providing border access…We are looking to unite on issues important to all our interests.

Q: When will your pilot testing get underway? And are you looking for more industry participants? Are all key groups represented in the process now?

A: Our pilot programs are not ready yet, but we expect to get the pilots going before the end of the Salinas season. Over 200 companies have been involved in helping draft metrics, so we need to see how they apply in the real world. We’ve drafted metrics around water usage, so we want to find out if this is something we can truly measure or is there tweaking required. We would love to have more people involved. To date, it’s heavily West Coast-oriented. We welcome people throughout the country to become engaged in the process.

Tim’s motivation in this area has always been clear: he has watched the way the industry has dealt with food safety concerns and noted the multiple audits and how they have burdened the production base, and he has labored mightily to avoid seeing that process duplicated in the sphere of sustainability.

Since it is impossible to expect the whole world to agree on one standard for sustainability, Tim and others have focused on defining methods of measurement that will, hopefully, avoid multiple audits.

It is a laudable project and its intent is a terrific idea. We have some doubts about whether it will ever really work out in practice.

Even if the metrics are agreed to, this leaves open the question of who will audit and ascertain that things are done in accordance with these metrics.

An awful lot of the food safety audit duplication is not because the audit standards are so different; it is because companies trust one auditor over another.

We are hearing this right now with the Global Food Safety Initiative, which we talked about here. In theory, audits done by any of the participants should be equal, but many buyers are saying they just won’t accept anything but the auditor of their choice.

This seems almost to be human nature. We’ve done a few acquisitions in our day and, when we do them, we typically send in our accountant to look at the books. This is not because our accountant has different metrics than other CPAs, it is because we trust our guy to look after our interests. This will be a high burden to overcome.

We also think that such metrics are really compatible only with a particular segment of the industry that involves direct sales from a particular farm to a particular buyer. When the Pundit was selling imported melons, he had growers in at least a dozen countries, and each day selected from inventory and arrivals to best satisfy each customer. The only thing certain is that these dozens of growers would have had dozens of different numbers on any set of sustainability metrics.

Finally, we worry that the world will come to demand what can be measured rather than what is important.

The idea that Wal-Mart will “define what is sustainable and what isn’t” is actually quite horrifying. Who elected them?

Though Tim is kind and finds the upside in the Wal-Mart proposal, we see it as, at best, completely subjective.

To add up all the disparate info sustainability audits can provide — this company decreased carbon discharge by 5%, increased water usage by 10%, increased wages by 7%, decreased employee headcount by 2%, cut donations to the local hospital by 4%, increased female representation on its board of directors by two people, etc. — and think you can come up with a number that means something to everyone is a big stretch.

All this can possibly represent is the personal policy preferences of whoever writes the standards and who could possibly care about that?

To put a number on each item — a sustainability index of 6 — and pretend that this is meaningful to consumers borders on the bizarre.

Yes, along with Tim, we hope that if Wal-Mart does this they will use industry standard metrics so as to reduce costs but, really, why should Wal-Mart do this at all?

Many thanks to Tim York and the Markon Cooperative for fighting the good fight.

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