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October 26, 2005
Wal-Mart Embraces Sustainability: Does the SRI Community Buy It?
    by William Baue

Socially responsible investors cautiously applaud Wal-Mart for committing to social and environmental sustainability, but remain highly skeptical about actual implementation.


On Monday, Wal-Mart (ticker: WMT) CEO Lee Scott surprised company observers by embracing sustainability in a speech announcing ambitious initiatives on "all the issues that we've been dealing with historically from a defensive posture." The very fact Wal-Mart is addressing the issues it has so long avoided or short-shrifted--such as greenhouse gas (GHG) emissions, waste reduction, product sourcing, healthcare, wages, and diversity--sends a loud signal to the market from one of the world's largest companies.

Observers in the socially responsible investing (SRI) community welcome the potential changes while maintaining skepticism, noting that the company faces critiques on so many fronts that achieving true social and environmental sustainability would require a radical transformation.

"Wal-Mart's environmental goals--100 percent renewable energy, zero waste, and sustainable products--are extremely ambitious but also very promising; merely aspiring toward the first two will have enormous ripple effects throughout their supply chain and reduce the strains that the company places on the public sector," said Shelley Alpern, director of social research and advocacy at Trillium Asset Management. "Obviously, what kinds of products constitute the third goal will be open to great debate, but the package-reduction goals will go a long way toward greening many product lines."

In his speech, Mr. Scott also proposed increasing truck fleet fuel efficiency by 25 percent over the next three years and doubling it over the next decade; reducing GHG emissions worldwide by 20 percent over the next seven years; and eliminating 30 percent of energy use in stores. On the social side, he proposed separating global factory certification from purchasing functions and increasing independent monitoring; encouraging Congress to increase minimum wage; and increasing the percentages of women and minority managers while disclosing data on this mix.

"In some respects, this has the feel of a preemptive strike against the growing visibility and organization of its critics, but that doesn't negate how significant some of the announcements are," Ms. Alpern told SocialFunds.com. "However, the jury is still out as to whether Wal-Mart can or will become an acceptable investment for us."

Trillium's screens exclude Wal-Mart, but as a separate account manager, the firm holds some Wal-Mart shares for clients so it can conduct shareowner engagement with the company. The trend toward screening out Wal-Mart over concerns about sweatshop labor, store siting, land use, and community opposition (among many other issues) started in the SRI community in the early 2000s.

Vancouver-based Ethical Funds bucked this trend. As a new member of the Interfaith Center on Corporate Responsibility (ICCR--a shareowner advocacy coalition) at the time, Ethical Funds was inspired to hold its Wal-Mart position by the possibility of effecting positive change through shareowner engagement.

"In our Scorecard methodology for identifying companies eligible for investment, we try to set the bar at a place that excludes incorrigible companies--companies that just are not going to change--and frankly, we have never had 100 percent certainty that Wal-Mart was a company able to change," said Bob Walker, vice president for sustainability at Ethical Funds. "That uncertainty continues, but the developments going back to the early days of our involvement with ICCR dialogues, the incorporation of freedom of association and the right to collective bargaining in its supplier code this past year, improvements to the monitoring process, expanded willingness to dialogue with ICCR members, improvements to health care benefits, and now, a set of audacious environmental goals, suggest that maybe--just maybe--we were right to put our money on Wal-Mart."

"Our hope is that by supporting ICCR dialogues, we have played a small role in moving this company along," Mr. Walker told SocialFunds.com. "If all this does turn out to be meaningful--that is, if Wal-Mart is truly on the verge of accepting its responsibilities and making real changes--then the potential for positive impact on people and communities around the world is awesome to consider."

Conrad MacKerron, director of the corporate responsibility program at the As You Sow Foundation that co-filed a shareholder re solution along with Ethical Funds and many other shareowner activists asking Wal-Mart to produce a sustainability report, sings a different tune.

"Even if Wal-Mart achieved 100 percent of its environmental agenda, it would be hard to see how a company facing serious allegations of unequal pay, low pay, intimidation of union organizing efforts, and no limits on store siting, sprawl and growth could get an SRI gold star," Mr. MacKerron told SocialFunds.com. "It's interesting that none of the proposals announced so far would restrain their growth in any way--in fact, they seem to be suggesting that their huge size and buying power will somehow bring environmental and social justice."

Mr. MacKerron points out other high-profile corporate sustainability commitments that alleviated criticism, but only temporarily.

"In the past Home Depot [HD] said it would stop using old growth lumber, Coke [KO] said it would use recycled content in plastic bottles, and Time Inc. [">TWX] committed to recycled magazine paper, yet all these companies reneged on their promises only to be re-engaged by activists or shareholders," Mr. MacKerron pointed out. "The timing of Mr. Scott's speech seems aimed at blunting the impact of Wal-Mart Watch's 'Higher Expectations Week,' a national week of protest aimed at Wal-Mart beginning November 13, when activist groups will focus on a different aspect of their social and environmental problems each day and the premiere of a movie critical of the company."

The impact of Wal-Mart's sustainability commitment has already been blunted, as Wal-Mart Watch released an internal company memo today on the new Value Plan healthcare that would reduce monthly premiums to as little as $11 for workers in some areas.

"The memo, which acknowledges that 46 percent of the children of Wal-Mart employees in the US do not have health insurance or are on Medicaid, raises concerns about the company's motivation in changing its benefit structure," said David Schilling, the director of global corporate accountability for ICCR, which has been engaging with Wal-Mart on social and environmental issues for some 15 years. "It appears that cost-cutting is more at the heart of the new initiative than addressing human needs of employees, though we hope this is not the case."

The Value Plan faces other concerns outside those sparked by the memo for Ruth Rosenbaum, executive director of the Center for Reflection, Education, and Action (CREA), who has conducted shareowner action alongside Rev. Schilling at Wal-Mart for years. Sister Ruth worries that families earning the average $17,500 of Wal-Mart workers will not be able to afford the $1,000 deductible after the mere three doctors' visits allowed by the plan. However, Sr. Ruth is reserving judgment.

"Am I willing to wait and see? Sure," Sr. Ruth told SocialFunds.com. "But I'm going to watch and wait and not be willing to give kudos for their announcements."

"Remember what our mothers told us when we were kids--'actions speak louder than words,' she added. "I want to see them do it."

 

 
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