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Walmart Boosts Energy Efficiency of Chinese Suppliers

RP Siegel | Friday June 18th, 2010 | 0 Comments

In a world dominated by enormous corporations, whose power and wealth often surpasses that of the countries they operate in, you can see the whole gamut out there when it comes to companies’ commitment to sustainability, from leadership to intransigence and everything in between.

Retail behemoth Walmart has in fact spanned that entire gamut themselves, going from being a poster child for blind corporate greed to, in many ways, becoming a role model for sustainable business practices, in a little over a decade. And while it’s still very much a question of taking the good with the bad, given the fact that Walmart’s core premise, which is to provide mass market goods at the lowest possible prices, an ideal that often strains against some of the core sustainability principles, such as buying locally whenever possible; it would be short-sighted to dismiss the efforts the company is making to do what they do more sustainably, because their impact is so large.

In 2008, Walmart CEO Mike Duke announced that the company would improve the energy efficiency of its top 200 Chinese suppliers by 20% by the year 2012. Businesses for Social Responsibility (BSR) has been recruited to help them achieve that goal.

According to a recent BSR Insight article, in its first year, the program recorded a 5% improvement in over 100 factories and determined that the “suppliers had the capacity to do much more.” Building on that achievement, Walmart has decided to raise the bar. They have now announced that they will eliminate 20 million tons of GHG emissions for its supply chain. An impressive figure, that’s great news for the environments, but that’s not necessarily why they are doing it. According to BSR’s Ryan Schuchard, “Walmart, a relentless cost-saver, sees it as a way to make suppliers leaner, more resilient, and more competitive.”

Given this December’s scheduled rollout of the Scope 3 GHG Accounting Principles , which takes a number of extended entities, including a company’s supply chain into account, now is a good time to start looking in to this.

Not only is China the  source for many of the goods that eventually end up in the US, but when it comes to GHG emissions, it is a land of low-hanging fruit. According to the BSR report, Chinese factories use roughly 11 times as much energy than their Japanese counterparts. And because China’s energy demand is so high, a concerted energy efficiency program in China could conceivably reduce global energy demand by 5%.

The good news is that energy efficiency in China, unlike some other countries, is cost effective. The bad news is that in China, the market is inefficient, insofar as the price signals don’t always reach the ears of the decision makers, since the ones paying the utility bills are often not the building owners and  also because of government energy subsidies.

According to Schuchard, “The job of international companies in supply chain energy efficiency is to keep China’s specific challenges in mind and build bridges between ESCOs (energy service companies) and suppliers.”

He recommends the following five steps:

  • Establish common ground. Chinese business owners are focused on growth. They need to be shown the essential linkage between productivity and growth.
  • Show the road map. Make sure that goals and timelines are explicit and clear.
  • Require accountability. Get senior management buy-in. Of course, it helps when their biggest customer is looking over their shoulders.
  • Build capability. Make training a priority and provide backup support.
  • Implement. Identify and deploy efficiency solutions. Address barriers like the lack of infrastructure that makes energy savings hard to verify.

In many ways, Walmart is in a unique position to make this happen because of their size, and it’s great that they are doing it. Now that the doors have been opened, it makes good sense that others should follow their lead.

RP Siegel PE,  is the Executive Director of Cool Rochester and the co-author of Vapor Trails, the 2009 eco-thriller that was written about the oil spill before it happened.


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