CorpComms Magazine

When Lee Scott addressed 7,000 Wal-Mart managers at a meeting in Kansas City earlier this year, it was, even by the high standards of the retail giant's chief executive and president, an extraordinary performance. His speech, modestly titled 'The company of the future', was so full of high-minded rhetoric that, according to the New York Times, it 'at times resembled a campaign speech'.

'The fact is that no other company can make the difference Wal-Mart can,' Scott gushed. Telling staff they could 'help make the world a better place', he added: 'There will come a day when you will be at home with your children or grandchildren, and you will look them in the eyes, and you will know that you made a difference to the world they live in.'

But amid the back-slapping and hyperbole - his vision includes a future in which Wal-Mar t 's customer s recharge their eco-friendly cars while shopping at stores where wind turbines generate electricity - Scott had stern words for an audience beyond the room. Referring to Wal-Mart's supply base, he said products had to be made in a way that was consistent with the 'personal values' of its customers. The retailer, he stated, would deal only with those suppliers able to meet ethical, environmental and quality standards. 'Any supplier that fails to keep its word will be required to take prompt and serious action,' he added. 'And if a supplier fails to improve and fix the problem, we will stop working with that supplier.'

Point of no return

Scott's speech - described by one commentator as 'not unlike Hernando Cortez burning his ships when he first landed in Mexico... a clear signal there's no going back' - made the business world sit up and pay attention. But while the CEO's tone was even more zealous than usual, the central message was nothing new. It marked just the latest phase in a drive, begun by Wal-Mart in 2005, to pay more attention to its supply chain as part of a series of ethical and environmental goals.

As the world's largest retailer, with a unique ability to influence the behaviour of its 60,000 suppliers across the globe, Wal-Mart's initiatives on CSR have inevitably grabbed headlines. But according to Craig Bennett, development director at the University of Cambridge Programme for Industry, the retailer's attempts to make suppliers adhere to standards on ethics, the environment and sustainability are part of a growing trend that has seen these issues become an increasingly core part of corporate culture.

'What makes Wal-Mart so interesting is its customer base,' says Bennett. 'While Marks & Spencer or Waitrose would be selling to more affluent customers, Wal-Mart is often selling to people on lower incomes.'

Just a decade ago ethical consumerism was still a fringe issue but today it is a mainstream part of most large businesses, from DIY store B&Q's use of sustainable timber to the efforts of property group Land Securities to promote greater energy efficiency in its developments.

'This was hugely peripheral in the 1990s when you were managing maybe one or two high-profile issues,' notes Mike Barry, head of corporate responsibility at M&S. 'But the pressure groups began to realise that lobbying governments was not the best way to drive environmental and social change, and by targeting big brands they could achieve things much more quickly. We were responding to campaigns on a Friday night and running around like headless chickens, and it was only in 2003 and 2004 that we started to get on top of the issues.'

Working together

Julia Hawkins is media relations manager of the Ethical Trading Initiative, a group set up to bring together companies, NGOs and trade unions to promote corporate codes of practice on supply chain working conditions. 'We now live in a world where stakeholders, consumers and campaigning organisations are saying, Show me what you are doing and Prove what you are doing,' she says. 'Ten years ago, most companies didn't actually recognise that they had any responsibility to the workers in their supply chain but now most do, and they are exercising that responsibility.'

The shift in attitude has come about partly as a reaction to growing consumer awareness and pressure groups, and also as a fear in the corporate world that if companies do not take action it will only be a matter of time before governments step in. Increasingly, however, companies recognise that having a supply chain that behaves according to ethical and environmental standards is good business.

'You now have a fundamental understanding that the supply chain in all its aspects is a source of value,' explains Mark Lee, chief executive officer of SustainAbility, a consultancy that works with the private sector on sustainability issues. 'Wal-Mart is wringing waste and inefficiency from its supply chain at a stunning rate. It is using traditional Wal-Mart leverage to achieve environmental and ethical aims, passing a lot of the responsibility for innovation on to the supply chain in a very Wal-Mart fashion.

'It has also done a really good job of both communicating and engaging with its suppliers, however, holding a series of supplier summits on issues such as packaging and the environment. In the process it has gone from being very non-engaged with its suppliers to being deeply engaged.'

For Wal-Mar t, the figures are already starting to add up. Its aim of reducing packaging by 5 percent by 2013 may not sound enormous but, according to the retailer, this will lead to 213,000 fewer trucks on the roads, saving 324,000 tonnes of coal, or 67 mn gallons of diesel fuel.

Even the smallest initiatives are paying off. Work with one supplier to reduce the packaging on its Kid Connection brand of toys means Wal- Mart now needs 497 fewer containers to transport the same number of items, saving $2.4 mn (£1.2 mn) every year in shipping costs.

Small steps

In the UK, Wal-Mart-owned Asda has reaped similar benefits, albeit on a smaller scale. Like its parent, Asda is using its traditional leverage to bring about a new kind of change.

'We changed our milk-sourcing policy so we now have a direct link with dairy farmers,' says Chris Brown, head of ethical and sustainable sourcing at Asda. 'First we chose farmers who were close to the dairies; by doing that we took out 5 mn road miles. Since then, we have done a dozen individual farm carbon footprints with the desire to understand where the carbon hotspots are in our supply chain. It is about changing the way we influence the supply chain to operate.'

Asda's Respectful range of freerange eggs f rom chicken farms powered by renewable energy gets special prominence in its stores - a clear reward for green behaviour. Described as the world's first 'low-carbon supermarket eggs', Respectful eggs have sold at five times the rate of other supermarket eggs since their launch last year.

A similar revolution is taking place on the fish counters. Asda's own-label fish fingers - costing from just 24p a pack - have become one of its most popular products and have the added bonus of being approved by the Marine Stewardship Council (MSC), which requires fisheries to observe strict catch levels and to take measures to protect young and spawning stock.

Although critics complain the fish comes from Alaska, thus undermining the product's environmental credentials, there is little doubt the behaviour of big supermarkets is having a real effect on this sector. More and more UK fisheries are seeking MSC accreditation because they realise there is a market for it, while even staple foods like cod are being reinvented as eco-friendly. According to M&S, which has been widely praised for its promotion of sustainable fish, the level of produce carrying MSC's accreditation is now reaching 'critical mass', the point where suppliers' change of behaviour starts to pay off.

Demand for sustainable fish has grown exponentially, says Waitrose fish buyer Jeremy Langley. 'Customers want to know where their food comes from: which ocean, how it was caught, and whether it was sourced ethically,' he says.

The right choice

Bennett believes it is only a matter of time before supermarkets engage more and more in what he calls 'choice editing', where products are not even offered to the customer because they are deemed unsustainable or unethical. 'You can't go into Sainsbury's these days and buy a banana that isn't Fairtrade and you can't go into some DIY shops and buy a hugely inefficient patio heater,' he says. 'Choice editing sends real shock waves out to industry and makes manufacturers try to invent new and improved products.'

In Bennett's brave new world, people would shop in Marks & Spencer not just because they want to buy sustainable fish stocks but also because they trust it to take ethical decisions across its entire product line. 'M&S isn't saying, Come to us and buy sustainable fish,' he says. 'The subtext is, Come to us because we care about these issues and share your values.'

In the clothing sector, change has also been marked. Since the anti-sweatshop protests of the 1990s, both Nike and Gap have become standard-bearers for efforts to improve supply chain working conditions.

As the definition of corporate responsibility has evolved, however, so too has the attitude to suppliers when things go wrong. While 10 years ago the typical response to the discovery of child labour in a company's supply chain might have been to disown the supplier, companies now realise they have a responsibility to work through problems.

'The first approach with suppliers is that of practical risk management: don't dare get me into trouble,' says Barry. 'It works when you are managing only five or 10 issues, when the man with the clipboard will come in and check you. But as soon as the auditors have left the premises you can slip back to your old, dodgy day-to-day practices. As the number of issues mushrooms from five to 10 to 80 or 100, however, you've got to instil a positive attitude in your supply chain so suppliers know it is in their interest to manage these issues well, even when you're not looking.'

Working practices

Despite effor ts by companies to eradicate working condition violations, it is all but impossible to remove them completely, says Toby Webb, editor of Ethical Corporation. 'Figuring out where your supply chain ends in terms of ethical responsibility is an absolute nightmare,' he says. 'You might have 25 tier one suppliers but your tier one suppliers might have 25 tier two suppliers, and it comes all the way down to the end of tiers five and six, which are often outsourced, and that is where you get the child labour in a back street in Mumbai.'

M&S, whose much-trumpeted 'Plan A' - with its five pillars of climate change, waste, sustainable raw materials, fair partnership and health - was launched 15 months ago, has attempted to engage its suppliers in dialogue rather than dictate to them. Instead of buying cotton through middlemen, for example, it has gone direct to farmers' cooperatives and at one stage last year owned a third of all the world's Fairtrade cotton.

In return for cotton farmers adopting Fairtrade standards, M&S has offered them long-term contracts and commercial security. By taking this leap it has also helped to change the marketplace, with an increasing number of retailers following suit.

This grown-up approach to suppliers has paid off closer to home, too. In the UK, it has supported farmers who have built renewable energy schemes on their land by offering them long-term contracts that give them an additional income stream, while simultaneously helping the retailer reduce its carbon footprint.

For many large companies, CSR remains little more than a PR gimmick. But there are clear signs progress is being made, though whether this will suffer during the looming economic downturn is hard to say.

Advances have also been frustrated by a lack of collaboration between firms, and even CSR's biggest advocates admit that change - particularly in developing countries - will not come about overnight.

What's right is good

'Some companies are making serious attempts to put CSR at the heart of the way they do business but there are many where it remains on the periphery,' says Hawkins.

For many observers, the changes that have been made are too little, too late, and the mere thought of some companies preaching on these issues is blatant hypocrisy. Barry, however, insists CSR is here to stay, and that it is not just about PR or appealing to a minority of consumers.

Barry further believes that, although it came relatively late to the party, Wal-Mart's impact cannot be overstated. 'This is not the unique preserve of M&S or Waitrose,' he says. 'Wal-Mart's rate of improvement over the last year or so has been phenomenal. The biggest companies in the world are now in this market.'

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