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Walmart gives suppliers an incentive to curb carbon emissions

Suppliers are getting a clear message from Walmart Inc. on sustainability: cut carbon emissions or risk losing the retailer's business.

As the world's largest retailer and the largest customer for many companies in its supply chain, Walmart has the ability to press companies in its orbit to sign on to initiatives like Project Gigaton, a pledge to eliminate 1 billion metric tons, or a gigaton, of greenhouse gas from its global supply chain by 2030.

The retailer does not plan to dip into its cash reserves to help fund initiatives, instead offering status as preferred suppliers, strengthening relations with the Bentonville, Ark., company. Walmart's suppliers need to swallow any costs — potentially tens of thousands of dollars, or more — but it is a price many are willing to pay.

"Companies are [signing up to Project Gigaton] because they know that if they don't, they're going to sacrifice market share," said Stephen Weir, CEO of Weir-TS, a consulting firm that works with Walmart and its suppliers on Project Gigaton. "Anyone who answers positively to Project Gigaton is invited to a lot more events out in Arkansas, but if you don't respond, you're probably going to find yourself excluded from contracts and a lot of events."

The program asks suppliers to pitch measurable goals for carbon reductions and to report back to Walmart on progress. About 400 suppliers so far have joined the initiative, according to Walmart's website.

Canned seafood company Crown Prince Inc. has begun sourcing from more fisheries designated as sustainable by the Fisheries and Aquaculture Department of the United Nations, logistics manager Tracy Hoffman said in an interview with S&P Global Market Intelligence.

"It's always a good incentive to be in Walmart's good book," Hoffman said. "That can really make or break your business." Crown Prince declined to comment on the cost of the switch.

Walmart touts a mention on the Project Gigaton website as one of the main ways the company rewards suppliers for participating in Project Gigaton. But consultants and suppliers interviewed by S&P Global Market Intelligence said website recognition provided little motivation and that the biggest incentive was in currying favor with Walmart, which generated revenue of $500.34 billion in the fiscal year ended Jan. 31, 2018, from its network of 11,700 stores across 28 countries.

"Having [Project Gigaton] on our buyer's agenda is a really powerful lever," Ariane Grazian, Walmart's global program lead for Project Gigaton, said in an interview. "Of course they're important suppliers to us, and we're important buyers for them. Sustainability is a great way to be a differentiator when we look at who we're buying from."

Walmart and other big box retailers such as Target Corp. have introduced sustainability efforts within their own businesses that require the retailer's direct investment, including switching to more efficient LED lights or optimizing trucking routes. But Walmart is the only major retailer to press its suppliers to adopt greener strategies.

The relationship between Walmart and its suppliers can be critical for the suppliers. For small and midtier firms, the loss or reduction in Walmart's business could mean that they cannot afford to continue operating, Weir said.

John Kent, director of the University of Arkansas Supply Chain Management Research Center, said Walmart, more than most, is well-positioned to put pressure on suppliers. Walmart wields "very, very significant" clout over its suppliers, Kent said.

"It's difficult to overestimate how large Walmart's supply chain is and how much influence Walmart has over the 1,300 companies that stock its shelves," Kent said in an interview. "Usually, when Walmart asks its suppliers to do something, they listen."

Project Gigaton is on track, Walmart said, although to date it is only a fraction of the way toward achieving its goal. The company released the results of the initiative's first year in April, indicating that Project Gigaton has helped reduce greenhouse gas emissions by 20 million metric tons.

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"We're not necessarily discouraged by small numbers," said Walmart's Grazian. "For the first two years, we're more interested in the projects coming through the pipeline."

Some suppliers have been more responsive than others, said Grazian, who declined to share specific examples of companies that have voiced concerns about the project. Grazian said the next step is to work with suppliers already in Project Gigaton to increase their targets for reducing carbon emissions.

Primo Water Corp., a seller of multigallon bottled water and water dispensers, joined Project Gigaton in February. Primo Water said it already invested in sustainability efforts. For its multigallon bottled water, the company allowed customers to exchange jugs up to 40 times instead of throwing them away. Primo Water estimates that this saves more than 1,500 single-serve bottles for every 1 gallon of water, Madison Pichardo, chief of staff at Primo Water, said in an interview.

With Project Gigaton, the company now is looking at packaging for its water dispensers to reduce waste and switching to more fuel-efficient vehicles for its delivery service, said Pichardo. The company declined to comment on the cost of investments.

"As Walmart started to focus on sustainability, we're realizing there's probably other things we can do," Pichardo said. "Walmart is helping create the demand for these sustainable products and services. When your biggest customer asks you to do something, you figure out really fast how to do it."