Kathleen McLaughlin, Walmart's Chief Sustainability Officer, said Walmart has integrated sustainability and ESG efforts into its business operations as well as its planning cycles.

Speaking at the Goldman Sachs Sustainability Forum, McLaughlin gave an overview of Walmart's integrated approach to environmental, social and governance (ESG) initiatives and how it is driving business results via supply chain savings and other initiatives. Constellation Research analyst Doug Henschen said:

"Walmart's leadership in sustainability, disclosure and, most particularly, bringing some 70% of its supply chain along on that journey is commendable. Its supply chain successes show that efforts by large public companies will have a ripple effect down through smaller suppliers, including private companies that may not be directly required to meet coming ESG regulations."

Here's a look at Walmart's approach to ESG by category.

The business value of ESG.  McLaughlin said Walmart's strategy touches multiple areas of the business and is integrated across functions. In other words, ESG isn't a side project and aligns with saving money and bringing affordable products across multiple channels. ESG drives economic value via its people by developing new skills and being more productive, supply chain, partners and customers.

McLaughlin added that the circular economy also drives returns. "How do we shift consumption toward a more circular approach, not only of packaging and things like that, but the materials themselves and products?" said McLaughlin. Walmart can also leverage its real estate for sustainable energy and other services, she added.

"I think one of the more exciting things for me in this whole arena the last few years has been a shift from maybe the past 15 years ago from a corporate social responsibility mind-set and a side project mentality to something that's been more, 'these things matter for business," said McLaughlin.

Walmart's ESG initiatives are integrated with business initiatives and capital and operating expense planning. "It is part of our core operations," she said.

Supply chain. Sustainability in the supply chain is driving returns and represents a lot of potential.  McLaughlin said that supply chain efficiency has a direct impact on emissions and returns, but also needs to be nimble as supplies and commodities shift based on weather events.

Walmart has 5,200 suppliers involved with its Project Gigaton, which focuses on emissions avoidance as well as sequestering and removing carbon. McLaughlin said:

"The projects are in energy, transportation, product design, packaging, waste reduction and nature. So regenerative agriculture practices, animal, ag and crops and then also avoidance of deforestation and conversion. And so, what we do is help our suppliers that target in a way that is science-based make progress on initiatives by sharing best practices, supporting with playbooks, summits, knowledge exchange, advice. We also then provide a series of resources."

Emissions. Walmart's McLaughlin said the retailing giant can tackle Scope 1 and Scope 2 emissions without offsets but will have to experiment. As a refresher:

  • Scope 1 represents direct emissions from company facilities and vehicles.
  • Scope 2 is indirect upstream emissions from purchased electricity, steam, heating and cooling.
  • Scope 3 includes indirect upstream and downstream emissions from purchased goods and services, capital goods, fuel & energy activities, transportation, waste, business travel, commuting, leased assets; processing & use of sold products, investments.

Electrification and refrigeration can help bring Walmart to net zero by 2040. Electricity is "the lion's share of our emissions in Scope 1 and 2," she said. "It's refrigeration that's technically possible, but incredibly complex at our scale to convert to low global warming potential refrigerants in our entire fleet globally. That's not going to be easy, and we're still experimenting with different technologies. But we think it's doable. And by 2040, we need to figure out how to get there."

Last mile delivery is another key area for Walmart and the company is looking toward EVs. Longer deliveries are going to be more challenging. "The tough one there is our heavy tractor where we don't have the technology today given our loads and the distances that we run those trucks. Today's battery technology, EV that's not going to do it. So there needs to be innovation there. Or is it fuel cells or what?" she said.

There can also be business value with cutting ecosystem emissions. Walmart is expanding its EV charging infrastructure so "it will be great and attractive for customers. They come and plug in." Another initiative is using Walmart locations to provide solar energy to the community and grid.

Scope 3 is going to be a challenge largely due to data. McLaughlin said:

"Our challenge now as we kind of go into a world where there's more expectation of reporting total footprint is how do we connect these very real projects in very real parts of the supply chain with very real evidence of progress and so on to a foot printing like a comprehensive foot printing analysis. It's a different set of numbers and assumptions. For a retailer like us, we have 400 million items, different SKUs, like different items that we sell between in-person, online, at least that many. There isn't a data set about the comprehensive Scope 3 of every single one of those items, especially when you consider how customers use those items."

She added that Walmart's plan is to focus on emissions where they are heavily concentrated in the supply chain and focus on innovation there.

Human capital. McLaughlin said that human capital is a big part of ESG. The big focus for Walmart is training and providing marketable skills. For instance, sustainable refrigeration will require a new skill set for people managing equipment. There are paths to move hourly workers to key areas such as truck driving and management. "We need truck drivers. It's a $100,000 a year job. We can teach people the skills to do it. And so, we've got people flowing into those positions. That's just one, same thing in pharmacy, same thing in coding, you pick it," she said. "75% of our managerial roles are filled by people who started as hourly. 80% of our openings we fill with internal Walmart people because that's what we're trying to do is kind of create these development paths."