Kathleen McLaughlin, Executive Vice President and Chief Sustainability Officer, Walmart Inc., President, Walmart Foundation 
Interviewer: Alan Murray, FORTUNE


 Impact Initiative 2022 - Leadership In Action with Kathleen McLaughlin

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Impact Initiative 2022 - Leadership In Action 



Impact Initiative 2022 - Leadership In Action with Kathleen McLaughlin


So when you're the largest company in the world by revenue, the moves you make with suppliers can bend markets and set an example for others to follow walmart walmart project yucatan involves over 4500 suppliers. It aims to eliminate one billion metric tons of greenhouse gas emissions from product supply chain by 2030. We're going to sit down with the firm's chief sustainability officer to assess the project's progress and discuss walmart's broader climate policy. Please welcome Kathleen Mclaughlin, executive vice president and chief sustainability officer of walmart and president of the walmart Foundation for a conversation with fortune Media Ceo Allen, Murray, Kathleen, Thank you for being here. I think it was around two years ago that I first heard your Ceo Doug McMillon say we're going to be a regenerative company. That was a new one for me and said, okay, well now there's another word, I've got to figure out what does that mean that walmart, the largest company in the world, is going to be a regenerative company. Yeah, well, it's an aspiration we're working toward and to regenerate, means to restore to renew, regenerate. And it means regenerating the resources that we rely on for our business to operate our business and that's people and planet. So, um, you know, anybody who's been working on circularity for awhile has heard about shifting from this, take make break, you know, kind of economy, um, to one that's circular, same idea. So how do we replenish restore renew And that means elevating people and the resources that we use as a retailer for the products that we make and source and supply to our customers. So that's what it means. It's an ambition, we're not saying we're there and it's an ambition for society. This is a big systemic transformation that we're talking about. Not just for one. Yeah, it was really impressive. I I'd love to focus in a little more. I know you've got a lot of different things going on in this area, but I'd love to focus on project gigatons because I think with the conversations we've been having about scope three and how do you engage your supply chain? It's a fascinating example. So explain what gigatons is and how it came about. Well, back in 2016, we had been working on energy efficiency and renewable energy for a while and working quite closely with folks from Environmental Defense Fund and World Wildlife Fund and C. D. P. At the time, which the carbon disclosure project and they were forming along with World Resources Institute, a new initiative around setting science based targets for emissions reduction and translating those targets into business targets by sector. And they said you really ought to do this. You know, you ought to set a target and we said, okay, that sounds great, but how do we even get started. Um and of course back then. Um really, especially in terms of the emissions from our supply chain and so on, it was hard to know where they came from or how to even get started on it. So, um, what we did know was our scope one and two emissions? The emissions from our own operations are electricity, our trucks are on site, fuels frustration, pretty straightforward, pretty straight, but you know, we could measure that more or less and the scientists said, look, we don't know what the emissions are from the production of your products or how they get used by consumers. But let's assume like 90 95% of your emissions come from that. So we literally just took our scope one and two emissions and multiplied by 20 like we didn't know, but that's what we did and came up with the number and then we did the math with them that said, okay, so we're gonna reduce in line with the paris agreement to stay within at that time, the two degree um, world it's 2.5% reduction per year of those emissions. And when we add it all up, compounding, you get to a gig aton a little over a gigatons by 2030. So we said, okay, well let's call it project gigatons and that's our scope three science based target. And what um, those advisers said to us at the time is, look, the most important thing you can do is get started practical action that makes a difference on d carbon izing the most concentrated emission sources in supply chains with suppliers, but getting started now making it feasible Easy, compelling for people to do. So that was project yucatan and we designed it to do that. And so how did you get started? So we did some of the math around where we thought the emissions were and these are pretty gross estimates and we came up with six different arenas of action. So energy product use, waste reduction, packaging, agriculture and forests. So avoiding conversion, divorce station conversion of critical landscapes. And we worked with the scientists to identify actions that companies could take beef suppliers, apparel suppliers, shoe manufacturers. So depending on the category, different concentrations in those six areas, practical actions, they could take energy efficiency and a factory converting to renewable energy, reducing food waste upstream with farmers changing packaging, reducing packaging, designing laundry detergent to be used with cold water instead of hot water, which was something PNG really leaned into. So practical actions that companies could take that would change the way products get manufactured, grown, harvested or used. And then we created calculators like mad Libs. So if any of you guys have kids or you know, have birthday parties or wedding showers, these mad Libs right where you fill in the blanks in a sentence. So we took these actions and had blanks that suppliers could fill in and literally just press a button and it tells them what the emissions impact is. So for example, I have a factory in Iowa or Albania or Arizona. Um it is um sourcing energy from the grid or I have my own wind farm, so which is it, I'm converting to this energy source, that project will be for 10 years. Here's how much electricity I draw from that, press the button, here's the emission savings. That alone was a huge intervention because it allowed small suppliers as well as big ones to engage and that was one of our goals. We wanted to democratize climate action, drive innovation, get emissions down to zero across all categories, but focus the action where it matters and make it really easy for people to do. Um so we did that and then we said, well how can we support people? So we started off with just workshops to even explain all of this and make the business case and you know, we had some folks show up to our first workshop and they said, you know, I came because you asked me to but I don't think this is relevant for my business because I don't have any greenhouses. Remember this is 2016, 17. Right, So we wanted to help them build the business case for their C. E. O. S and their boards and then also how do they get started? And then we've, over the years added programs, resources tools to help people go faster in each of those arenas is a requirement. No. So this has always been a debate at walmart do we require, what do we require? What do we just make an invitation? So, because this was so new and such, um, You know, there's a lot of skill building to do and a lot of make the business case to do. We said, Let's just start out, make it voluntary and see how far we can get. Well, you mentioned, I think in the intro we have 4500 suppliers as of a year ago, we'll be disclosing our new number and it's even bigger And those suppliers represent over 70% of our business. So you have, you have more than 70% compliance on a completely voluntary basis. So, so, um, Walmarts relationships with its suppliers are famous, right? I mean when you're as big as Walmart, it's an important role and, and for years, I mean, this was sam Walton's mantra everyday, low prices for years. What they've been feeling was pressure from you to keep prices down, to keep margins down to innovate to provide less expensive goods. I can imagine some of your suppliers saying, hey, I can get cost down or I can save the world, but I can't do both. Don't ask me to do both. Do you have those conversations what happens in those conversations? Yeah, of course. And so a good merchant, the way that you get cost down on a product is by focusing that product and the supplier on what's relevant for the customer. So only, including the specs that matter and not all the bells and whistles that don't and eliminating waste from production and that's really the mindset around everyday little cost. Um, there's a notion of everyday low true cost, right? So how do you do that in a way that can be carbonized And what we found is a couple of things first of all in the early days, especially most of the interventions save suppliers money. That's one of the reasons we have such high participation energy efficiency these days. Even trans transitioning to renewables. That's a creative eliminating packaging, that's a creative shifting to a better packaging material. That's good. By the way, the famous example that I love that happened many at the beginning of your journey was convincing Procter and Gamble that you could make concentrated tied in smaller packages, save on packaging, save on transportation costs. Yeah, not ship water around essentially, you know. So, yeah, agriculture fertilizer is a massive cost for farmers. So fertilizer optimization reduces emissions and reduces costs for the farmer. It was one of the earliest things we went after that actually gave us confidence we could do this. So part of it that there is some very creative steps that people can take. Second thing then is just innovation. Right? So if you've got something you're like this, it's too high cost right now. Okay, well how do you do it differently? What's the innovation And and to me that's one of the big, valuable impacts of a project like this is, it's accelerating innovation in the sector in the industry and that's what we want. These transitions were talking about energy, transportation, agriculture, these are societal transitions. This isn't just walmart and our suppliers. So innovation has been the innovation requires investment. Do you help them with the necessary investment sometimes? Yes, in different ways. So for example, we have a partnership with HSBC and HSBC provides favorable financing terms to suppliers that are engaged in gigatons working on projects disclosing their progress. Um, we've done something similar with Schneider Electric around renewable energy where our suppliers came to us and said, well we want to participate, but we don't have a procurement team that does renewable procurement. So Schneider offers an aggregate power purchase agreement vehicle to suppliers. We have our first cohort doing that. Now. It's levi Strauss smuckers, you know, a number of suppliers where that's a benefit to them. Cool. So you pull this target kind of out of a hat. The gigatons target are you're gonna make it 2030 by 2030 based on what you know, today you're going to get there. I think we will get there as of last year reporting we were at 574 million metric tons. So, well on the way, we won't stop, right. We had to pick something and again, the focus was, let's get going now, let's not wait till 2040 we're gonna keep going really as a society, we're trying to transition to net zero. Um So I think we will make it, but then that won't be the end. Like we're going to continue. We've had a lot of conversations here over the last day about the political pushback on corporations, csg etcetera. You are in in many respects a a red company, you're in a Red state, you have, you serve customers in Red states. How do you deal with florida or a texas? That's saying, oh hey, all the csG stuff is Bs and and and don't talk to me about it. We don't want your woke agenda well, we really serve America. It's true. We are headquartered in Arkansas but our customers are all across the U. S. And other countries as well. Our suppliers are all across the country are associates span the political spectrum. Um so we really in many ways reflect the country for us as a company. Our priorities at the intersection of business and society are those things that pass three tests. One um needs to be relevant for our business. So when we're working on energy efficiency or packaging or trying to improve agriculture for surety of supply of our products, there's a business case that we can clearly articulate and that's really where we focus second these issues um that we're working on are ones that our customers, our associates, our suppliers, our communities have asked us to work on, they expect us to do it. And third their issues where we believe are getting involved in it will make it better and not worse. So for us it's a matter of being able to explain, like why would we pick an issue like this? What's the benefit of us working on it? How does it serve community and being really true to that case? Um inarticulate so, so you've been at this for quite a while, probably longer than a lot of the people in the room. What's your advice to people who were earlier on their journey to figuring out how to get large corporations to have a proper impact on E. S. G. Matters. My advice is whatever your organization start with, what's your core mission and then of all the things that are out there. Environmental issues, social issues, governance things. You're being asked to do which ones passed those tests? I talked about what's most relevant for your business, stakeholders, expect you to do it and you have capabilities to make a difference. Start with those and set it up in a way that you have concrete measurable steps early on. You can have the long term target, we need that. But what can you do immediately start with the things that are a creative and do the innovation to expand that aperture and make more and more of an impact over time. Good advice, Kathleen, thank you very much for being with us. Thank you