The rivalry between Tesco and Wal-Mart is well known. Tesco's imminent entry to the US heartland of the world's largest retailer may have created an extra edge to the battle. And, unsurprisingly, the two giants are squaring up over carbon issues as well as over such things as employee conditions and global sourcing policies. Tesco said earlier this year that it would eventually put carbon labels on all its 70,000 food lines. It has been trying to find way of doing this using Life Cycle Analysis, putting a greenhouse gas cost on every element of a product's move from farm to plate. This was always a hugely over-ambitious project and recent weeks have seen the company drift back from its early optimism. Now Wal-Mart has come up with a similarly impossible dream – to use the Carbon Disclosure Project (CDP) to assess and manage the energy footprint of its suppliers. These big retailers know that they have to be seen to be doing something about greenhouse gases, so they have both launched incomplete schemes that will achieve little.
Wal-Mart will use the CDP to collect emissions data on all its suppliers.
On Monday 24 September, Wal-Mart participated in the annual presentation of the CDP in New York. On behalf of many of the world's major investment funds, CDP collects data on emissions from thousands of companies around the world. The funds backing this project manage about half the world's invested assets, so CDP has increasing clout.
For years Wal-Mart refused to participate in the CDP data collection process. The carbon footprint of the retailer is enormous, and it probably didn't want the numbers to be widely known. But the company's conversion to carbon reduction in the last two years has been rapid and genuine. It has committed to power all its stores with 100% renewable energy, a plan far in advance of Tesco or even Marks and Spencer.
Now Wal-Mart is not only taking an active role in the CDP, it has also publicly decided to ask all its 60,000 suppliers to do the same. As we so often hear, measuring carbon output is the first step in the process of reduction.
Wal-Mart's language is very different to the UK retailers. It consistently refers to the cost benefits of cutting the use of fossil fuels. Tesco might talk about responsibility to the widest group of outside stakeholders but Wal-Mart emphasises the role that energy use reduction can play in reducing supplier costs, and hence prices in the stores. John Fleming, the Wal-Mart executive presenting at the CDP conference, made clear that he didn't expect the prices of any of its goods to rise as a result of the move to lower emissions manufacturing and distribution. Tesco has said similar things, but with far less conviction in its corporate voice.
How big are the footprints of the largest retailers? Wal-Mart's CDP report shows emissions of about 20m tonnes of CO2, equivalent to about 3% of the UK's total. Tesco reports a figure of 4m tonnes, of which about 2.3m is in the UK. These figures exclude the CO2 output of suppliers and the energy cost of the products when used or consumed. About half of the UK figure is electricity, and another quarter the emissions of the particularly nasty greenhouse gases used in almost all store refrigeration.
M&S does more detailed work on the supply chain. It estimates that its total CO2 output from retail operations and distribution fleet is about 0.6m tonnes. The figure it offers for suppliers is 3m tonnes, or five times as much. If the ratio was the same at Tesco UK, the activities of the company could account for over 10m tonnes of CO2 equivalents, or almost 2% of the UK total. Wal-Mart worldwide would be 100m, or almost one sixth of the total emissions of the UK. Wal-Mart matters, and it makes no attempt to hide this.
The efforts to manage down the total size of the footprint Until recently, Wal-Mart and Tesco have focused on two areas – packaging and company-wide energy use:
- Packaging: Wal-Mart has said will reduce packaging use by 5% by 2013. Tesco has a much more ambitious target of 25% buy 2011.
- Energy use: Wal-Mart has set itself a challenge of being entirely powered by renewable electricity. Tesco says it will cut energy use by 50% between 2000 and 2010 (and is well on the way to achieving this).
Tesco's boundary for the calculation of its own footprint
There have also been competing initiatives on low energy light bulbs (Tesco: 10m in 2007; Wal-Mart: 100m this year) and on using micro-generation at new stores (little more than a token in either case).
The real battle between the two companies is over the carbon footprint of the products that they sell. If Marks and Spencer's numbers are right, this is unsurprising: the Tesco plan is to label all 70,000 foods sold in shops with a carbon label. Despite the obvious complexity and difficulty of this assignment, Tesco announced its commitment in January 2007. It asked Oxford's Environmental Change Institute (ECI) to work on a couple of projects to begin the marathon scheme of getting a carbon figure on every packet. A figure of £5m was thrown around as the budget for carbon label work, but this number is no longer mentioned by Tesco or the ECI. By the end of May, ECI team leader Brenda Boardman confessed to finding carbon labelling 'difficult' and Tesco called it 'problematic'.
And problematic it is. The food supply chain is complex and the carbon input to foodstuffs is immensely difficult to calculate. Importantly, it isn't just CO2 – emissions of nitrous oxide, methane and the fluorinated refrigerant gases all need to be calculated. There is no consensus anywhere in the world on any single issue in the assessment of the carbon footprint of food. It will be decades before any shared understanding emerges and is widely agreed around the world.
Why did such a well-managed company as Tesco dive head first into the empty swimming pool of carbon labelling? The most plausible suggestion is that it had already stamped its authority on nutrition labelling and fought off regulatory challenge over 'traffic light' signs on products. One Tesco spokesperson said to me that the successfully rejected 'red, yellow, green' label would have put people off buying the worst products. She was apparently unconscious that is precisely what the Food Standards Agency had intended. Similarly, Tesco's pre-emptive plans for carbon labelling might have forestalled commercially dangerous labels imposed by other agencies. Now carbon labelling is just one of the potential projects at Tesco's new Sustainable Consumption Institute at Manchester University. The projects at Oxford have finished with a whimper. Tesco still says it will get some labels on its products, but the timescale has drifted far from the ambitious aims of early 2007.
Unsurprisingly, given the debacle over labels in the UK, Wal-Mart has gone a different route. But we will probably see the same unhappy result.
Wal-Mart has teamed up with the UK-based Carbon Disclosure Project not to calculate the footprints of each product, but to measure the energy use of each supplier. This is, at least in theory, a much simpler task. Wal-Mart may have almost as many suppliers (60,000) as Tesco has UK food products (70,000) but merely reading the electricity and gas meters at 60,000 factories is a minute fraction of the effort that would have gone into carbon labelling.
This is what John Fleming of Wal-Mart said at the CDP conference:
Using CDP's carbon reporting expertise and our own experience with supply chain efficiency…we are working together…to measure our global supply chain footprint and to encourage our suppliers to reduce greenhouse gas emissions
What is wrong with this apparently innocuous scheme?
- The CDP is not set up to be much more than a repository of data. Many of the submissions that it accepts from companies are incomplete, but all the data it receives seems to be published. The CDP is an extremely important initiative, but the Project does not have the skills to use the returns from 60,000 companies in a meaningful way. As Tesco is finding, carbon footprinting is a complicated task that needs to be done by specialists. CDP is no substitute.
- Wal-Mart is probably the biggest single customer for a large percentage of its 60,000 suppliers, but neither it nor the CDP is able to tell how much of the carbon footprint of suppliers should be allocated to the goods supplied and sold to Wal-Mart. A growing company selling an increasing fraction of its goods outside Wal-Mart might have increasing emissions. How will Wal-Mart deal with this? It certainly won't look good to competition authorities if Asda, for example, puts pressure on suppliers to reduce emissions just because they are selling more to Tesco.
- Wal-Mart said that it would work initially with companies in seven sectors, including soft drinks and DVDs to identify the full carbon footprint. But in most of these categories the main carbon impact is probably further up the supply chain, in the suppliers of Wal-Mart's suppliers. For example, the manufacture of slab aluminium and then its conversion into cans may well use far more energy than the mixing of the sweet syrup that is the main manufacturing function of a cola company. To be an interesting measurement, all the energy inputs across the whole supply chain will need to be measured. Do this, and Wal-Mart will end up with the same problem as Tesco – an unmanageably complex analytical task even for two of the most competent companies in the world.
- The CDP focuses very largely on carbon dioxide. But CO2 is often not the dominant greenhouse gas in food production. Nitrous oxide and methane on farms are just as important. Measuring these gases, even if Wal-Mart wanted to, is an order of magnitude more difficult than CO2. Some of the same problems also apply to refrigerant gases.
It is very good news that Wal-Mart has decided that there is business logic in reducing the energy use of its suppliers. But, despite its significant strengths, CDP is not a credible partner. The complexity of the methodological issues faced in carbon footprinting means that the partnership is likely to fail. And failure means a further delay in getting greenhouse gases out of the food supply chain.