By  on July 16, 2009

Wal-Mart is expected to introduce an index that would determine the social and environmental impact of all the products it sells today during a Web cast of its Sustainability Milestone Meeting.

The index could help buyers decide what items to put in stores; consumers referring to the index could see how brands compare in the sustainability department. The move has lots of implications, including potentially higher costs for manufacturers. There could also be more competition among brands for shelf space as manufacturers vie for higher rankings.

“The impact Wal-Mart will have with the green initiative is profound,” said Norma Kamali, who designs a collection using organic cotton and synthetic fibers for the retailer. “I am proud to be a part of this and to know that the overall results will, by example, show how this can be achieved. Hopefully, all companies will implement similar initiatives so that our children will benefit from the results. Clearly, new innovative opportunities will emerge as we all participate in the greening of our planet.”

Asked whether the initiative will add costs for manufacturers, Kamali said, “That is a very general question, since in some cases it can be a savings…say, to use recycled materials. Perhaps the initial setup for new methods of manufacturing might be a cost added, but long-term, it certainly will be a benefit. But don’t forget that the opportunity to innovate and create new businesses focused on green methods will certainly be an added benefit, especially to our economy.”

Scott Mackinlay Hahn, co-founder of the eco-friendly Loomstate brand, which manufactures a less expensive version for Target called Loomstate for Target, said the index is a step in the right direction.

“I don’t know the criteria of the index,” Hahn said. “Overall, it’s really good. This is about a retailer holding its suppliers accountable for the impact it has along the chain. It’s the responsibility of the retailer to understand what it’s asking suppliers to do and how that will affect their business.” For example, retooling costs can carry from cotton farm to fabric mill to sewing facility. “You need to know what’s going on with the products you’re making,” Hahn said. “It’s basically a compliance vehicle. This is about transparency and giving customers visibility as to what’s going on.”

Suppliers will have to begin technically reporting the kind of energy being used to power their factories, the types of dyes and fabric they’re using. “It gets very technical,” Hahn said. “When consumers get educated, they’ll understand that it costs more in the near term to bring a sustainable product to the shelves. It’s an investment. If Wal-Mart can help factories become more efficient, it can pass on better pricing. How will factories be rewarded? Maybe they’ll stay in business.”

Wal-Mart today is expected to announce a sustainability consortium led by the University of Arkansas and Arizona State University. Consumer goods companies such as Procter & Gamble Co. and Unilever are said to be partners in the consortium. Several of Wal-Mart’s large apparel resources also knew of the index.

A Levi Strauss & Co. spokesman said the company is aware of the program, adding, “It’s an area we’re spending time on.”

“This piece is a work in progress, so we’re still gathering and understanding the details,” said Cindy Knoebel, a spokeswoman for VF Corp. “We’re highly engaged with [Wal-Mart] as it relates to their overall sustainability initiative. We’ve very well connected with the sustainability people there and up to speed with what Wal-Mart is doing in this area. We support their sustainability efforts and are absolutely on board.”

As for Wal-Mart’s goal of making the index available to shoppers, Knoebel said, “Giving consumers information to make an informed choice is always a good thing.”

VF has been discussing the subject with Wal-Mart for at least a year, Knoebel said, adding that the retailer has been reaching out to suppliers and trying to understand their concerns. “Wal-Mart has been supplying us with best practices and guidelines for supply chain management,” Knoebel said. “We’ve passed those guidelines on to our factories.”

There are some unanswered questions, such as, How will progress be measured? “There are still some details to come,” Knoebel said. “This will take a period of time to digest.”

Wal-Mart has taken the lead on environmental issues in the past. The retailer in October held a sustainability summit in China with the goal of driving innovation and sustainable business practices throughout the company and those of its suppliers. The summit’s lofty objectives included building a world-class, high-value sustainable supply chain. In February 2008, Wal-Mart announced a partnership with the National Governors Association intended to reduce overall energy consumption of state capital complexes. Wal-Mart’s environmental experts would audit state capitals as part of the plan.

Wal-Mart tried to impose its Radio Frequency Identification Program on suppliers, but encountered resistance because implementing the RFID program is so expensive.

“The index is different,” said Hahn. “Wal-Mart has been buying cotton farms and shifting them to organic cotton. This is part of their global paradigm. If they don’t protect national resources and the environment, they won’t have a market. They’re actually being aggressive about it, fish to jewelry to clothing to energy. They have such an impact.”

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