Wal-Mart's eco-labeling mandate
Jul 16th 2009 11:40AM
Updated Dec 4th 2009 6:15PM
Wal-Mart, the country's largest retailer, announced July 15 that it will institute a new policy requiring all of its product suppliers to calculate the environmental costs of their products. These costs will then be tabulated into an easy-to-understand green rating. Wal-Mart (WMT) plans to post these ratings next to the price tags on products.
Some retail experts say this new policy will needlessly raise prices by forcing vendors to do extra work and change packaging styles, which could result in price increases of 1 to 3 percent. Others say consumers will not bother with the new eco-labels.
Regardless, Wal-Mart has done something huge here, something amazing that the environmental movement has failed to do in forty years of struggles. Wal-Mart has forced transparency and accountability on the entire consumer products market, a move that will have profound and long-ranging effects not only on what we buy but also on what chemicals go into our homes, our bodies, and ultimately into our ecosystem. In other words, if this plan goes through, Wal-Mart could become the greenest company on Earth.
To understand why Wal-Mart's move is so important, consider the incredible weakness of labeling and transparency laws in the U.S. Large swathes of the consumer products sector are not required to reveal the chemical content of their products. This includes products like household cleaning agents and cosmetics. Shockingly, cosmetics that women put on their skin are rarely tested for human toxicity or to ensure that they do contain harmful agents.
It's logical that the absence of complete ingredient disclosure implies the presence of harmful ingredients. Sure, product companies may argue that they are protecting secret formulas. But that hasn't stopped a number of natural products companies that also have formulas to protect from revealing every ingredient in their products. Tom's of Maine lists all of its product ingredients online, for example. Some consumer products companies do list ingredients on their products, but tend to use very small print, making it difficult to read the label -- let alone understand what the chemical names really mean.
This lack of transparency has been a sore spot for environmental groups for some time. As America has grown more green-aware, these concerns have entered the mainstream. Yet no one group has been able to enforce a simple, easy-to-understand labeling and rating system.
Enter Wal-Mart. The Bentonville behemoth has more enforcement power than the U.S. government when it comes to consumer products. With $406 billion in revenues last year, Wal-Mart is the largest U.S. retailer by far, garnering 7% of consumer retail sales and 21% of grocery sales. No product company seeking a mass audience wants to exclude themselves from Wal-Mart.
Yet that is precisely what will happen to suppliers who fail to comply with Wal-mart's eco-ratings mandate. No compliance, no shelf space. In order to receive the green-ratings label, suppliers will likely have to disclose the absence or presence of potentially harmful substances. This information will no doubt be factored into the label rating, and also appear somewhere on the eco-label itself, perhaps in the form of a warning or an explanatory note.
The net result of all this will be a four-year mad dash to transparency and safer products, as suppliers rejig formulas and production processes to eliminate ingredients with bad reputations. Yes, products might prove more costly in the short run. But over the long haul, Wal-Mart vendors will figure out ways to get prices down even under more stringent eco-label mandates. They had better -- or else their wares will get stripped from the shelves and an eager competitor offering a lower-priced but still eco-friendly product will take their place.