How Companies Can Accelerate ESG Impact: Q&A with Walmart’s Kathleen McLaughlin

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by | Feb 17, 2021

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(Credit: Pixabay)

Recently, we caught up with Kathleen McLaughlin, executive vice president and chief sustainability officer for Walmart, to get her thoughts on how companies can accelerate their environmental, social, and governance (ESG) impact. 

Companies with sustainability initiatives seem to be achieving more in terms of reputation and revenue now more than ever. Can you tell us in your opinion why this may be?

Increasingly, businesses regard sustainability not only as the responsible approach but also the most value creating approach in terms of things like managing risk, creating new revenue streams, enhancing surety of supply, or building customer trust and employee engagement.

At the same time, people recognize the important role businesses can play in collaboration with government and civil society in addressing the very significant challenges we face as a society. Customers, investors, employees, community leaders expect businesses to be part of the solution – to bring their particular capabilities to bear on the social and environmental issues most relevant to them and their stakeholders.

You’ve talked about the importance of companies developing an “ESG investment thesis.” Can you explain what you mean by this and why it’s so important?

Typically, an investor develops an “investment thesis” setting out the reasons they expect a company to provide a financial return.

Similarly, investors (or customers, or employees) ought to form a view about the impact a company can have on key ESG issues and how ESG performance relates to financial performance over time. This “ESG investment thesis” ought to be grounded in facts regarding a company’s strategies, practices, and results.

(Kathleen McLaughlin. Credit: Walmart)

For example, with respect to the issue of climate change, Walmart has committed to reduce emissions in our own operations to zero by 2040 and to help draw down emissions in the retail and consumer goods sector overall through our advocacy, supplier engagement, philanthropy, and innovation in product supply chain practices. Investors can measure performance against this thesis through our CDP and other disclosures including our climate mitigation and adaptation strategy, our key initiatives, and results (such as absolute and relative emissions over time, number of suppliers engaged and cumulative emissions avoided in supply chains, examples of innovations in retail product supply chains that help draw down emissions, and so on).

We believe businesses and investors should commit the same attention to developing and assessing strategies for ESG value creation as they do to strategies for financial value creation – because the two go hand in hand, and ESG issues are just as complex to address as issues related to a company’s products, services, operating model, etc.

In your opinion, what are the most relevant ESG issues facing companies today?

The ESG issues most relevant to a business and its stakeholders vary from industry to industry and even from company to company within the same industry. In general, companies determine their relevant—or “material”—ESG issues based on importance to their stakeholders and the ability of the company to make a difference on those issues through their business practices. In retail, stakeholders typically prioritize issues such as human capital development, gender and racial equity, responsible sourcing, climate change, natural ecosystems like forests and oceans, food and packaging waste, and governance.

The field of ESG strategy and reporting, while rapidly developing, is at an early stage. Companies face challenges in developing ESG strategies that create value for business and society, articulating those strategies and determining how to measure progress, and building the internal processes and controls to gather and validate data for disclosure.  Organizations such as the Sustainability Accounting Standards Board (SASB), the Task Force on Climate-related Financial Disclosures (TCFD) and CDP have emerged with ESG disclosure frameworks that many businesses, investors, and others find useful to promote focus, consistency and comparability of performance. Many ESG ratings schemes have also emerged – some based on in-depth analysis of actual company ESG practices and outcomes and others based on social sentiment or the extent to which a company adheres to a particular theory of change. Businesses and investors often face a dizzying array of information requests and conflicting assessments of performance.

What are 2-3 of the most important ESG issues Walmart is currently tackling and how?

With an omnichannel business providing a range of food and other products and services to customers in many countries, Walmart engages in multiple environmental, social and governance topics. We aim to create shared value – address societal issues in ways that create value for our business and our stakeholders. Our priority themes include creating opportunity for our associates and suppliers (including economic opportunity and racial and gender equity); enhancing sustainability of retail and product supply chains (including issues related to climate, waste, nature and people working in supply chains); strengthening the resilience of the communities we serve; and operating with the highest standards of ethics and integrity.

For example, with respect to climate change, Walmart began working on energy efficiency and a transition to renewable energy over fifteen years ago. In 2017, we became the first retailer to set approved science-based targets for emissions reduction. We have found the guidance of TCFD useful in developing our strategy for tackling climate effects in our industry. We are targeting zero emissions by 2040 across our global operations (including working toward 100% renewable energy to power our facilities and our long-haul fleet and converting our refrigeration units to low global warming potential) as well as collaborating with our suppliers to transform product supply chains through Project Gigaton, aiming to avoid one billion metric tons of greenhouse gases from the global value chain by 2030.  Since the Gigaton program began in 2017, more than 2,300 suppliers have signed on and report having avoided more than 230 MMT of emissions. We disclose through CDP, making the 2019 and 2020 “A” list for climate action and CDP’s 2020 Supplier Engagement Leaderboard. Walmart and the Walmart Foundation have also committed to help protect, manage or restore at least 50 million acres of land and one million square miles of ocean by 2030 through sourcing, supplier engagement and philanthropic investments.

As another example, we have prioritized using our business and philanthropic capabilities (for example, Walmart products, services, jobs and career paths, purchasing, advocacy, etc.) to help advance racial equity in the U.S., with a focus on our nation’s health, finance, criminal justice, and education systems and the disparities faced by the black and African American community. In the coming months, we will share more about the focus and progress of our business initiatives. In terms of philanthropy, Walmart and the Walmart Foundation launched the Center for Racial Equity in June 2020, committing $100 million over five years.  We recently announced a suite of grants coming out of the Center focusing on removing racial disparities in the areas of health, education, community development, social innovation, and policy and research.

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