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Are Walmart's Chinese Factories As Bad As Apple's?

Our fiction-free investigation finds that in many cases, the company's auditors are asleep on the job.

Consider Walmart's buyers, Harvey said, the people who negotiate with suppliers and help decide what makes it onto Walmart's shelves. If Walmart's sustainability ideal was to become reality, it needed to become part of buyers' day-to-day decision making, a criterion on which they were evaluated. For instance, would the buyers be encouraged to choose a T-shirt that costs a half cent more apiece because it used safer chemicals or was dyed at an environmentally friendly mill? When Walmart embraces that notion, Harvey said, "that's when sustainability is really embedded."

"Is it there yet?" I asked.

"It's not there yet."

After nearly a year of my asking for an interview with a company official in Bentonville about the sustainability program, Walmart finally put me in touch with Jim Stanway, a rumpled-looking Brit who worked in the energy sector before joining Walmart in the late '90s to help trim its energy bills. We met in a small conference room at the Sam Walton Development Center, accompanied by a Walmart flack who took notes throughout the interview.

A man who admits he's "morbidly attracted by complexity," Stanway was Walmart's point man in working with the Carbon Disclosure Project to calculate that Walmart's carbon footprint was greater than that of many industrialized countries. Stanway is now leading the campaign to cut 20 million metric tons of greenhouse gas emissions from Walmart's supply chain by 2015.

Stanway rattled off his success stories, including uniting the fractious dairy industry behind using low-carbon cattle feed and methane digesters and selling Hollywood on the virtues of slimmer DVD packaging. A little plastic here, some cardboard there, and you're talking millions of dollars in savings. Not only did suppliers see their costs shrink, so did customers. "We want to show things where we can deliver customer value on price and quality, and lower costs for suppliers," Stanway said.

I'd hoped to ask Stanway about China, but the flack, who insisted on vetting all interview questions days beforehand, ruled out those questions, routing them to Walmart China. Despite four more requests, I never heard back.

Linda Greer is a sharp-witted, veteran scientist and director of the public health program at the Natural Resources Defense Council. She spoke to me about a program she started in 2007 called "Clean by Design," which has brought together companies like Walmart, Gap, Nike, and H&M to develop a set of best practices for Chinese dye and finishing mills, one of the most energy-intensive sectors in the apparel industry.

Greer told me in 2010 that she'd turned to Walmart and other private companies for lack of other options. "We really couldn't count on the Chinese environmental department to even come close to catching up on this in my lifetime," she said. "The private sector stands alone, being the only functioning additional party over there." She was no Walmart cheerleader but believed the company was making a sincere effort. "They've made a lot of ambitious promises, many of which were maybe naive in terms of how hard they are to implement."

But when I checked in with her again last fall, her guarded optimism had given way to discouragement. She and her team had spent a year and a half assembling 10 best practices to reduce water, chemical, and energy use at the mills; their suggested repairs and upgrades paid for themselves in eight months' time and, in some cases, saved energy use by 25 to 30 percent. The next step was putting the guidelines into practice, showcasing their benefits to lure other mills into the program. She asked the corporate partners for the names of four or five mills. Nike, Gap, and the others came through. Walmart gave her only one viable factory.

Greer was bitterly disappointed. "They're not even up at the plate swinging at those balls," she told me. (Walmart says it "continues to believe in—and promote" Greer's program but gave no specifics as to how.)

An energy efficiency consultant who also works with Walmart (and requested anonymity; I'll call him Martin) echoed those observations. He said there was overwhelming support for Walmart to succeed in China, given the ripple effect that would have in Chinese commerce. Yet 2011, he told me, was widely seen as a disappointing year. "The word on the street in China is: 'Where is Walmart?'" he said. "Because we haven't seen them continue to move forward in 2011."

Martin brought up a major Walmart supplier, a network of factories making name-brand products. (He asked that I not reveal the brand, but it's a household name.) Like Mr. Ou once did, this supplier submitted scorecards on energy and water use to Walmart. The retailer's response: silence. Martin said the supplier admitted to him that the data was "total crap," but it never heard from Walmart one way or another. Martin summed up the supplier's attitude toward Walmart scorecards like this: "Walmart sets a new target, everybody gets all excited, runs around for six months, and then everything kind of slows down and the wheels fall off."

Eight months after my first conversation with Terry Foecke, I caught up with him again in Minnesota. Seeing little appetite from Walmart to expand the factory efficiency program, he'd ditched it to start his own energy consulting business. Foecke sounded more befuddled than bitter—he'd always seen Walmart's factory project as a small but important first step. "It was key that they expand the program—that's what we put on the table" in the beginning, he said. "Until they're willing to do that, it's not quite greenwashing, but it's very close."

Mr. Ou witnessed the demise of Foecke's program firsthand. When I reconnected with him last winter, he said Walmart had stopped asking him for reports on Juniu's energy usage. No one told him why. As far as he could tell, Walmart had canceled the program. Mr. Ou said he'd not lost his appetite for energy efficiency but admitted it was more difficult to make progress without Walmart's pressure and expertise. "I spent a lot of time and energy," he said. "It really is a pity that Walmart stopped the program." (Walmart says it's still finishing the pilot phase of the program.)

If there is any silver lining to Walmart's wavering on sustainability in China, it's that other major retailers have made significant progress. Foecke's current clients include IKEA and Levi's, companies that he said took a different approach to suppliers, building more durable relationships. It wasn't a perfect model—IKEA has issues with shadow factories, too—but he was allowed to walk into factories, suggest changes, and speed up the sustainability process.

Foecke still credits Walmart for nudging other companies, and he told me he would work with them again. But he remained somewhat discouraged by what he'd seen. "I really do think they're very distracted by the weakening economy, and they don't want to spend any money on anything right now," he told me.

The NRDC's Greer said Walmart's partners had every right to be critical of the company. "I would say we, the environmental community, have been enormously patient...We've not only been patiently waiting, we've been actively helping." She went on, "At this point, we don't see that they're trying." When Walmart fell short on her Chinese mill program as part of its goal to cut 20 million metric tons of greenhouse gas emissions from its supply chain, she says, "I thought, 'There they go again.' It breeds cynicism. Is this just a PR effort, or is this something they're serious about?"

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