Paschalina Paraschou
MS in Analytics Student, Kogod School of Business
The pursuit of sustainability in the corporate world has dramatically gained importance and has become an integral part of many companies' identities and missions. One of these major companies is Walmart, who has embarked on a journey to reduce its carbon footprint and pave the way for a more sustainable future. Walmart's size might make it an unexpected choice as a blueprint for small and medium-sized enterprises (SMEs). Its scalability, strategies, and practices could offer valuable insights and adaptable models for SMEs.
In 2017, Walmart launched Project Gigaton™ to incentivize suppliers to reduce their greenhouse gas (GHG) emissions. This program includes a sustainable supply chain finance initiative, developed in partnership with HSBC and CDP (the global environmental impact non-profit). It introduces science-based targets (SBTs) to help suppliers align with transparent sustainability goals. The program is a part of Walmart’s commitment to eliminate one billion metric tons of GHG emissions from its global supply chain by 2030.
Walmart's suppliers who meet their SBTs and report their impact on areas like energy use, waste, packaging, and transportation, are rewarded with access to financing, press releases to boost suppliers’ publicity, and competitive pricing to minority-owned businesses. This symbiotic relationship between sustainability performance and financing is the key to replicating this initiative for SMEs, which could enhance their access to financing just as larger corporations do in the Walmart model. This approach can not only benefit the companies themselves, but also the communities and ecosystems they impact.
Walmart's initiative is also focused on transparency and collaboration with suppliers.
It's not a one-way street where Walmart sets the rules and suppliers follow. Instead, suppliers are actively engaged and rewarded for achieving their emissions reduction goal."
Paschalina Paraschou
MS in Analytics Student, Kogod School of Business
This model is adaptable to SMEs, where community-based approaches can create a similar culture of shared responsibility. SMEs operating within specific industries or regions can collaborate on sustainability projects, share expertise, and measure collective progress. This cooperative approach fosters sustainability and builds a sense of community.
“SMEs play a major role in economies around the world; without them, we cannot limit global temperature rise to 1.5°C,” says Sonya Bhonsle, CDP’s Global Head of Value Chains and Regional Director of Corporations. SMEs represent about 90 percent of businesses and more than 50 percent of employment worldwide. These businesses are major engines of value creation, accounting for between 50 percent and 70 percent of value added in developed economies and contributing to, on average, 33 percent of GDP in emerging economies.
Knowing the market share of SMEs, we can imagine the impact of every part of their operations.
Every phase in the lifecycle of a product, beginning with the acquisition of raw materials and concluding with the sale, contributes to a carbon footprint."
Paschalina Paraschou
MS in Analytics Student, Kogod School of Business
Emissions that a company is indirectly responsible for, up and down the value chain, are known as Scope 3 emissions, which pose significant challenges when it comes to quantification and reduction. Helping SMEs reduce emissions in their supply chains is a mutually beneficial strategy that allows for major corporations to decrease their own Scope 3 emissions.
Governments must emphasize the significance of the small business sector and play a pivotal role in aiding SMEs in reducing their carbon footprint. One example is to reallocate subsidies that have adverse environmental impacts toward the transition to clean energy. This could be reallocated towards implementing policies that promote business growth and making investments to simplify the approval procedures for renewable energy projects, expanding grid infrastructure, and encouraging decreased energy consumption and enhancing energy efficiency. Governments must do their part to significantly support SMEs in their emissions reduction efforts.
Navigating science-based targets can be challenging for SMEs due to their limited resources and expertise, but the key to success lies in collaboration. SMEs can begin by leveraging existing partnerships with their buyers and local business networks. Additionally, they should prioritize working with governmental agencies, environmental NGOs, and industry associations to gain knowledge and resources to achieve their sustainability goals.
One of the key strengths of the Walmart program is its scalability. Project Gigaton™ has seen over 3,100 suppliers join the initiative, reporting more than 416 million metric tons of CO2e, the emissions from greenhouse gases based on their global warming potential, avoided. More than 5,000 suppliers have participated in the program, representing 75 percent of the company’s US sales. Supply chain emissions represent the largest source of emissions for companies—they are 11.4 times larger than direct emissions on average.
As SMEs join the ranks of Walmart and other corporations in adopting science-based targets and sustainability-linked financing, they have the power to reshape supply chains, reduce emissions, and pave the way for a more sustainable future. The Walmart effect, with its transformative potential, invites SMEs to enter the game and be part of the sustainability solution. It's not just about data; it's about a shared commitment to a greener, more sustainable future.
Citations
“Walmart Spurs Suppliers to Cut Carbon with Special Finance Terms.” HSBC USA, HSBC, 19 July 2023, www.business.us.hsbc.com/en/insights/sustainability/walmart-and-hsbc-establish-a-sustainable-supply-chain-finance-program.
“Walmart Creates Industry First by Introducing Science-Based Targets for Supply Chain Finance Program.” Walmart Corporate News and Information, Walmart, 8 Dec. 2021, corporate.walmart.com/news/2021/12/08/walmart-creates-industry-first-by-introducing-science-based-targets-for-supply-chain-finance-program.
“Smoothing the Way for Small and Medium-Sized Businesses to Set Science-Based Climate Targets.” Science Based Targets, Science Based Targets Initiative, 20 Apr. 2020, sciencebasedtargets.org/blog/smoothing-the-way-for-small-and-medium-sized-businesses-to-set-science-based-climate-targets.
Matsrisberg. “SMEs Equipped to Join Race to Net-Zero with Dedicated Climate Disclosure Framework.” SME Climate Hub, CDP, 26 Nov. 2021, smeclimatehub.org/smes-equipped-to-join-race-to-net-zero-with-dedicated-climate-disclosure-framework/.
Science Based Targets TVT-INF-003. Small and Medium-Sized Enterprises (SMEs) FAQs, sciencebasedtargets.org/resources/files/FAQs-for-SMEs.pdf.