(c) 2009 
Dow Jones & Company, Inc. Reproduced with permission of copyright owner. Further reproduction or distribution is prohibited without permission.Wal-Mart Stores Inc. unveiled an environmental labeling program for the products it carries, in a step that could redefine the design and makeup of consumer goods sold around the globe but also boost costs for suppliers and customers.
Wal-Mart Thursday will tell suppliers they must calculate and disclose the full environmental costs of making their products, then allow Wal-Mart to distill the information into a rating system that shoppers will see alongside prices for everything from T-shirts to televisions.
The world's largest retailer by revenue, once disparaged by environmental groups, said the new initiative represents a bold new step in its efforts to reduce energy consumption, cut waste and introduce sustainable products. It will take years to fully take form. Some of its earlier efforts have had wide-ranging impact -- from selling more than 100 million low-energy fluorescent bulbs to the creation of concentrated detergents that use less packaging and water.
Consumers are not likely to see the first labels for years. The company estimated it could take a half decade or longer, although outside experts involved in the project said it could start sooner, perhaps as early as 2011. What the labels will look like and exactly what they will attempt to illustrate has yet to be determined.
The most immediate impact of Wal-Mart's latest drive will be felt by its 100,000 suppliers, which will bear the costs of the company's environmental mandates, at a time in which many are struggling economically. Wal-Mart said it was premature to estimate the cost to suppliers. Outdoor clothing maker Patagonia Inc., which has been an early pioneer in reducing the environmental footprint of its products, declined to disclose figures, but said its efforts had been costly.
Wal-Mart insisted there will be no exemptions. Asked what relationship Wal-Mart would maintain with suppliers that don't supply the data, Matt Kistler, the retailer's senior vice president of sustainability, said bluntly, "We probably don't have one."
Similar pioneering efforts to convey environmental information to consumers have proved controversial, with even supporters of the idea complaining that the resulting "eco-babble" was of little practical use.
Len Sauers, Procter & Gamble Co.'s global vice president for sustainability, said the labels would need to be scientifically accurate, yet understandable to consumers. He said similar efforts in Europe "have been quite difficult, because they have not really provided the consumer with information that makes sense."
Wal-Mart executives said they plan to develop labeling easily understood by consumers. "I envision the day that you look at a piece of apparel, you flip a tag over, and learn about how sustainable it really is," Wal-Mart Chief Merchandising Officer John Fleming said. "It would be like nutritional labeling is today. But there is some standardization that needs to take place."
People familiar with the company's plans said that Wal-Mart is angling to get ahead of potential U.S. environmental labeling regulations -- they've already begun appearing in Britain and Japan -- and to set a standard on its own terms that the retail industry can adopt to communicate the green hue of goods it sells.
Wal-Mart disputed that it was seeking to preempt regulations. Mr. Fleming, who is helping lead the effort, said he wanted to improve the quality of the products sold by the discounter, which had $401.2 billion in sales last year.
Retail industry groups claim Wal-Mart made a political calculation recently when it endorsed employer-mandated health insurance, a key component of President Barack Obama's plan to expand health-care coverage to nearly all Americans. Wal-Mart said it supports the mandate in part because it could help control rising health costs.
Wal-Mart Chief Executive Officer Mike Duke will formally launch the project on Thursday in a speech to employees and suppliers. He will call for "a new retail standard for the 21st Century," and ask the company's largest suppliers to provide details, such as water use and carbon dioxide emissions, by October. All suppliers eventually will have to answer a preliminary, 15-item questionnaire, covering waste generation, resource use and community involvement.
The company's goal is to build what it terms a comprehensive sustainability index that measures the environmental impact of each product Wal-Mart sells. For example, an index might flag how much each contributes to global warming and if it contains wood harvested in ways that deplete natural stocks.
"You can design something that is carbon neutral, that does not contribute to climate change, and yet is still detrimental to human health in other ways," said Jay Golden, a professor at Arizona State University who will be co-chairman of a consortium that will help Wal-Mart compile the data and design standards. "So you have to look comprehensively at what sustainability really means, and that is what Wal-Mart is trying to do here in a very big way."
The index will judge products not only by the environmental cost of producing them, but also by the impact over their life span. Company buyers will be judged in part by whether they improve the ratings of the products they purchase from suppliers over time.
The information will be available to anyone, Wal-Mart said, including rivals, in hopes it will help mold a standard. Although Wal-Mart advisers envision spot audits and dissections of products to determine what they contain, they say transparency is what will ultimately curb potential cheating by suppliers.
"A lot of suppliers are scared, but there is an opportunity here for them," said Michelle Harvey of the Environmental Defense Fund, which has worked with Wal-Mart in the past and is assisting on the project. "I think the most significant improvement will come before the consumer ever sees a score," she said.
Eventually, through product labels, the experiment will test whether consumers pay more for environmentally superior products. Wal-Mart does not believe consumers now are prepared to pay much more, but it believes that will soon change as those born in the 1980s become the company's primary customers.
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Ann Zimmerman contributed to this article.
(See related letters: "Letters to the Editor: Two Cheers for Wal-Mart's Greenery" -- WSJ July 24, 2009)
Credit: By Miguel Bustillo
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