Wal-Mart announced Wednesday in Beijing that it would require manufacturers supplying goods for its stores to adhere to stricter ethical and environmental standards, the latest effort by the world's biggest retailer to answer criticism of its business practices.
At a gathering of more than 1,000 suppliers, Chinese officials and advocacy groups, Wal-Mart executives revealed a new supplier agreement that would require manufacturers to allow outside audits and to adhere to specific social and environmental criteria. The agreement will be phased in beginning in January, Wal-Mart said.
The changes signal a move by Wal-Mart away from intermittent transactions with many suppliers toward longer-term arrangements with a smaller group of manufacturers. Wal-Mart is betting that using its buying power this way can help keep prices low even as it keeps a closer eye on its suppliers.
Wal-Mart, long criticized for its treatment of workers in the United States and its ostensible willingness to overlook violations abroad, has in recent years offered a series of environmental and labor initiatives. A Beijing meeting now under way is the company's first "sustainability summit."
By next year, Wal-Mart will start keeping close track of the factories from which its products originate, even if the products pass through many hands. By 2012, Wal-Mart will require suppliers to source 95 percent of their production from factories that receive the highest ratings in audits of environmental and social practices.
The agreement includes a ban on child labor, forced labor and pay below the local minimum wage.
"Meeting social and environmental standards is not optional," Lee Scott, Wal-Mart's chief executive, said at the Beijing meeting. "I firmly believe that a company that cheats on overtime and on the age of its labor, that dumps its scraps and its chemicals in our rivers, that does not pay its taxes or honor its contracts, will ultimately cheat on the quality of its products. And cheating on the quality of products is the same as cheating on customers."
To ensure that suppliers are making changes, Wal-Mart said it would require three levels of audits: from the vendors themselves, from an outside party and from Wal-Mart, which will initiate more of its own random, unannounced audits.
Wal-Mart said the audits would assess factory working conditions as well as compliance by manufacturers with standards regarding air pollution, wastewater discharge, management of toxic substances and disposal of hazardous waste.
Environmental and labor groups that follow Wal-Mart said the retailer had a mixed history when it came to the environment and labor practices, and that sometimes the company's goals were lofty, while the measurable outcomes were less so.
In the 1990s it came to light that workers at factories producing Kathie Lee Gifford clothing for Wal-Mart were subjected to inhumane conditions. Last year, two nongovernmental organizations said abuse and labor violations, including child labor, occurred at 15 factories that produce or supply goods for Wal-Mart and other retailers. In June the U.S. government and the state of Oklahoma filed a complaint in federal court claiming that Wal-Mart and other companies dumped hazardous waste in Oklahoma City. In Bangladesh, it was charged that factory workers were made to work 19-hour shifts, with some bringing home just $20 a month.
Michael Green, executive director of the Center for Environmental Health, a watchdog group in Oakland, California, said he believed that Wal-Mart's effort to improve the practices of its suppliers began as a program to counter public-relations damage.
"I think what happened along the way is some people there actually got convinced," he said. "It became more than a sophisticated PR stunt, but something they believed in."
However, without knowing the specifics of Wal-Mart's new plan, Green said it would not be easy sledding. Suppliers under pressure to offer the company the lowest prices are likely to have an incentive to cheat, he noted, and outside auditors may not want to report violations for fear of losing a lucrative Wal-Mart contract.
Additionally, tracing the origins of all the working parts that go into a single toy, for instance, is difficult because it involves multiple factories.
Still, groups that have criticized Wal-Mart were attending the meeting in Beijing to hear the company's plans.
In an interview by telephone from Beijing on Tuesday night, Scott said that Wal-Mart might offer longer-term agreements to suppliers willing to make the big investments needed to live up to its environmental demands.
The company said that within China, which has major environmental problems, Wal-Mart would aim by 2010 to cut water use in half in all stores, design and open a prototype store that used 40 percent less energy, and reduce energy use in existing stores by 30 percent.
"People will judge us," Scott said, "based on the results."
