🛒 Walmart's 'Gigaton' of Progress - The Accounting Nerd Download

You might’ve seen “Walmart’s supply chain cut 1 billion tons of emissions 6 years ahead of schedule” hitting the headlines this week.

‍Here’s one example source. These reports state:  

“Walmart’s suppliers have avoided, reduced or sequestered 1 billion metric tons of greenhouse gas emissions… That’s more than the annual emissions for all of Germany.”

In typical fashion, the Sumday Accounting Support team went on an excursion to uncover the fine print…🧐

What does Walmart currently report on scope 3 emissions?

In Walmart’s 2023 CDP report, it disclosed that an estimated 265,940,050 tonnes of carbon emissions came from the goods and services that it purchased (that’s 89% of its reported emission). 

0% of those emissions were calculated based on the actual emissions of those suppliers. Instead, the total amount spent with those suppliers was multiplied by industry averages from the US EPA. 

That’s a problem…why?

Walmart can’t credibly track progress towards net zero emissions if 89% of its footprint is calculated based on industry averages. Even if suppliers have lower emissions than an average, that wouldn’t register on the balance sheet. The only way down is to spend less. That’s a challenge for every single company in the world with a net zero target right now. 

So what are they doing about it?

They’re doing what everyone needs to do, engaging with suppliers and strongly encouraging them to report on emissions. 

Walmart’s supply chain sustainability program, Project Gigaton, launched in 2017. It was one of the first corporate initiatives focused solely on tackling Scope 3 emissions. The initiative aims to reduce or avoid one billion metric tons (a gigaton) of greenhouse gas emissions from the global value chain by 2030, by inviting suppliers to set targets and take action in six areas - energy use, nature, waste, packaging, transportation and product use and design. Suppliers report to Walmart annually and get recognised for setting 3+ goals with a punny title (respect), ‘Giga-Guru’ (must report on scope 1 and 2) and ‘Sparking Change’. 

Since the launch, Walmart has brought over 6,000 suppliers on board.

Walmart supports the suppliers on board with resources and education, access to renewable energy through Gigaton PPA, and early-payment programs with HSBC etc.

Per Walmart’s 2023 Project Gigaton Accounting Methodology:

"Walmart calculates progress toward the Gigaton goal by summing the project-level greenhouse gas emission reductions submitted by suppliers towards all pillars each year… Project-level avoided, sequestered, and absolute emissions reductions self-reported by suppliers to Project Gigaton will be counted toward Project Gigaton equally." ‍

Walmart has acknowledged their approach doesn’t quite follow GHG Protocol’s guidance for scope 3, with the main difference being their “use of avoided emissions and reductions beyond Walmart’s value chain to calculate progress toward the Gigaton goal.”  (see page 5 of the methodology paper)

Importantly, they don’t just want to know what offsets have been purchased by suppliers or what green initiatives they put in place, they are asking suppliers to share their entire operational emissions footprint, not just the results of reduction projects.

From Engagement to Accounting

Project Gigaton isn’t actually flowing into Walmarts scope 3 emissions from an accounting perspective, see the fine print:

1. The 1 billion metric tons of emissions avoided, reduced or sequestered with Project Gigaton doesn’t necessarily correspond with emission reduction from goods and services purchased by Walmart. The figures do relate to emissions reduction efforts from Walmart’s suppliers, but not necessarily related to supplying to Walmart as it goes beyond their value chain. This feels like a practical approach considering many companies are starting with organisation level emissions, there’s another layer of management accounting to do before they can provide emissions per product for example, but complete organisation level is often the first step.
   
   Takeaway: Ask suppliers to provide their organisational level emissions as a first step, rather than an LCA for exactly what you buy. If they’re not providing the former, you know the latter is a while away.  
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2. ‘Avoided emissions’, aka, ‘Scope 4’, are emissions reductions that occur outside of the product’s life cycle or value chain as a result of the use of that product i.e. Using this new product saves X amount of emissions compared to whatever else you were doing. You can imagine that measuring avoided emissions can be a tricky one. Scope 4 is still quite a new concept, and can be difficult to quantify. The World Resources Institute has published a working paper framework for estimating and reporting on avoided emissions and has suggested scope 4 should not be counted towards efforts to reduce against scopes 1-3. Despite the data being self-reported, Walmart has disclosed in their methodology paper “Avoided emissions are only counted when a supplier provides documentation or proof that they sourced verified deforestation-free commodities”.

Like all companies large and small, they want to understand the emissions associated with what they are purchasing, not an average. As one of the world’s largest retailers, it’s not going to be an easy task but it’s great to see they are driving towards this with real engagement. 

If you’re keen to learn more about Walmart’s emission targets, have a read of their Zero emissions by 2040 white paper. They have set strong targets and there are examples around transparency, acknowledging the difficulties with decarbonising their refrigeration and transportation systems and raising the dialogue on what’s needed to transform this space.

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