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Walmart México & Centroamérica: great achievements in economic performance, medium in sustainability reporting

By Francisco Sandoval on April 12, 2011 at 2:46pm.
Walmart México & Centroamérica (Walmart M&C, hereafter) operates supermarkets, clothes stores, restaurants and branches of its bank in six countries. The major part of its operations takes place in Mexico with 1,274 supermarkets, 90 department stores, 366 restaurants and 263 bank branches. In Central America Walmart only operates supermarkets; 175 in Guatemala, 56 in Honduras, 60 in Nicaragua, 78 in El Salvador and 180 in Costa Rica. Walmart M&C is a public company listed on the Bolsa Mexicana de Valores (Mexico Stock Exchange).

From 2000 levels it has had an impressive increase of 368% in sales and 611% in operating profits, to a total of 334,511 million pesos (26.5 billion USD, using the average exchange rate for 2010 of 12.6162 MXN/USD, stated in the report) in net sales and 27,044 million pesos (2.1 billion USD) in operating profits, employing 219,000 people.

The 2010 Social Responsibility and Sustainable Development (SR & SD) report is the seventh for the company, the fourth under the GRI G3 methodology and the first one that reports on Central American operations, acquired by the end of 2009. The report is self declared to GRI level B and has no external assurance. It is also the first report from the company to include some indicators from the Food Processing and the Apparel and Footwear Sector Supplements.

Content:

The 2010 SR & SD report includes information for the year from January 1st to December 31st 2010, for all the business formats (supermarkets, discounts stores, price clubs, department stores, restaurants and the bank) in the six countries in which it operates in the region.

It’s a 92-page report divided into two main sections; the first one relates the company’s profile, sustainability approach and corporate governance. The second section is divided in turn into five chapters, covering what has been identified as the five “pillars of corporate responsibility": ‘associates’ (employees), customers, suppliers, community and environment (which they call ‘sustainability’). There’s no chapter for stockholders, although they are recognized in the report as major stakeholders.

The first section starts with a brief description of the commercial units in all 6 countries. After that comes the Message from the CEO, which highlights that in 2010 they opened 267 commercial units in Mexico and 30 in Central America, a new company record. However, the CEO’s letter lacks a strategic view for the sector, discussion of risks and opportunities, or a mid or long term strategy.

The section on corporate governance clearly states the board members and the committees. It also covers the Code of Ethics, Anticorruption Policy, Associations and Chambers that Walmart M&C is part of, the Social Responsibility and Sustainable Development Management approach, Social Responsibility Committee and Strategy, Awards and Recognitions, and stakeholder identification and relationships.

The 2010 corporate responsibility strategy was focused on: a review process around ethical performance; reinforcing programs on employees’ development; identifying areas to improve commercial relations with suppliers; improving the impact of community programs and strengthening operational efficiency programs.

The report notes some key achievements in this area, including that from 2010 social responsibility criteria is included in the annual performance assessment of all employees, and that World Finance magazine recognized Walmart for the Best Corporate Governance in Mexico. Additionally, this year a study to determine material themes with stakeholders was actualized.

But not everything is covered. The Bank’s activities are not mentioned at all, and in fact it’s not even stated what percentage of the company’s income or revenues they account for.

In the second section of the report each chapter follows a clear structure: they start with a brief highlight on the major impacts on each stakeholder group; the policies and procedures related to that relationship and the methodology and systems implemented to achieve it. After that comes each of the related issues, covering: target, strategy, programs and actions, key challenges and cases. The quantitative data is given through the text and some times in highlights and charts, but it lacks clear key indicators in each chapter that would help keep track of performance.

The chapters largely focus on programs and achievements, without going into a great deal of detail about challenges. From the chapter on ‘associates’ (employees), for instance, we learn that Walmart M&C employed 219,767 people by the end of 2010, and that this amount has increased every year from 2000. As well, 6,782 employees were transferred to commercial units located nearer to their homes. At the same time, some parts of the customers chapter sound like self-promoting advertisements, with declarations like “Vips (the restaurant brand) Loyalty Card, best ally!”

The suppliers’ chapter focuses on suppliers’ development, especially local, farming and textile suppliers. The company claims to have in place a very well established auditing system for every supplier, which supposes a great deal of effort, taking into account that there are some 26,000 of them. It’s remarkable that in the textile sector the audits of suppliers in Mexico have increased exponentially in the last four years. It’s stated that 95% of products sold in Mexico and 81% in Central America are local products, although no definition of “local” is provided.

The Community chapter specifies programs to increase food supply, income, assistance to victims of natural disasters, volunteering, and other programs. 1,188 tons of food and 491 million pesos (38.9 million usd) were donated through Fundación Walmart in 2010, although this amount may be considered small when compared to net sales, being only 0.14% of them. It is also unclear how embedded these programs are in the company’s overall strategy.

The environment chapter provides details on 248 million pesos (19.6 million usd) in environmental investments, as well as clear sustainability commitments and targets for 2015. There is a well-defined strategy for the sustainable production of food and wood derivatives.

The report finishes with large lists of performance indicators and the GRI Content Index.

From the contents in each chapter, it is evident that the report has increased the depth of coverage, maintaining consistency across each issue over time and clearly dividing objectives, strategies and programs/actions. However, it’s strange that the indicators were separated out from the chapters, putting them only at the end of the report. It might be useful to select a few key performance indicators for each issue, report performance for at least two to identify trends and set targets for the following year. Otherwise, it is difficult to evaluate if the company is really making progress in each issue. The rest of the indicators may come at the end of the report.

In past reports, Walmart M&C included the GRI standard disclosures index beside the paragraphs and in the indicator tables. It is not clear why they decided not to so in this year’s report. In the 2010 report this index doesn’t have a title showing that it refers to the GRI indicators. Also, the report doesn’t include the Application Level table as advised by GRI to provide context for report readers.

Communications:

The 2010 SR & SD report was published only in Spanish, clearly intended for Latin-American stakeholders. The report has a very nice format, maintaining design consistency with the use of pictures of children on the main cover and at the beginning of each chapter. Photos of employees and customers throughout the report improve credibility. They have kept uniformity by maintaining the same colour scheme for each chapter/stakeholder.

On the other hand, it’s very hard to compare the information contained in the indicators, as they are embedded in a lot of text. A traffic light or similar system might be very useful to compare performance between years easily.

Credibility:

The report covers all material issues that could be expected from a major retailer. Nevertheless, Walmart M&C has faced various accusations from civil society organizations, such as Proyecto de Derechos Económicos, Sociales y Culturales (Economic, Social and Cultural Rights Project, PRODESC), which produced a 2008 report on regular violations of labor and human rights by Walmart, that can be downloaded from www.prodesc.org.mx/ (in Spanish only).

This isn’t the only external review of Walmart M&C’s activities. Red Puentes International, a Latin-American network of civil society organizations and The Maquila (contract manufacturing) Solidarity Network, a Canadian labour and women’s rights organization, conducted a study to analyse the contents of Walmart M&C’s sustainability reports in accordance with GRI guidelines (available from http://es.maquilasolidarity.org/Walmex-Informe-2010-12, in Spanish). The major issues covered relate to collective bargaining agreements, gender inequalities, child labor in agricultural suppliers, underage “voluntary” packers, relations with governments and some environmental indicators. Although all of these are covered in Walmart M&C’s report, the study gives evidence that insufficient detail is provided. Walmart M&C has a tremendous opportunity to increase their disclosure on these challenging topics.

In regard to external assurance (the report has none), the company should address any plans to include it in the future if there’s a policy on the matter, or include an explanation of why it is missing. This is more evident given that the financial statements are audited by Ernst & Young.

As a company that is so large and visible (it’s Mexico’s largest private employer), Walmart M&C is subject to considerable scrutiny and criticism. But it should also be noted that it is the only retailer in the region to report on its sustainability practices under the GRI methodology, and clearly has a commitment in the matter. It may not inform about all material issues, but hopefully is advancing in reporting (and managing) them.

Recommendations:

1.    Have the report externally assured and have the GRI check the application level of the report.
2.    Summarize the key performance indicators in each chapter, showing the outcomes in previous years and targets for the following.
3.    Tackle one by one the material issues that civil society is claiming to reveal. Inform of current plans and policies regarding contentious issues in more detail. Use the GRI Checklist to inform of indicators disclosed partially.
4.    Follow Maquila Solidarity Network’s suggestion to contract a reliable third party that checks (under an international standard such as ILO or SA8000) the labor conditions of workers and ‘voluntary’ packers, to resolve disagreements on working conditions.

Francisco Sandoval is a consultant for BSD, www.bsd-net.com, a specialized consulting firm for sustainable business development with an international network of locally active offices in Switzerland, Brazil, Colombia, Chile, Ecuador, Mexico, Portugal, Spain and China. Francisco is currently part of Mexico’s office, and can be reached at f.sandoval@bsd-net.com