Re:Development: Can Shared Value Help Fill the Foreign Aid Gap?

By TechnoServe

In our latest "Re:Development" episode, Walmart Chief Sustainability Officer Kathleen McLaughlin explains how the world's largest retailer views social and environmental sustainability in its global operations, and why shared value is key to good business.

International development has entered a new era. The United States Agency for International Development (USAID) has been shut down, and many countries are cutting foreign aid budgets. And yet global poverty remains one of humanity’s most urgent challenges.

At this moment of crossroads, TechnoServe is exploring what the future of international development should look like—and how we get there.g

In TechnoServe’s series, “Re:Development | Conversations for Change,” we interview leading thinkers and doers with bold perspectives on how to build a world where everyone has an equal chance to succeed.

Read previous episodes of the series. 

What’s the Role of Business in an Era of Reduced Foreign Aid?

Will Warshauer: Welcome back to another edition of “Re:Development.” It’s my distinct pleasure to be joined today by Kathleen McLaughlin, who is the executive vice president and chief sustainability officer at Walmart. 

She is also the chair of the board of directors of the Walmart Foundation. In her many roles through business initiatives and philanthropy, her teams work with Walmart associates, suppliers, nonprofit organizations, and others to support economic, social, and environmental improvements. And I know Kathleen has a particular place in her heart around issues related to climate, and she’s a proud board member of the World Wildlife Fund and the World Resources Institute. Welcome, Kathleen.

We come together at a time when the future of foreign aid is up in the air, I think would be one way to put it. Lots of possibilities and questions and a lot of people calling for business to do more, I think, as official aid agencies may be scaling back. 

And I’m curious from your perspective, what are the most important things that NGOs or even donor organizations still misunderstand about working with the private sector on development objectives?

Why Sustainable Supply Chains Matter More Than Ever

Kathleen McLaughlin: Well, I don’t know if it’s something that is misunderstood, but there is a really important kind of purpose or mission that’s at the heart of what companies like ours, certainly retailers, are doing with respect to the economic development of production, whether it’s farming, ranching, manufacturing, in the communities that they’re serving.

And it’s really anchored in a notion of shared value creation. And most companies today operate that way. Their strategies are anchored in that. And that just simply means that for us to create value in the long term, financial value for shareholders, we need to be creating value for our customers, our suppliers, our employees, communities, and even the planet. 

Certainly for a retailer or a food company or a company that relies on products with ingredients that come from nature, the sustainability or surety of supply of those ingredients is a real consideration. And then obviously just needing to have a well-functioning planet for the health of our communities and our people. So this notion of taking a long-term perspective on shareholder value creation is really important and at the heart of most companies today. 

And so what that means is, efforts to work with folks like TechnoServe and others to strengthen smallholder farmers and producers in the countries where we operate. Those are really important for our long-term success. And we’ll talk about a bunch of the examples today, but it’s really an orientation toward value creation. It’s not, either we strengthen the business or we make a difference for society. It’s about, you need both. It’s very symbiotic.

It’s not, either we strengthen the business or we make a difference for society. You need both. – Kathleen McLaughlin

What “Shared Value” Means for Supply Chain Sustainability

Will Warshauer: Yeah, super meaningful to hear that coming from you and where you sit. I think back on the article that Michael Porter published now, what, 15 years ago, coining the term shared value. And that’s a space that TechnoServe certainly tries to operate in and live in. So is there anything else? I mean, I think that you’re regularly in the C-suite. You’ve been a part of all of these efforts over many years. 

Help our listeners understand, how does Walmart the business think about sustainability in the context of profitability and sustainability? You talked about the long-term view for sure. I think we see that the same way, aren’t there often, aren’t there some times where you’re bumping up against each other, where we need to cut spending? Profitability, sustainability, are they intentioned? And if so, how and when?

Kathleen McLaughlin: You mentioned Michael Porter. We were really inspired by him. And that is kind of where we took that phrase, shared value. And that really is the anchor. That is talking about long-term value creation. And like anything else in life, you can have a long-term goal. And then along the way, there are a series of initiatives you undertake. And there are lots of trade-offs along the way in the short term.

But taking that long-term view, if we consider sustainability, it’s why our agenda for sustainability has three priorities for people and three priorities for planet, but they’re quite intertwined. And let me just describe them a bit for context, and then we’ll come back to how that’s relevant for this conversation. 

Our long-term vision is to make the everyday affordable product, the sustainable product. And so that means enhancing sustainability of our own retail operations and in the value chain partnering with suppliers, with folks like you at TechnoServe, with local policymakers, with farmers, with ranchers, with fishers themselves to enhance the production of products so that we do have that long-term sustainability. And that’s just part of the everyday thing that we sell. 

We don’t think that sustainable products should be a premium offering that only some people can afford. We’re really talking about making that accessible for everybody. And that’s really what we think is necessary for the long-term communities to thrive and for businesses to thrive is to help be part of a transition toward more sustainability in general. 

So our priorities include economic opportunity for people working in the value chains, addressing some of the root causes of risk to human rights in collaboration with others. These are systemic issues, typically very deep in value chains. Working on the ingredients of products to have them be healthier for people, whether that’s food or sustainable chemistry. So those are just a few examples in terms of some of the people goals. 

And then in terms of planet goals, climate–so, decarbonizing value chains, decarbonizing retail operations is a real priority. Circularity of materials, so repurposing materials, whether they’re technical materials, packaging, corrugated plastics, those kinds of things, or food itself, not wasting food anywhere in the chain. And then nature. So working to improve production practices that are related to critical ecosystems, forests, oceans, grasslands and water watersheds. So the sustainable production practices, but then also conservation of very high-value resources in those ecosystems. 

We don’t think that sustainable products should be a premium offering that only some people can afford. – Kathleen McLaughlin

Managing Sustainability, Profitability, and Long-Term Resilience

Kathleen McLaughlin: So that’s the broader issue set. So from a business perspective, we’re focused on surety of supply. We’re focused on cost over time. We’re focused on new revenue streams. So coming back to your question about the trade-offs–in any project there are going to be things that you could do that might not be viable economically, but there are innovations you can introduce to make that work better or there could be other things that you do to offset increased costs.

Working on more sustainable rice, that’s a good example. So we’re working with producers in Arkansas, for example, in rice. And the farmers are lowering or optimizing, I should say, their inputs and actually reducing some of them. So there’s some cost savings there. They’re using less water because of different production practices. Their yields are going up.

And what we’re getting in terms of environmental benefits are things like lower emissions and lower nutrient runoff into the Mississippi or other watersheds or waterways. So in totality, the project works, even though there are components that you might say, that’s an increased cost. And so that broader approach to problem solving–to take something that you might look at initially and say, well, that’s just more expensive. How is that going to affect the near-term profit and loss? The question is, OK, is there something else you can do to innovate, to offset that? 

And then the longer term, are you looking at a project that actually has a positive net present value, all things considered? 

And then sometimes there are things that aren’t going to work. So for example, there are interventions that you can do to lower emissions in cattle. You can put masks on every cow. Those are very expensive. We can’t afford to do those. We’re not prioritizing those interventions in our value chain at the moment. Because it doesn’t work from a profitability perspective for the farmer or for the supplier or for us. So there are always trade-offs, but you just have to come at it with a broad enough problem-solving lens to figure it out.

How Companies Reduce Emissions Across Supply Chains

Will Warshauer: Well, as you said earlier, I think the products which are produced sustainably are not being positioned by you or anyone else as premium products. This is now sort of table stakes for everybody. The challenges in sustainability are all large and not anything that one company can solve. But I wonder, mean, you’re not just any company and you have a huge influence, I think, because so many other companies are selling through Walmart.

Where do you see the best opportunities to kind of break through or do you feel you have broken through? And what do you think are the main constraints that stop companies from being able to move faster?

Kathleen McLaughlin: So one of the things that we’ve done to help make progress on hotspots–so those environmental or social issues that sit within value chains, they could be in different parts of the world. And some issues matter more than others in different chains. So one of the ways that we’ve come at it is through a project that we call Project Gigaton, which we started about 10 years ago as a way to engage suppliers in addressing emissions in value chains. 

We looked at our value chain–and we are a big company. We operate in 19 countries, have almost 300 million customers who shop with us each week. We sell a lot of food, also apparel, electronics, home goods, consumables, health and wellness services, and things like that. And so it’s a lot. So we say, well, how do we make any headway with that kind of scope? So we looked at our emissions footprint and projected it forward over a 10-year period and said, all right, if we were to reduce our emissions in line with the Paris Agreement trajectory, what would that look like cumulatively between the time we were looking at it, which was 2016 or so, and 2030? And it worked out to about a billion metric tons of greenhouse gas emissions. 

So we said, well, OK, let’s call this Project Gigaton and let’s have a supplier engagement program. We’ll go to the suppliers. And we’ll help them by identifying what are the most relevant emissions hotspots in your value chain. So, you know, if you’re a beef supplier, it’ll be the enteric emissions from the animal itself. If you are a shoe supplier, it might be the factory that produces the shoes. If you’re a supplier that has ingredients that come from nature, especially forest commodities, it would be avoiding deforestation of critical high value ecosystems like the Amazon rainforest, for example. 

Supplier Engagement: The Key to Sustainable Supply Chain Management

Kathleen McLaughlin: So we identified very specific hotspots and the kinds of projects that a supplier could undertake that would be practical to get at those emission sources. So renewable energy, energy efficiency, deforestation, conversion-free assurance in value chains, working on things like regenerative agriculture in row crops, packaging alterations, waste reduction, transportation efficiency, those kinds of things. And we worked with scientists, folks from CDP, from Environmental Defense Fund, World Wildlife Fund, World Resources Institute, to help us translate those emissions opportunities into practical projects. 

And it was incredibly successful. We’ve achieved the goal six years early, so by 2024, the suppliers had reported exceeding the billion metric ton mark in terms of projects that were resulting in emissions avoided, reduced, sequestered. And it’s been over 5,000 suppliers who’ve engaged in this program. They represent over 78% of our net sales since most of our supply base is involved in this kind of initiative. 

And the reasons that they did it are, number one, we made it practical for them from a business point of view. They could see that there were savings, efficiency savings, or the same things I mentioned for us, surety of supply, new revenue streams. 

Number two, it was practical guidance on the science so that they could say, well, we want to do something that matters. Like obviously we want to make our business stronger, but how do we know that it’s making a difference in terms of emissions? And a lot of our suppliers didn’t have much experience in sustainability, certainly not back in 2016, 2017. 

I remember when we had our first kind of workshop with suppliers to introduce them to this, one of them came up to me before we got started and said, listen, I came to this because you asked us to come, but I got to tell you, I really don’t see the relevance because I don’t have any greenhouses in my value chain. Like that was for many people, they were starting at that level. So there was a lot of education, and suppliers have appreciated the science that we brought and the help around identifying the projects and then providing learning modules and solutions to help them go faster. 

Third thing is, we also have provided some support in the form of the learning and solutions and so on. And that’s been really important in our work with you in value chains with smallholders, which we’ll come on to. That support to help people change their business practice, change the farming practice so that they are getting those environmental benefits, the social outcomes and the economic outcomes.

So we have found over time, we’ve been able to bring the other hotspots that we’re working on right into that same program and use it as a mechanism to engage and support suppliers. And it’s helped us go faster on all of it.

By 2024, the suppliers had reported exceeding the billion metric ton mark in terms of projects that were resulting in emissions avoided, reduced, sequestered. – Kathleen McLaughlin

How to Measure Sustainable Supply Chain Impact

Will Warshauer: Super interesting, and I am smiling for two things you’ve said so far. I’m thinking of cows walking around with masks on; they’ve got little N94s in my mind. And I’m thinking of the greenhouse gas emissions coming out of the greenhouses. I love that. 

But we’ve been on a similar journey at TechnoServe since we adopted our strategy about five years ago that put climate much more at the center of what we do. And so it’s only in the last five years that we have calculated the greenhouse gas emissions averted through our projects and even that is not fully complete yet, but we’re stepping through that. And you know the old saying: if you want it, measure it, and if you can’t measure it, forget it. 

And you know me a little bit, you know that I’m a nut about metrics. So I’m curious to push on a little bit about metrics. When you look at investments in supply chains that you’ve talked about or farmer livelihoods, what are the metrics that matter the most to you at Walmart internally? Is it productivity? Is it cost stability? Is it climate resilience? And how are you quantifying the returns there?

Kathleen McLaughlin: So the most important metric is starting with our customer. What are the things that they would like to buy? And that typically shows up in the form of sales and sales growth. And so if there’s certain categories or certain product lines that are really appealing, those will tend to do better. And so we track sales, track sales every day, we track sales every hour, every week. And we’re looking at it by location. We’re looking at it by category. So what are the tomato sales versus the avocado sales? What kind of tomatoes, what kind of avocados? 

So that first metric of sales and understanding what are the drivers of that demand, and then turning around and saying, well, how might that influence another metric, which is our cost of goods sold, and the number of suppliers we work with, and their quality, what’s coming through. So there’s a whole suite of metrics around the supply itself that include cost but go beyond that. 

Maybe we’ll just talk about produce for a minute since that’s one area that TechnoServe has got so much expertise in. There are a couple of ways we think about it. So one is, what difference can we make in a country where we are operating to the economy itself by helping to develop the sector? And for example, in the U.S., I’m sitting here next to Sam Walton’s book, Made in America. He wrote a lot about that in the U.S. Certainly, this is one of our bigger markets. We also operate in Mexico. We also operate in India. So in the countries where we operate, we want to make a positive difference for the producers in those economies and the economic development of the country. 

So for example, in Mexico, over 90% of our sourcing comes from Mexico, for what we’re selling in Mexico to our Mexican customer. In the U.S., it’s over two-thirds. So we can make a big difference by really helping develop that local economy, the local supplier base. It’s a priority for us. We have initiatives around it. We measure those things. So that’s number one, that’s a real priority is making a difference locally for the economy, helping strengthen the economy just through sourcing in general. 

We can make a big difference by really helping develop that local economy, the local supplier base. – Kathleen McLaughlin

Sustainable Sourcing and Market Access for Smallholder Farmers

Kathleen McLaughlin: Second, there are targeted programs that focus on the small producer. And in some countries like Mexico or India, we’re talking the very small producers, smallholder farmers and so on that you’ve been so helpful and I’ll talk about that a bit. But also the small and medium size enterprise, folks that are starting to get a bit of scale, they’re a bit more professionalized. 

So we’re providing technical advice to the suppliers, helping them professionalize in terms of access to finance, or how do you pitch to a buyer? What are the things that they need to consider in terms of passing quality controls and responsible sourcing audits and all those sorts of things? So those are exciting programs and important programs to help build out sectors in the economy. And then if we talk about the very small producer, in some of the countries where we operate–like Mexico, Central American countries, India, certain countries in Africa where we have our Massmart business–the viability of the smallest of the small is really important for the communities and for the economy. And the goal is to elevate them, to strengthen them as small producers and to celebrate them and the role they play in the economy as small producers, but really help them thrive.

And so to help play a role in these markets, we come at it in two ways. One is through the purchase order and how can we source from some of these folks, but the other is through our philanthropy, through the Walmart Foundation

So the Walmart Foundation, we focus on three broad themes: economic opportunity, sustainability, and the resilience of communities. And in sustainability, one of our major programs is market access for smallholder farmers. The market access program is very focused in Mexico, Central America, India, and certain places in Africa. And we have worked with you for many years and with many other grantees. 

And you’ve been a great partner, Will. TechnoServe has been one of our best partners. We’ve always highly respected you, what you bring in terms of expertise and the difference you’re making on the ground. And we’re really proud to have had this partnership over so many years with you. It’s a way to support these very important players in the economy.

Real-World Examples of Supply Chain Sustainability

Will Warshauer: Well, Kathleen, let me just jump in here for a minute. And first of all, thank you for the nice things you’ve said about TechnoServe. The feeling is very mutual. And I’ve had the pleasure of spending a lot of time in Mexico with some of the farmers that have been involved in that work. And I just want to sort of put a face on it for people, because the changes in their lives have been very dramatic. 

But I think that the partnership has produced really meaningful results for a couple of reasons. One, it’s been going on now for a period of about 10 years and business taking a longer term view. It hasn’t been a traditional development project that ends in three years and everybody goes away. And that time has allowed us to help the farmers build up the sort of skills they needed to deal with Walmart on a commercial basis. They had to invest and have cold storage. And I think the beautiful thing about this is Walmart didn’t change its requirements, it didn’t dumb them down one whit. Customer first, I get. But so a lot of our work has been with the farmers to be able to negotiate with an entity like Walmart and to be able to meet the requirements, quality, pricing, and otherwise. 

And so, I met a guy over 10 years ago now in Mexico, a farmer named Emiliano who had been in a terrible situation, at his wits’ end. His farm was not doing well. His wife was pregnant with their next child. They had three already. He was really in bad shape. And he joined this program and became a part of one of these farmer business organizations that was doing business with Walmart. And he began growing fruits and vegetables that Walmart was buying.

And he now is making more than 20,000 US dollars a year. He’s employing people in his community. He’s become the president of his farmer business organization, and he’s an absolutely different person when you meet him now. And his life and the lives of so many in his community have been improved. 

I think the rigor of having the business relationship have to work on business terms does everybody a favor because you can’t lower your standards. You’re very clearly customer first. But no one is helped by building great castles on the back of subsidies and free giveaways because if they go away, then so does all of that impact. And this is a very sustainable impact. And then you mentioned some of the farmers have graduated from the program and gone on to bigger and better things. So that’s a collaboration we too are enormously proud of that’s produced really long lasting profound change for a lot of farming families in Mexico. 

Kathleen McLaughlin: Yeah, you’ve made a couple of key points. So one is the increase in farmer income. So one of the metrics we track is that.

And then second, your point about the interests of making this work economically for customers, for business, for supply, those factors that make the production work for them also make it work for the farmer. That’s the shared value notion. 

I remember one of the projects I visited–this one was in India, that TechnoServe was leading in Uttar Pradesh. It was in the mint production sector, smallholder farmers producing mint. And one of the things that you were working on was quality and teaching the people how to do the quality assurance on the mint to attract a better buyer who would pay the better price. Not only was that successful–and I found out later, by the way, that one of their customers was one of our suppliers. It was a candy company, the major supplier to us that sells candy. And they were buying their mint from these people. It was interesting because it was actually a project we were doing through the Walmart Foundation, knowing that we’re supporting these smallholders and they’re serving all kinds of customers. So it was kind of exciting to find that out. 

But I met a woman who was living there and working on this farm. And she had a new job, which was the person testing the mint in a new process that they had set up. And it was literally just a little wooden table that somebody had made themselves with a hammer and nail outside under a tent. And they had the mint kind of piling up and she would take it and process it down into a liquid and then test it in the test tube. And she was wearing a white lab coat. And the pride that she had in her job, the pride that she had in making a difference for her family.

You know, that’s such an important co-benefit of this development work, which is not only, are these farms producing great mint for at scale buyers, know, consumer products companies, but what it’s doing for the people in terms of dignity, in terms of work, not just the income, but their sense of purpose and job satisfaction, job creation in their communities where they’re working in these farms.

Will Warshauer: It is powerful, powerful stuff. I remember standing with Emiliano on his farm and he was looking out with great pride over what was going on there and his wife and his children were with him. His kids were all in school because they could afford to do that now. It’s very meaningful change at the personal level, at the family level, at the community level. And it recognizes their intelligence and their agency. It’s not a handout, it’s a hand up.

How Sustainable Supply Chains Create Opportunity for Women Farmers

Kathleen McLaughlin: One of the most exciting benefits has been the difference these projects have made for communities, for families, and for women in particular. There are women typically living there with their husbands and being able to participate in a different way and sometimes often even lead the farms, and the opportunities that’s created. 

So I talked about the woman that I met in the mint production. That was a new thing, in Uttar Pradesh, to have women involved in the production in that way, at least in that community. It had traditionally been the purview of the men. So socially, it was interesting. And I talked to some of the men and they were supportive of it. They said, well, it’s actually great. It’s been better for our family and this is working really well.

So in India, one of the more exciting things that TechnoServe is leading in the current grant portfolio from Walmart is in Maharashtra, where you’ve been focused on farmer producer organizations. And that’s been a big goal for us in India is to strengthen the farmer producer organizations, which are the co-ops, like the collaboratives across many smallholders.

And in that particular project, there are 40,000 smallholders involved. 60% of them are women farmers. So, you know, a majority. And within the group of 40,000, there are a number of farmers who belong to collectives that are women only, which is interesting. And they’re working on things like integrating digital tools for traceability.

There’s some pilots of drone-enabled precision agriculture. So we’re talking some techniques that are more at the forefront for the small producers and then the role that’s providing for women in terms of leadership and so on. 

The more that you invest in strengthening these systems that business relies on, the stronger your business is going to be. –
Kathleen McLaughlin

The Future of Sustainable Supply Chains: Shared Value, Traceability, and Resilience

Will Warshauer: I think I’m down to the last question for you, Kathleen. Lean back in your chair, stare up in the distance, and think about 10 years from now. What’s going to differentiate the retailers that have adopted a shared value model versus those that are focused solely on compliance or kind of the old school corporate social responsibility thinking? How will those retailers be different 10 years from now?

Kathleen McLaughlin: Well, I think it comes back to the notion of shared value. So the more that you invest in strengthening these systems that business relies on, the stronger your business is going to be. And the systems that we rely on are community systems, social systems, environmental systems. 

All of those things are what we envision translating into longer term surety, new revenue streams, more managed cost structure, much deeper trust with our key stakeholders, the license to operate and grow. All of those things are very clear business value drivers and we grow them because of the work we’re doing for society. So it really is that shared value concept that our business success depends on the difference we’re making for our customer and these other stakeholders involved in the production of what we deliver to the customer.

Will Warshauer: I really, really appreciate the thoughtfulness across multiple dimensions that you bring to this, which is one of the reasons I was so thrilled to get you onto this interview. I wonder how many of our listeners knew that Walmart is big in so many markets around the world. You’re often thought of in America as an American company, but I know you’re the leading grocer in Mexico and a huge presence in India, South Africa, and lots of other markets around the world. But your thoughtfulness and your sophistication around this issue, I think will be a great help to our listeners. So thank you very much for taking the time.

Kathleen McLaughlin: Thank you, Will.