They’re the world’s largest retailer famous for their focus on the bottom line and infamous for their poor labor practices so last October when Wal-Mart CEO Lee Scott said Wal-Mart would become a leader in sustainability, skepticism was rampant.

Reasonably so, his goals were lofty. He pledged to transform the second largest Fortune 500 company into one that produces zero waste, runs on renewable energy and offers more environmentally-friendly products and packaging.

One year later it appears that Wal-Mart may be poised to radically change its industry. In the summer of 2006 they began to sell organics in their nearly 4000 US stores and quickly became the market leader in organic milk and the biggest purchaser of organic cotton.

In 2007, Wal-Mart and its chain Sams Club will use about 6,800 metric tons of organic cotton- more than the total amount produced worldwide 5 years ago.

With 8% of all US retail sales (excluding automobiles), any decision they make- whether it’s to go organic, switch to biodegradable corn-based packaging or introduce hybrid-diesel trucks into their transport fleets- won’t just affect the 100 million people who shop at Wal-Mart every week, but their suppliers as well.

Scott estimates that 90% of their environmental impact will be seen with changes to their suppliers. This year they went public for the first time with their CO2 use which at 20 million metric tons per year is substantial, but they estimate that there are 200 million tons in their supply chain: fertile grown for improvement.

Why is Wal-Mart, with a track record of extremely low salaries (many of their hourly wages force families below the poverty line), health care well below the national average and millions paid in fines for violating air- and water-pollution laws, suddenly interested in the environment?

At a time when the company is increasingly being targeted by lawsuits and political pressure, it should help with their public relations (A McKinsey & Co. study found that up to 8% of shoppers had stopped patronizing the chain because of its reputation.), but it’s also good business. Green shoppers tend to be wealthier. Wal-Mart hopes that their organic products will attract a corresponding wealthier clientele who will not only buy food, but the higher profit margin items like furniture and electronics.

Cutting packaging and energy waste can also mean bottom-line savings

So far the company hasn’t recouped it’s 500 million investment in it’s self-greening, but in just a year there have been some notable improvements:

• By installing new sandwich baler machines in its stores, they have been able to recycle and sell plastic that normally went into the trash for a total savings company wide of $28 million.
• By eliminating excess packaging on their private-label line of toys, Kid Connection, they have saved $2.4 million a year in shipping costs, 3,800 trees, and one million barrels of oil.
• By installing auxiliary power units on their fleet of 7,200 trucks (that help drivers regulate cab temperature during mandatory 10 hour breaks) they have saved $26 million annually in fuel costs.

This savings was part of Scott’s argument when he sold employees on his new plan last fall. “Think about it. If we throw it away, we had to buy it first. So we pay twice – once to get it, once to have it taken away. What if we reverse that? What if our suppliers send us less, and everything they send us has value as a recycled product? No waste, and we get paid instead.”

It’s too soon to tell whether Wal-Mart’s makeover will be net-positive. Many organic farmers and advocates argue that Wal-Mart could harm their industry by driving down prices and squeezing out the small farmers- not all too different from their impact on mom-and-pop stores across America.

Organic industry advocates fear Wal-Mart won’t buy local, even outsourcing overseas, or that they will lobby to lower industry regulations (It’s not an unfounded worry; This year legislation to relax standards for processing and packaging of organic foods passed into law after heavy lobbying by an association representing mainstream corporations with organic lines such as Kraft and Dole).

Besides becoming the first to offer fairtrade coffee for as low as $4.71 a pound, Wal-Mart does have a tangible, and very visible, result to show from their efforts: two green supercenters.

These test sites for solar and wind energy, lighting and water conservation and improved recycling are where Wal-Mart hopes to learn how to improve their environmental sustainability. They plan to implement the successes of these ecocenters in stores nationwide in an effort to reach their lofty green goals- one of which is to use 100% renewable energy by 2010.

Although it’s not easy to root for Wal-Mart, it’s tough not to hope they succeed. Though it’s curious that these suddenly green executives don’t see any room for more sustainable employee benefits (fairer wages or improved health-care packages).

Perhaps, while the number-crunchers don’t believe improved labor rights help the bottom line, they are starting to learn that organic apples and hybrid trucks just might.