Hey, hello, everyone. Thank you for joining us. We're happy to be talking about the business case for sustainability with Kathleen McLaughlin from Walmart. I'm Kate McShane. I'm the Hardl ines & Broadl ines analyst here at Goldman Sachs, and also cover Walmart. I'm happy to introduce Kathleen, who's an Executive Vice President and Chief Sustainability Officer for Walmart. She serves as Chair of the Walmart Foundation Board of Directors. Kathleen's also responsible for programs that help Walmart create opportunities through jobs and sourcing, advance the sustainability of supply chains, foster diversity, equity, and inclusion, and build inclusive and resilient communities. Before joining Walmart in 2013, she spent more than 20 years with the global consulting firm, McKinsey & Company. Kathleen serves on the boards of the Council on Foundations, the World Wildlife Fund, World Resources Institute, and is an advisor to the Nature Conservancy's Impact and Financial Markets team. Thank you for joining us. Thanks. It's great to be here. So maybe we can start with just some opening comments, and you could take us through Walmart's shared value initiatives and how sustainable investors in general should measure efficacy and success. Sure. Well, you know, interesting title for the conversation today, and I guess the case for sustainability is really just the case for value creation. And it's about recognizing that there are certain social and environmental issues, societal issues, that bear on the long-term value creation potential of a company. And these things, you know, folks in the room, I'm sure, have spent a lot of time on, can play out in different ways. You know, it could be the resilience of supply chains, it could be the resilience of energy systems to power a company like ours. It could be a license to operate, it could be cost structure, it could be new revenue streams. There are all kinds of ways that things manifest in terms of that projected set of value streams, and that's really it in a nutshell. You know, for us, we've always taken a shared value approach to it, which is to say: let's identify the most relevant social, environmental, other societal considerations of our time, figure out what is the relevance to our business, in terms of financial projections, but also just long-term strategy, sources of advantage, et cetera, then let's craft our business strategies to recognize those things and, to the extent possible, maximize value, so that's really it in a nutshell, and you can see it in terms of what we're doing around sourcing, what we're doing around energy transition, our people proposition, et cetera, then obviously our core business proposition itself, which is to bring affordable, you know, items to people across the world. That, in and of itself, addresses the social need for affordable food and other products for households. So, that's really our philosophy in a nutshell. Maybe we can pivot then right to affordability and accessibility and serving communities, since you just mentioned it, and I know that's a key business and social theme. One of Walmart's goals is to provide safer, healthier food products and services. How are these goals incorporated into your business strategy, and how does Walmart's scale and technology play into it? Yeah. Well, so, you know, providing safe, affordable, nutritious food to people, that's so core to our merchandising strategy, and if you've been listening to our earnings calls, you know, you've heard us talk a lot about how we're trying to address affordability, especially the last couple years, as inflation has been such a challenge, and it's really in the DNA of Walmart since day one, right? I mean, that was sort of the innovative concept of Sam Walton, was to bring this Every Day Low Price proposition to customers and give them access in places where they couldn't reach it. So today, we would talk about it in terms of providing value, providing an assortment of great choice for the customer, providing delightful experiences, either in the store or shopping from home, you know, grocery pickup, different ways that people can get access to things, and then that convenience of being able to shop and access the products any way you want. So, for us then, to say, "Okay, well, how do we deliver that affordably to people?" A lot of it is around efficiencies. So looking for efficiencies in our own business, and we can talk about some of those this afternoon. Looking for efficiencies in the supply chain. You know, where is there waste that can be removed, efficiencies to be gained? And again, we can provide, you know, some examples of those. And it's really about solving for affordability in a way that is sustainable long-term. So it's not just a quick thing we could do that would reduce price, but fundamentally be out of whack and not have a resilient chain or resilient source of supply. It's about addressing drivers of cost in a way that can make a long-term difference and still provide the value. And then, you know, in our operations, so much of what we've been doing in terms of our own transformation around the omni proposition has been to enhance efficiency. So the way we manage materials, for example, in our own operations, the way that we're managing energy, and then what we've done to optimize and continue to do to optimize our network of fulfillment centers, distribution centers, Supercenters, Neighborhood Markets, last mile delivery, pickup, you know, et cetera, to treat that as a whole in ways we've never done before. If you kind of go back twenty, thirty years, and really solve for max efficiencies in that network and flexibility and resilience, that's created all kind of benefits. Again, we've talked a lot about these in some of our recent calls around lower inventory, which then frees up time for our associates, makes the stores easier to shop for our customers. And then we've been using technology certainly to power all of that, but then also to drive productivity of our associates. So instead of spending time looking around in the back room for the item, like, things are coming already on the pallets and just flow right out to the stores, and it's the right quantities that we need to sell. Or instead of having to spend a lot of time unloading boxes and so on, can we automate that and then repurpose that associate time to serve the customer? So that's really exciting. You know, we're in the middle of a pretty big transformation, and I think there continues to be upside, and that's all baked into our long-range plans, you know, over the next few years. So we're pretty excited. And then if I could just drill down on the human capital piece, because you just- Mm-hmm. You just touched on it a little bit. So obviously, there are ways that you're improving productivity and customer experience from all the initiatives you just mentioned, but are there ways investors should measure the return on investment from your human capital initiatives? Or where are there examples that you can tie these initiatives to performance or underperformance? Yeah, our human capital strategy has been a big driver of our success, I would argue. If you look at our overall performance, you know, in terms of our growth, our margins, our returns, a big part of it is the way that we have, led on the people, agenda. So certainly in terms of competitive wages, competitive benefits, innovative benefits around well-being and so on, that's important. That's sort of table stakes these days. I think where it gets exciting and where we're trying to differentiate is around growth opportunities for associates. So we employ over a million associates in this country alone, and a lot of those people come in at more entry levels and, you know, they've got aspirations to grow. And so I think where we're differentiating is around the training and development that we're providing and the career paths to people. So 75% of our field managers started as hourly. We've been innovating on exciting career paths that allow someone to come in at any level. They could come in as a cashier or somebody coming into the back room or what have you, and then what are their skills now, and where would they like to go? How can we, between the on-the-job coaching, investments in things like Walmart Academy, which is our dedicated training, as people move into supervisory and managerial roles, and then Live Better U, which started out as free high school completion, college and so on, but increasingly we've been using it to provide very job-relevant credentials to help someone get from a store associate to truck driver, which is over a $100,000-a-year job, or to move into pharmacy, or to move into coding, to move into produce management, these kind of things. So helping people connect to that and develop them to advance, you know, into those positions, that's where we're really trying to differentiate, and we are increasingly using technology to help us do that too. So insights into people's skills, ways to assess talent and understand what are their strengths, and then are they missing one or two micro skills, that if we could just fill that in, it would allow them to move to a next level and trying to systematize that. It's something that we had been working on for quite a while externally through the Walmart Foundation, with lots of different parties in training and development, education, civil society organizations, other employers, to help America's workforce be more productive, help with upskilling and giving people the skills they need that are more relevant for advancement. And, being able to do that alongside in our own company, I think is really powerful, especially just given the sheer number of associates we have. I think that, you know, if you look at what we've done, we've been raising our average wages systematically since, gosh, 2015, when we made a first big wage investment. Roughly the same number of people, maybe even more, that we're employing, and yet look at our performance since 2015. These things are not coincidence, right? We actually believe that our people do make the difference, and that investment in upskilling, new jobs, new job mix, and being able to advance people is a really important part of our success. And then if we could shift to just supplier engagement. Again, you know, we talked about, you know, supply chain practices and technology. How is that evolving to encourage supplier growth, build resilience, and prioritize local sourcing? Yeah. So our suppliers span the spectrum of the very large suppliers, like a Procter & Gamble, down to a little tiny startup. And you know, just yesterday, we finished our eleventh annual Open Call competition in Bentonville. And for those of you who, who aren't familiar, it's kind of like American Idol for vendors, for suppliers, right? So we have these regional competitions. People pitch their ideas for products, and these are, some of these are very tiny startups. And then we hand out the golden ticket to come to Bentonville. We had five hundred entrepreneurs in town, and they're all pitching their items, and then you know, a number of them go through to product. So we just started releasing some of those today. So, for example, one is a company that does knife sharpening, and they actually started out as a tiny vendor just doing, like, kitchen knife sharpening for us. But what they were pitching yesterday was garden tool sharpening, so it's an expansion of their business. And they have a couple manufacturing centers now in the U.S., and that's more jobs for those communities. Another one is a low-sodium sunflower seed snack. So, you know, healthier snack, less sodium, more flavors. So they got through. So things like that on the tiny end of the spectrum. What we've been trying to do in terms of sustainability topics, if you want to think about emissions reduction or regenerative agriculture practices, packaging design, waste and eliminating waste upstream in manufacturing, et cetera, you guys are probably some of you familiar with our Project Gigaton platform that we started back in 2017 or so. We started that to help suppliers, small and big, get ideas about how they could go after emissions reduction in ways that create other forms of value. So very practical project ideas around energy efficiency, renewable energy conversions, packaging optimization, adopting certain, you know, farming practices, and so on. So we work with scientists to figure out the ideas and translate, help the suppliers translate those into emissions and kind of set targets around those. But as I was saying earlier, they have co-benefits. So those projects, the reason suppliers have been really excited to engage is generally it's driving a cost reduction, it's securing some source of supply, making it more resilient for the future, often agricultural commodities. It's earning license to operate with some of their customer segments or policymakers or helping them comply with certain regulations. In some cases, it's creating new revenue streams. They all have different reasons for different pieces of this, but so far, we've had 5,700 suppliers engage through this platform, set goals, pursue projects, you know, reporting results, and it's amounted to 1 billion to 1.2 billion metric tons of emissions avoided, sequestered, reduced in our goal period, which is from when we started to 2030. And they're all practical projects that are generating some benefits. I think the reason, you know, we had said 2030 was when we wanted to get to a goal of a gigaton. We got there last year. It's because of the business relevance and people, you know, continue to keep going. We provide them access to third-party resources, like companies that can help them with packaging optimization. We created a renewable energy procurement buying platform called Gigaton PPA, and we did the first one with Schneider Electric, and we're working with Ørsted now. And, you know, we've got six suppliers like Smucker's and Amy's and Levi Strauss and so on, purchasing from Ørsted's Sunflower Wind Farm in Kansas, which is one project, one example. Those are ways that we can enhance the resilience from a sustainability perspective of our suppliers, but really help them continue to grow and thrive. So that's one way, and then we have a number of other programs. I mentioned Open Call. We work around the world with suppliers. It's really important to us wherever we operate, to source locally. So in America, for example, we're targeting an incremental $350 billion worth of products sourced from American producers. We have a similar program in India, and we're actually trying to help India export certain categories. So that is a deliberate goal of ours, which is to help suppliers thrive and grow, and it just makes our business stronger. You know, it, we also, one of the things we really love about leaning into truly local suppliers and some of the smaller ones is, it gives us access to insights about customers too. We tend to find a bit more innovation sometimes, or it's just another source of innovation, I should say, coming from these smaller players, like a couple of the examples I gave with Open Call. Then, you know, with Project Gigaton six years ahead of schedule, where does Walmart go from here? Is there a new target, and how do the learnings achieved from your prior goals achieve your future plans? Yeah. Well, you know, I think you guys came out with a report last week, right? And I, I think maybe this event, we used to call it, or you used to call it Sustainability from Targets to Action or something like that. So, we're in a new era. You know, this discussion comes toward the end of Climate Week. So probably many of us in this room, we certainly have been engaged in a lot of conversations around town. And I would say five, six years ago, the focus really was on target setting and people trying to figure out, okay, well, what should we be aiming for? Now we know so much more, and people got their targets. The question now is, what are you delivering? Like, what are the results? You know, as you've said in the title of this conversation, what are the results relevant for business, right? Because that's really what you can keep doing, that's what you can scale. I think on Project Gigaton, we're going to continue the platform. It's been hugely successful. It continues to drive all of those business benefits I talked about. And yes, it is decarbonizing supply chains in a meaningful way, so it's great. I don't think we're going to say, "Okay, two gigatons." Like, we're just going to keep going, and we will report the results as we go. And I would expect them to continue to be really strong, because of the way that we're doing it. Business relevant, providing, you know, tools and supports to suppliers, celebrating their success, encouraging and rewarding, all of those things. We are taking a look at our own kind of internal footprint targets. So we have a target for our Scope 1 and 2 emissions, or operational emissions, which is to get to zero by 2040. We're in the middle of it. You know, the way we're going to get there is through energy efficiency and renewable energy expansion on-site and off-site. So on-site, I think we already have one of the largest installed bases of solar in the country and in other markets too. And then off-site, we're continuing to expand that portfolio. Those initiatives also include leveraging tax equity and some community solar, prioritizing it, because it's very consistent with our, you know, who we are as a company. For example, on community solar, we've been really trying to find projects that not only have great returns, but also serve lower and middle income communities. We had a recent batch of projects that went through about 70 megawatts with Pivot Energy and Reactivate. These are installations across 6 states, and they're going to be supporting lots of local businesses and school systems and so on, but also around 13,000 households that collectively are going to save $8 million on their energy bill through, you know, this expansion of energy. And three-quarters of that is for lower and middle income households. That's just an example. Energy efficiency, energy procurement. We like to talk about the acre of energy, meaning our goals around access, cost, resilience, and emissions. So that's really kind of what we're optimizing in that portfolio. The second big part of our target around emissions is refrigeration conversions. There it's really about end of life. As our equipment is aging, swapping it out for low global warming potential equipment. So that's kind of sure and steady, you know, as that kind of schedule goes on between now and 2040. It's interesting because it's a different type of equipment, requires different maintenance skills and so on. So it actually is an example of job opportunity that gets created through a sustainability related effort, because HVAC maintenance is a job that we have been in-sourcing, and it creates a path for our folks. And it's a higher skill path, it's a higher paying path, so that's exciting. Transportation, that's a big one. You know, we've got the yard trucks, and we've been doing kind of hydrogen forklifts and things like that, last mile delivery, going to EV. Our big challenge is the heavy tractors, which right now, technically feasible solutions that are also economic, that's tricky. So we're in the middle of piloting and experimenting different approaches there. So we're experimenting in Canada with EV versions. It doesn't really work if you've got super heavy loads going really far, so there's other technologies we want to experiment with. And one of our headwinds is we're insourcing more of a fleet that we used to outsource, which is great because it's going to be more efficient and more cost efficient, and we can optimize it in our network, but it does give us a kind of a bolus of emissions in the near term. So it's something that we're working through there. And then, of course, on-site fuels, that's another part of the mix. So all of that is trending towards zero by 2040. It's not going to be linear. You know, different pieces of what I just talked through are going faster or slower, and the shape of that curve depends on how... you know, when you add it all up, what is happening in any given year, but that's a big thing. So coming back to Scope 3, Project Gigaton has been, until now, our Science-Based Target or approved by that organization, but we had achieved it. And so now it's sort of, okay, what do you do now? And now what people are looking for is a target that relates to our actual footprint, because Project Gigaton is for suppliers in general, right? It's our suppliers, but it's anywhere in their chain, and we didn't want to burden them with, "Oh, figure out how much you want to allocate to Walmart." Like, it was just, "Go do what you need to do in your factory," and if that factory happens to serve Kroger and other people, then good for you, right? We just wanted to get them going. But when it comes to our own footprint, you know, that's a different metric. So we're looking at that now and figuring out what's the best way to. We've been disclosing that for years, but what's the best way to set a target around that, especially given that so much of that metric is a function of global energy systems, global food systems? How much can we address? So we're sort of in the middle of all that now. If I can maybe just talk more generally about how Walmart chooses to invest in growth and the implications on return on investment. Where do you see the best opportunities for growth, and how do you see the return on investment in the near and medium term? Yeah. Well, we have a really terrific and robust long-range plan. In fact, our board just approved it, you know, a week or two ago for the next three years. And it's really anchored in our financial framework, which some of you may be familiar with, which is really articulating the initiatives related to growth and margins and returns. And it's holistic and integrated across our whole enterprise. So Walmart US, Sam's Club US, International, all works into that plan. All of our functional initiatives, so our sourcing and merchandising initiatives, our operational initiatives, including energy transformation, automation in our DCs and FCs, and so on. Our new businesses, so Walmart Connect, our Data Ventures, you know, financial services, health services, all these things ladder into this. And we think about it holistically, and every initiative competes for that capital dollar, the same as any other initiative, right? So it's not as if we have, "Oh, here's our sustainability capital over here and our financial services capital, and we'll have a little bit for Sam's or Mart..." Like, it's all integrated. And our whole, long-range planning process is built around, you know, bottom up, top down, optimizing what you normally see from other companies and optimize that way. So, we're really excited because if you look at kind of sources of value going forward, there's our core business of providing value, assortment, convenience across a whole range of products and services through our network, physically, but also digitally. So delivery and pickup, which have really taken off as well as in the store, and that ability to optimize gets stronger and stronger. And then new value-creating businesses that have higher margin structure and a much steeper growth trajectory. So I've mentioned a couple of them, Connect and data ventures and so on. So the whole thing works together. When it comes to some of the growth, you know, in terms of our categories, our product categories and sustainability, I'll just give you a couple of examples of what I mean about the economics kind of being integrated. So let's just take rice. So rice is a really important commodity for many households. It's a core kind of staple product. We have Great Value rice. Great Value is our entry-level private brand, at Walmart, and it's you know, it's the kind of opening price point in many of our, categories. We've been working with farmers in Arkansas, which is our backyard, to optimize rice production, to lower methane, and to reduce the water consumption very significantly in both cases, in ways that actually enhance the resilience of that crop in the face of some climate pressures. You get a more resilient crop, it's actually more cost-effective, which is great for the farmer and great for that local community, and it's providing kind of a source of secure supply for our Great Value brand. So it, it's a great example of sustainability innovation that's helping us achieve goals, but it's not like some separate CSR thing that we did over here, and we got separate money. Like, it's just like our merchant who's the rice, you know, has rice in their at their desk is leading that with our sourcing people. And our sustainability folks help with that and connect to the scientists and people who can help make that happen, but it's all integrated. And, you know, I could give you similar examples for beef and tuna and, you know, pick your commodity. That's the way we're thinking about it. So it's optimizing that commodity production to address sustainability issues, you know, at source or along the chain, in ways that make it work, you know, for the customer and for the producing community. Yeah. If we could maybe move on to balance that Walmart has between investment across areas that benefit various stakeholders. Mm-hmm. How do you balance that? Yeah. Well, you know, I've often been puzzled by this sort of debate about stakeholder capitalism versus shareholder value or, you know, shared value, right? Like, to me, you mentioned I was at McKinsey for many years, and it's true, I was. And I remember my first year as an associate, you know, kind of fairly fresh out of school, and so being kind of locked in a room and taught how to do net present value and, you know, DCF cash flow, and here's the formula, and, you know, we had to run through all these examples and really learn how to do that. Really, for the next however many years, most of the projects or studies that I was on, you know, you were doing strategy options, and you'd say, "Well, option A and B, option B and B," and that was, like, the litmus test, right? And it all comes down to: what are your assumptions? Okay, I'm assuming revenue is going to grow 5% a year, and I'm assuming my costs are going to be flat, or whatever your assumptions are. Well, what is that based on? You must have some assumption about the policy regime and license to operate and what's happening with the, you know, surety of the materials that you need to make your product. Like, it's all in there. And I... When it comes to stakeholder, you know, optimizing across the needs, I just think of that as another way to ask the question, "What assumptions are you making in your model?" Right? So let's take our associates. I just mentioned that, you know, in the last, gosh, I don't know, nine years, we've been repeatedly investing in elevating the jobs, and some of that's through capital investments in automation or process improvements that remove physical labor or mental, you know, cognitive, repetitive tasks that elevate those jobs and allow for a higher compensation. It's a higher-skilled job. So, you know, on average, our wages have been going up and up. We've been investing wages, and that has powered our sales and our customer experience and loyalty, and it's all kind of in there. So that choice to invest in wages, was I prioritizing that stakeholder group, the associates, over the shareholders? Like, well, no, I did that to kind of get what I needed. So I don't mean to suggest there are never trade-offs. You know, obviously there are. And those trade-offs can often meter the pace that you move on anything, right? So I talked about transportation, heavy, heavy tractor-trailers. Like, I'm not going to somehow get to zero emissions on that overnight in any kind of value-creating way. So I've got to figure out creatively, what's the innovation? How do I shift the way transportation works? Like, there are a lot of other considerations. So there isn't like a formulaic answer. Do you know what I mean? There's not, like, a black box that says, "Well, this stakeholder group gets this much in the model," and it depends on the business choice in front of you. But I guess I would just say the Walmart philosophy is to think about it in a holistic way and recognize the dependencies of one group on another in that value creation model, so. If I could ask about the Walmart Foundation, how do you see the benefits and challenges of a public and private partnership, corporate philanthropic partnerships, advancing your sustainability and ESG goals? Yeah. So we have a Walmart Foundation, which is a 501(c)(3). We also have corporate giving, which is more standard kind of Walmart itself giving. And those two things we run in a pretty holistic way under the banner of Walmart.org. And the program areas of Walmart.org mirror the topical areas where we as a company believe we can be of most service to our customer and, you know, create value in all the ways I just talked about. So the three big thematic areas of Walmart.org are, first of all, economic opportunity, so especially for frontline workers in America, and we call that Retail Opportunity. That's that program. Another one is around sustainability and sustainability of supply chains, where the foundation and Walmart.org are prioritizing the issues related to nature and human rights or people in supply chains, and then the third big area is around community, and we come at that a couple different ways. One is resilience of communities. So the two big themes there are disaster preparedness and relief, and what we can do through philanthropy there, and the other one is food security. So that's resilience, and then the other aspect of community is highly localized, using our donations as currency just to kind of support what local people are interested in. So it's our store grants program, our matching for associate volunteerism, customer giving campaigns, kind of like Giving Tuesday type of money and so on, where we're not directing toward any particular issue or organization- Mm-hmm. But really empowering people to do that, and we match and help. And we have a platform that we call Spark Good, which now has, gosh, like 20,000 - 30,000 organizations on it in America, and they can access store grants, gift registry, like a charitable registry, round up at checkout. Their donors can sign up and do all those kind of things. So our approach on the philanthropy is to say: All right, what's the broader system that we're trying to address as a company and through philanthropy, social or environmental issue? And what's the role of the company, and then what's the complementary role of philanthropy to address that societal issue in ways that accelerate progress externally? Not self-dealing. Obviously, we're not making donations at Walmart. It's, it's about how we can accelerate progress in this system, right? So I'll give a couple examples. I was talking to you about the rice example. We have about, I don't know, 20 or 30 commodities where we're doing this kind of innovation at source that is combining better production practices around that commodity with conservation and restoration and working with people locally. A number of those, about half of those are the company sourcing in different places, commodities that are important to Walmart. The other are foundation-funded projects that are just out there in similar commodities, similar ecosystems, but for the benefit of all, and they're kind of learning opportunities. So, for example, working with World Wildlife Fund, with cattle ranchers in the Northern Great Plains to figure out the optimal ranching practices to restore native grasslands and to prevent nutrient runoff, cow dung runoff into the streams. So what are the practices around rotating the cattle and around fencing and, you know, how do you basically, how do you manage the herd, to do that? And that's a philanthropic project. Lots of learnings from that and so on. Well, in our beef chain, we're actually also experimenting with similar things with our own suppliers around grazing practices and asking them to adopt the practices that we know work for their own economics, but also those grassland ecosystems. And what's kind of cool is, you know, cattle can play the role that bison used to play on the Great Plains in some ways, in terms of acting as that type of large animal grazing the land. You have to obviously manage them differently, but that's just an example, or if you want to think about textiles. So we have our apparel business. There's quite a bit we're doing around fiber mix and working with factories around chemical discharge and so on in the production of apparel. Through philanthropy, we're experimenting with folks like Goodwill and others around textile end of life, and what are ways that people can reclaim fibers at the end of life and reclaim them and put them back into circulation? So that's something we can experiment with through philanthropy, again, for the good of everybody. So that's how we come at it. Okay, and just in our last couple of minutes, I have one more question. Mm-hmm. Fast-forward a year to September 2025. Do you think the opportunity set and value proposition to invest capital for Walmart and its customers will be better or worse than it is today? You know, I can't really crystal ball around external, you know, what's gonna happen between now and then, even what's gonna happen in the next couple of months, and then. But, our LRP is pretty set. Like, our strategy is pretty clear. Mm-hmm. As I mentioned, the board just approved it last week or the week before, and it's a three-year plan. We've got it all lined out. Like, we have a really clear idea of that financial framework. Where's the capital going against those different businesses I described, and how does that ladder into growth and margins and returns? Obviously, there's contingencies if things change externally, but that's set. We're happy with it. Thank you for joining us today. Thank you! We appreciate your time. Thanks. It's been great being here. Thank you. Thanks, everybody.