Walmart Inc. (WMT) Earnings Call Transcript & Summary

Good afternoon, and welcome to Walmart's ESG Webinar on Climate Change. My name is Dan Binder, and I lead Walmart's IR and Corporate FP&A teams. This is our second webinar discussing Walmart's ESG priority issues and follows our September webinar on human capital. You can find a recording of that session on our Investor Relations website at stock.walmart.com. Joined by a few colleagues this afternoon, including Kathleen McLaughlin, Chief Sustainability Officer and President of Walmart Foundation; Jane Ewing, Senior Vice President, Sustainability; and Zach Freeze, Senior Director, Sustainability. Kathleen and her teams are responsible for Walmart's ESG strategy and disclosures, including working with subject matter experts across the business to make sure we're focused on the right ESG priorities. Climate change is one of our priority ESG issues and the corporate sustainability team reporting to Kathleen oversees our climate change strategy and collaboration with teams across the business. Before I turn the call over to Kathleen, let me remind you that today's webinar is being recorded and will include forward-looking statements. These statements are subject to future events and uncertainties which could cause actual results to differ materially from these statements. The information discussed in today's meeting should be viewed in conjunction with our ESG report and other public documents, including our 10-K and earnings materials. These documents and our entire safe harbor statement can be found on our Investor Relations website, stock.walmart.com. We will be posting a recording of today's webinar under the Events section of our Investor Relations website. As you can see from the agenda on your screen, Kathleen will spend about 15 to 20 minutes providing an overview of our climate change strategy as outlined in our ESG reporting. That will be followed by about a 30-minute Q&A session, and at the end of that session, our meeting will conclude. We received some questions from several people in advance of today's meeting. So we'll begin with those and then move to questions in the queue. [Operator Instructions] We're hoping to address other priority ESG issues [ in the future ]. So for today's session, we request that you keep your questions focused on climate change. If you have additional questions following today's webinar, please submit them to our Investor Relations team through our Investor Relations website, stock.walmart.com. It's now my pleasure to turn the call over to Kathleen.

Hello, everyone. Thanks for joining us today. I'm really excited to dive into this topic. So as those of you who have been following us know, our ESG portfolio focuses on the issues that are most relevant to stakeholders, most relevant to Walmart value creation and issues that we feel we can play a meaningful role in addressing in partnership with others. We did a deep dive refresh on our priority ESG issues earlier this year. And what you see in front of you is the latest set of opportunity created for associates and suppliers and others. We believe we can also be a platform to advance equity, sustainability, and we're going to focus on the first issue listed there today, climate. There are many other things that we work on, environmental and social issues in sustainable retail and product supply chains around the world, building more resilient communities and then operating with the highest standards of ethics and integrity. I would invite you, if you'd like to learn more about our approach to ESG overall or our approach to any of these issues to go to our website and look at our FY '21 ESG disclosures. There, on the platform, you'll find in-depth issue briefs for each of these issues that set out our aspirations, key metrics, our strategies, progress that we've made and also the challenges that we face. So I'd invite folks to take a look at that. But let's dive into climate today. And in summary, our approach to climate focuses on getting to 0 emissions in our own operations and engaging with our suppliers to help move toward net zero in society by 2050. And through philanthropy, through advocacy, the way that we govern our climate strategies, really be part of creating a movement to take ambitious action now to help avoid the worst effects of climate change and also to help the world adapt. So we really are focused within our own company and beyond to try to make the biggest difference we can. We were the first company to -- in retail to make a science-based target back in 2016 and we've since elevated the ambition in that target. I'll talk about that a bit more in a moment. And we'll step through each of these parts of our strategy today, and we can go deeper on anything that folks are interested in, in the Q&A. So let's start with our climate risk assessment. We did our first climate risk assessment in depth back in 2017, and we updated it this past year. We did a scenario-based approach. We worked at the RCP 8.5 scenario, which is the 4.9-degree warming scenario. And we took a look in depth at 4 factors in terms of physical risks, so heat, wind, precipitation and flooding. And we said, well, how does that affect our retail operations, our supply chain, the communities that we serve? We also did take a look at transition risk, and we provide some of our perspectives on that in our disclosure that I mentioned online. But what we found in terms of impact on our own operations and communities, supply chain. First of all, in terms of our facilities, not surprisingly, under that scenario, if you look at the warming and what that means in terms of weather volatility, 2/3 of our facilities will face increased heating and cooling costs. And there is also a significant number of intensity -- intense storms. We see that even today under that scenario. So damage to buildings, facilities and so on. In the supply chain, we looked at 25 commodities in particular. So think about beef, cotton, palm oil, produce, those kinds of things. And we found that 11 of the 25 that we sampled would likely have significant issues around yields or quality based on where they're growing today under that scenario. So coffee, for example. Cotton, very compromised if no action is taken. And then in terms of communities, we looked at Walmart's actual communities and about 50% of the communities that we currently serve today would have some significant disruption at some point between now and 2050 under that scenario. So these things, you model them, they're hard to say exactly is there a point outcome that you can have 100% confidence in? But we know in aggregate, unabated, the consequences of climate change are significant and negative looking at these factors. And it really just underscored and really inspired us to redouble our efforts that we have had underway based on our previous climate assessments around our own operations, resilience in our own operations, so thinking about where we cite facilities, having backup generators, being able to reroute transportation, things like that, more resilient sourcing. So where are we sourcing commodities? What can we do to work on surety of supply and then resilient communities? How do we support our local communities? That's not just disaster relief, but preparedness and engaging in local communities. So in terms of mitigating the impact, that's a big part of our strategy, but of course, we're also trying to mitigate emissions, which takes me to this next piece here. So climate change emissions. As I mentioned, we're the first retailer to set a science-based target. We've elevated that ambition to be in line with the 1.5-degree scenario. And we're targeting 2040 to get to 0, not net zero, but 0 emissions in our own operations. And we talk about Scope 1 and Scope 2. So what does that mean? Scope 1 would be things like refrigeration, transportation. And then Scope 2 would be things like electricity to power our stores. And you can see here on the chart how we've been bringing down the emission systematically. We are happy to report, based on our latest numbers from this -- from 2020, that we've achieved a 17.4% reduction in emissions through calendar year 2020. So that's about halfway to our interim goal of 35% reduction by 2025. So we feel good about that progress. We feel we're on track with the science-based trajectory. We're going for 65% reduction by 2035. And then as I said, we'll get to 0 emissions, 2040 is our plan. You can also see a reduction in our carbon intensity. In other words, we've managed to decouple our growth from emissions. So our business grows, but we've managed to take our emissions per dollar of revenue down. And obviously, that's what we need to do to get to 0 emissions. So that's exciting. And it's a 10% reduction in 1 year alone. So that's great. Our focus is on those contributors to Scope 1 and 2. So renewable energy, efficiency, transportation, our long-haul heavy tractor trailer trucks, for example, right down to the little forklifts in our distribution centers. On-site fuel. So if we're cooking rotisserie chickens, for example, in the stores, in refrigeration. So our strategy is focused on that. We were at 36% renewable energy, so our electricity coming from 36% renewable sources in 2020, and that number continues to climb. We'll be releasing in our next disclosures where we are this year. It's going to be higher than that, which would be great. We have 550 projects on-site and off-site for renewables. That's 4 billion kilowatt hours as of 2020, and we're looking towards 7 billion next calendar year because we've got a pipeline of projects as they come on, they come in big chunks of capacity. So we're excited about our progress. We can go into more detail on any of this in the Q&A. For Scope 3, when we set the targets, our science-based targets, we're really looking for a way to get immediate concrete action across our supply chain on emissions so that we could build momentum and start to drive what really ultimately is a transformation of the way consumer products work and the way consumers live day-to-day and not do something that would be long over time but immediately. So the way we set things up is, we said, let's set an interim milestone 2030, 1 billion metric tons of greenhouse gas, let's get that out of our supply chain. And the time we set that target, that was consistent with the trajectory for the 2-degree scenario. And we said, let's get our suppliers engaged and let's set it up in a way that allows us to engage everybody. Let's make it a broad church -- a broad tent, get everybody engaged and it's going to be an escalator of ambition, where we get them started and then we ratchet them up in terms of the quality of their actions, their willingness to disclose, the quality of goals to be smart goals. And that's what we've done. And you can see some of the fruits of that here. There are 6 different arenas where we've been focused with suppliers: energy, waste, packaging, nature. So regenerative agriculture, forest projects, conservation, certifications of commodities, things like that, transportation and supply chains and product use. So that's more of the consumer end of things. So do people wash their underwear in hot water or cold water? And you can imagine for a business like ours, when you're talking Scope 3, it's a lot of different things. It's kind of how people live day to day in many ways. And the results have been fantastic. So as of last year, when we reported and we're about to share new information, I can't disclose it today because we're still working with our NGO partners to scrub the numbers, validate and make sure that we all feel comfortable with it. But as of the last time we reported, we had over 416 million metric tons on the way to the 1 billion. 3,100 suppliers engaged in the program. But remember, as I said, we've got sort of this escalator of ambition. 3,100 are trying to do work, and we work with them to help them set goals and make progress. About 1,500, we would say, you know what, they are reporting, they're doing their best to set good goals, meaningful action. 883 are what we call Giga Gurus. That means they're operating intensely in at least 1 pillar, and we ratcheted the requirements on that too for our next disclosure. They've got smart goals. They've committed publicly to those goals and they're disclosing. As of last year, 60% of our sales base was covered by suppliers working and reporting their progress, and that number is going to go north. Again, I can't say what it is today, but we're very excited about the progress here. And what's neat about this program is, it's not only engaging our own suppliers and making it easy to translate these big goals of emissions reduction into practical business action in these arenas, we've worked very hard with our nonprofit partners to create what we call calculators to help people do that. But we're providing support to suppliers and beyond in the industry through other business engagement, through philanthropy, to help the industry move more quickly on these pillars, and we can get into that a bit more. So that's mitigation, Scope 1, Scope 2, Scope 3. We feel good. We feel we're on track. Obviously, ways to go, but good where we are now. Adaptation. So as I mentioned, you look at the risk assessment I just talked about and the consequences are profound. So an important part of our strategy is to then take a look back at how are we doing our real estate? How do we do our merchandising? And make sure that we are prepared as much as we can be to handle the consequences of warming. So you can see some of the examples here. Disaster resilience really ever since Hurricane Katrina, Walmart has become quite strong and capable and does faster response, but we also engage in preparation with communities and in our own business. So prepositioning products, we can monitor the weather and see how it's coming in and having things ready to go, generate our capacity for electricity, route optimization for our trucks. We actually have an ability, for example, to watch weather coming in to communicate live with our truck drivers and divert them on different routes, to avoid weather and come back in. Real estate, so citing of our facilities, the specs that we use to build them to be resilient and then, of course, sourcing many, many initiatives that tend to vary category by categories. If you're talking about coffee versus cotton versus produce versus mangoes, what are the issues to be concerned about environmental and social? And then how do we adjust the way we work with suppliers to source those products, in this case, for adaptation to climate change. And that may mean trying to find different sources physically in different parts of the world. It could be managing day-to-day disruptions around transportation networks and so on. But really, our focus in sustainability at large in the product supply chain is sort of long term. We are trying to rewire the way products get produced and consumed for social and environmental sustainability. And as I said, you could go online to see a lot more detail about the other aspects of what we're doing around supply chains. Let me talk then about advocacy. That's really an important part of our strategy. Using our voice to advocate for policies that are in line with the 1.5-degree scenario. That's a matter of policy for us. That was approved by the Board last year. And there are a number of ways that we do that. Maybe just, for example, the most recent round of legislation proposals in the U.S., so the Infrastructure Act and the Build Back Better Act both contained important climate provisions. We were very early on engaged in clean energy performance plan. And then as that kind of fell by the wayside, we engaged with the follow-on pieces to that. And that's redirect engagement with policymakers, but also our publications, our work behind the scenes with trade associations like Business Roundtable and so on. So for example, engaging with the committee staff on the Build Back Better plan. Sending around -- I wrote a blog which some of you may have seen. And so getting that in front of committee members and other staffers, other members to help build support for the climate provisions in Build Back Better plan. You can see in our Lobbying Disclosure Act a bit more detail around our activities there. And then working closely in the Business Roundtable to help them publish their climate statement in the past, and then most recently, also publications around the climate provisions in these legislations. So climate statement that came out, we worked quite closely with them to craft that. There are other provisions in Build Back Better Act around tax and so on that I can go into in the Q&A, which we weren't supportive of. But in terms of the climate provisions, very supportive. And that's the kind of policy that we need to help all of us move faster against climate. Then also in the business community, we co-led the retail Race to Zero campaign connected with COP26, and that means getting other retailers engaged, encouraging them to consider what they would like to do in their own businesses to respond to the call to tackle climate, helping to provide materials and know-how so that others can consider the kinds of things that we've been doing. We are leaders and Board members of the Renewable Energy Buyers Association, which has now been renamed the Clean Energy Buyers Alliance. That's been a really important vehicle for advocacy and then many, many other organizations, policymakers, innovators that we work with day to day on trying to actually change the way business works in favor of climate. And then finally, in terms of governance, our climate policies, strategies starts with the Board. I report to the Nominating and Governance Committee, which oversees Walmart's climate strategies as part of their duties. And I was just with them a couple of weeks ago, sharing where are we on climate that the results of the climate risk assessment, the implications for our business, how we're responding and then the progress we've been making on our science-based targets, what we've been doing in advocacy and so on. And then, of course, the Executive Committee, Doug McMillon, his reports and then right through the segments and functions and our approach to mitigation and adaptations embedded in the real estate plans, in the operators' plans, in the merchant plans and so on. Climate is one of several risks that are considered in enterprise risk management, and it's just seamlessly embedded in that process as well. In terms of reporting, you'll see if you look at our disclosures that we are inspired by the TCFD and the guidance around how to disclose and even the way we set up our strategies and our governance model and so on, that's been a really helpful platform and instrument. And then CDP, we disclose through CDP. And we just got the results. We got an A- from CDP that will probably come up in the Q&A. I think somebody has submitted a question in advance. Why did we get an A-? If you know, call us and tell us. We're just trying to find that out, but I'll let Jane go into that a bit more. So that is it in terms of governance and reporting. So I hope that's a helpful overview. We thought it would be good just to start with that and give you a sense of the big picture. And then some people did submit questions in advance. There can be others coming in now. I see coming in on the Q&A. We'll try to get to everybody's questions before we wrap. So Dan, back over to you.

Great. Thank you, Kathleen, for a great overview. And we're also now joined by Jane and Zach as I mentioned earlier. I'm going to start, as you mentioned, with the questions that were pre-submitted, and then we'll work through those and we have some in the queue. When we have time, we'll get to that next. So first question, do you consider yourself to be on track to meet your 2040 0 emissions goal? And what is the path to achieving your milestones?

Thanks, Dan. I'll take that question. Yes, we absolutely believe we're on track. And as you heard from Kathleen, through the end of 2020, we've reduced Scope 1 and Scope 2 emissions, they're emissions in our own operations by 17%, which is exactly our halfway mark towards the goal of reducing emissions by 35% in 2025 and then 65% by 2030. Just for reference, the base year is 2015. So that gets us well on the path. And as you've heard, the target is aligned with the 1.5-degree scenario. So it's very rigorous. And we're making sure that we continue the momentum and keep up that pace of change. In terms of how we keep making progress, there's a lot of initiatives already in play, as you would expect. Kathleen mentioned some of those increases in efficiency, getting renewable agreements in place and then beginning that journey on transition for refrigerants and starting to explore more and more on long-haul transportation, which is obviously a big chunk of our emission. And then as we go into the coming years in the midterm, we'll fully transition to renewables as these projects come online. We'll drive heavier transition on our refrigerants as more equipment comes to end of life and more supply becomes available. And then we'll start exploring the emerging winners on heavy transportation. And then once we have those responses, we can start the full conversion to transportation and completing other conversions. So hopefully, that gives you a bit of a sense of some of the big chunks of what will happen now and then in the coming years. Thanks, Dan.

Thanks. Our next question, it looks like all of your operational emissions reductions are coming from your Scope 2 number while your Scope 1 number are increasing. What are you doing to reduce your Scope 1 emissions?

Thanks, Dan. I'll take this question. So Scope 2 is our largest source of operational emissions, and it makes up around 2/3 of our -- from our baseline year. And it's the biggest lever we have today to reduce emissions. And so we're expecting to see continued big movement here in the early years, and that was really based on our plan. And we've made big strides. So we've actually brought down our Scope 2 emissions over 33% in the past 5 years. And we've done through -- we've done that through reducing our energy load through energy efficiency initiatives as well as bringing on more renewable energy, and we'll continue to do both of those. On Scope 1, we're working on transportation and refrigeration. And it is important to note that both of these do tend to grow as the business grows. But on refrigeration, conversion is typically done as equipment comes to its end of life, as Jane mentioned, and our strategy is to convert this equipment over time, and we're doing that. And I would say that one exciting new development is a new store that we just opened last November in New York that utilizes CO2 technology. So it's our -- it's a low GW refrigerant that we're looking to scale in new stores as well. On the transportation front, our progress is dependent on technology developing for us in order to scale, and we are finding the right ways to invest and test in transportation. So things like moving to electric yard trucks, running refrigerated trailers off of renewable electricity. And we've even ordered Tesla trucks in our Canadian market to test and learn there to understand our EV needs for those larger trucks. And really, the big unlock is going to come for us with the Class A tractors and the long-haul heavy-duty that we know more innovation is going to be developed around. So overall, I feel like we're on track with our 17.4% reduction across Scopes 1 and 2.

Really encouraging work being done there. Next question, can you talk about how you think about CapEx and OpEx related to climate change. And whether you expect significant incremental spend specifically because of this issue?

Yes. Well, what everybody in the world is engaged in doing with respect to climate is transforming pretty much every aspect of our society to move to a very different economy. And so I guess the short answer is, these things get embedded within our annual operating plan, within our budgeting process, within the proposals that we're making in operations or supply chain or sourcing, the way anything else would get embedded because it's really core, it's integrated in our business. So climate isn't a separate portfolio of projects that we kind of cost out and bring several -- it's embedded. I'll give you a couple of examples. So take renewable energy. I talked about it a bit. Zach, you talked about it. We have a whole portfolio of energy projects that include energy efficiency. So I think we've swapped out just about now every last LED -- every light bulb for LEDs in parking lot and things like that. And those kind of projects typically generate great cost savings. And then in the same capital planning cycle or operating planning cycle, we would have proposals around renewable energy projects. So maybe some on-site project somebody had asked in the chat. I noticed you thought about on-site. Yes, we've got a little over 400 locations now with on-site solar, and so there might be CapEx involved in those, OpEx and so on. And then if we're talking about renewable energy, power purchase agreements and so on, we're negotiating those and we're looking for favorable terms that can be competitive, comparative with the way we bought electricity before of those projects. So every single project is looked at through the same basis, the same hurdle rate that we had applied to everything else. And what we try to do is say, in aggregate, the portfolio ought to pencil. And there may be components that are more pure cost, so for example, refrigeration. When we convert out refrigeration equipment, it's not going to generate new revenue for us, it's not necessarily going to lower cost. It might even be a bit more expensive. So the approach to refrigeration might be, okay, as things come to the end of life, let's -- then that would be a time to convert. That might be pure cost, but can you offset it elsewhere in the P&L not even necessarily through climate-related actions, right? There's got to be an offset somewhere. So when we give guidance to all of you in terms of here's our revenue outlook, our OpEx outlook and so on, it's baked in there. It's not viewed as a kind of a separate set of things that we're proposing on.

Yes, a lot of choices have to be made through that process, as you know.

Yes. And I guess what I would say is our North Star is we've got the science-based target and that trajectory. We're living within that, and then we're applying the same creativity we would to anything else. Hitting comp sales targets, hitting OpEx targets, hitting CapEx targets, hitting the emissions targets, we're optimizing within those parameters, all of our operating initiatives. So it's just -- it's part and parcel of that.

Great. Moving to the next question. While it is good to see the progress on Project Gigaton, we wondered what Walmart is doing to catalyze action within the supply chain as opposed to just relying on your suppliers to move the needle.

Project Gigaton is our way of catalyzing action in the supply chain, and we're doing lots of things to support suppliers on their journey to reduce emissions. So we're really happy with the progress. As you heard from Kathleen, we have over 1,300 -- sorry, over 3,100 suppliers that joined up. Many more have just joined in this last round that we are currently evaluating and making sure we do a really good job on cleaning the data so that we can report accurately. And then the program really does reward action and progress. And we're seeing some real strong commitment from our suppliers. And I'll just kind of give a few examples of some of the things we're doing, how we're trying to make it almost a stair step process to continue suppliers on that journey. So first of all, we get them to sign up. And then we start getting them to set ambition and set goals. So there's some companies out there that decided to take action early. Many of our suppliers, they don't have big teams working on this. They're relatively small. They don't know where to start. So they're not typically a multinational CPG company. So our merchant teams directly engage with our suppliers, they encourage them to enroll and take action. And then they keep score. They know which ones of their suppliers have been part of the program and which ones aren't. And it's really helping to build momentum. So once we've got them on board, then we've got to really make it relevant for them. So we build out guides, calculators, playbooks, things that actually help them on this journey. And most of them are areas that are core to what they do every day. So for example, how do we help them make good packaging decisions? Designing products, thinking about sustainability and emissions in mind when they work on how they're going to transport and build logistics. And we work with several NGOs, including World Wildlife Fund and World Resource Institute, Conservation International, they help us validate these actions. So it's not just Walmart saying this is the right thing to do. We make sure it's validated and supported by important external stakeholders. And then thirdly, we provide these tools and support. So our playbooks for areas like packaging. We've worked and partnered with the Walmart Foundation. They actually funded the creation of a tool called Plastic IQ, and it really helps companies understand their footprint and what actions they can take to reduce our emissions and reduce plastic and so on. And it's free to use for these suppliers. So it really is a benefit that they can use. We also have a number of other initiatives. We've got something called Gigaton PPA in collaboration with Schneider Electric, that allows suppliers to access really affordable renewable energy, where they might not be big enough to go in and do agreements on their own. Last year, we launched a low-cost financing effort in partnership with HSBC. And actually, just this week, we launched that CDP have joined that initiative and suppliers can get preferable financing if they are engaged in driving action through Project Gigaton. And then the last thing I would say is we increased ambition over time. Once a supplier is in Gigaton, they -- we keep building the momentum, we keep encouraging to use new tools and we keep raising the bar. So this year to become a Giga Guru, which is kind of the prestigious award, they had to set goals in 3 pillars, whereas last year, it was only one pillar. And we still have huge amounts of suppliers hitting those goals. So as we -- as Kathleen mentioned, we just finished the 2021 reporting cycle. I see a question in the chat on when will we be able to release that. We do a very thorough quality control. So in the next couple of months, we'll have that finished and then we'll be able to publish that.

Maybe I can just jump in with one comment because I saw it in the chat earlier, just to build on what you were saying, Jane, somebody asked about nature. And could we give an example of how we're working on nature. And that is -- obviously, it's related to climate because if we can move people to more regenerative agriculture practices, if we can avoid deforestation and even work on afforestation or reforestation, that can be part of the climate solution because we can draw down emissions into soils or forests and so on. So I'm just going to give 2 concrete examples, one from business, one from philanthropy. So in business, the Midwest Row Crop Collaborative, we helped create that with suppliers coming out of one of the listening sessions that Doug held with a number of CEOs in the supply chain companies, our suppliers. And we've been engaged in that for years now, a number of years, and it's been very focused on helping farmers optimize fertilizer in the first instance, which is a huge win for farmers because it's a cost savings, but it also reduces emissions. And then slowly begin to adopt other practices, cover crops, rotations, these kind of things which ultimately helps restore nature, prevent nutrient runoff, restore pollinator health, lots of other benefits as well as emissions. And we've been engaged very closely with a number of leading suppliers in specific states in the Midwest to do that at scale. And there's information available online about that. Then the philanthropy example would be a grant that we did with World Wildlife, with Cargill and McDonald's in the beef chain, working with ranchers in the Northern Great Plains to allow them to continue ranching and grazing their cattle, but to adopt practices that restore soil health, natural prairie grasslands, pollinator health, prevent runoff into waterways and so on. Again, climate benefits and nature benefits, but also economic benefits to help those ranches transition. I guess one more I would mention is tuna in the Marshall Islands with nature conservancy that was less perhaps specific around emissions, but it's an example of working in local landscapes with the people in the Marshall Islands to rewire tuna supply chains for a high standard on social and environmental indicators and engage local people in production as well. So these are just examples of bringing together economic, social and environmental considerations, deep in the chain, working with suppliers and with others to transform the way these things work. And that's really the kind of thing that we're talking about. Think of Gigaton as just a platform and a mechanism to highlight, connect practices, encourage, reward, support with tools, but there are many other things we're bringing into it now, nature, even some people-related things that we'll talk about at a future discussion.

And I would just add, Kathleen, this is -- this can get very complex, particularly for smaller suppliers. So we're trying to make it easy. And we combined this year. We had a pillar under forest, and we have one under agriculture. We've combined it into a nature pillar. And we've got a tool in there that helps them kind of start on that journey of getting to their goals. So there's a lot of -- and we stairstep them through it. Like, start with the basics and then start building out.

Great. With that, we'll go to the next question. Why is Scope 3 not part of your overall 0 emissions goal? Do you anticipate setting an overall net zero goal?

Yes. So as we've discussed, our approved science-based target does include Scope 3 and Project Gigaton is the way that we're tackling that. So our ambition all along has been to help the world get to net zero by 2050 and being a catalyst that moves the needle along for our supply chain. So -- and that will continue to be our ambition. Gigaton itself, as we've just been discussing, is a way to get real, tangible, concrete action from our supplier base. And then we increased ambition for that. So it focuses on all the major drivers of supply chain ambition, again, as we've just shared, and we're making it relevant and actionable. So the way to think about is this 1 million -- the 1 billion metric ton goal is a huge interim milestone. We're well on the way to that, as you've heard. And if we -- if Walmart supply chain is moving that far that fast, we're moving quickly in the right direction. And we already know that we'll look to build on that goal as we continue to make progress. So pretty excited about that, and we're testing and learning along the way. Just another example to highlight is we recently joined the LEAF Coalition, which is an organization that spearheads forest preservation. It's a $10 million philanthropic investment. And we're actually not taking carbon credit for that, but with our participation because we're trying to get to 0 emissions, remember, not net zero, but our participation will allow us and others to learn how this model can scale and work.

Great. Next question. Your disclosures are pretty heavily focused on climate risks and how you are mitigating those and adapting to them. Do you see climate opportunities for Walmart? And if so, what are they?

Yes. Yes, we do. And our real focus needs to be on both mitigation and adaptation, and I wouldn't want to understate the potentially negative consequences of climate change. But that said, much has been written about the opportunities to transition to the new climate economy. And people want to learn more about this. I would point you to the series of reports that have been published by the Global Commission on the economy and climate. They're called New Climate Economy. They're great. I have to say, full disclosure, I'm on the Board of World Resources Institute, which happens to be the managing partner of those reports and initiatives. But we're talking about a massive and complete transformation of society, energy systems, the ways cities function, transportation, food production, agriculture, farmers, everything. So yes, it's massive. And of course, there's opportunity. I can give a few examples, maybe for Walmart, just to make this more practical. So one is just simply innovation in our assortment. So there is not a category we sell that will not be touched somehow some way by climate change. And our business is about providing basic items for customers, food, apparel, things for your house and all those things are going through transitions in terms of customer preferences, the way they get produced, the specs, everything else, and that does create opportunities. So for example, even the transition historically from incandescent light bulbs to LED light bulbs, Walmart was a real pioneer in that. We worked closely with General Electric. And we, I would say, accelerated that transition from incandescents to LEDs. And that was a real growth opportunity for our merchants and for our business. If you look at energy, for example, we've created some operating efficiencies that I've mentioned already in our business. There are growth opportunities in terms of products and services to help our customers conserve energy or transition to renewable powered devices. We have electric vehicle charging stations at about 400 sites. So 1,400 stations across 41 states, that's significant. And so those are places where our customers can come, and while they're charging, they're shopping. So is that an opportunity to help drive customer loyalty? Those kinds of things. We look at all the innovation in food systems. So alternative proteins, for example, and growth opportunities around that. The work that's happening in the chains to promote soil health, to promote yields, new varieties of products that are climate resilient. Those are all opportunities for surety of supply, and for innovation to offer up a customer in terms of food choices. So those are just a few examples. As you can see, it's very integrated into everything. I think it will be hard to set back and go, okay, let me parse out exactly what were the opportunities that came specifically from climate and not 5 other things that came with it, but it's just embedded in the way we do our innovation and our planning and looking for those kind of opportunities.

Moving on to our next one. How has most of the recent -- how is the most recent climate risk assessment been used to shift your strategies on issues like your physical infrastructure, product sourcing and transition risk?

Sure, Dan. And I'll really echo what Kathleen was talking about is this has become a very important piece of our enterprise risk management process alongside other strategic financial, operational considerations and regulatory reputational risks that our company is facing. And we're addressing that through our long-range planning process and our annual operating plans. And I would say the most recent update to our climate risk assessment really reinforced the things that we've been focused on for a while now, which is good because it feels like we're focused on the right things across several areas of the business, including our sourcing, merchandising, operations and our real estate. And just a couple of examples to go a little bit deeper on surety of supply. This is a work stream that we've really started to incorporate a variety of different perspectives into to make sure we're thinking about this in the right way for the long term. So it's a cross-functional group, merchandising, sourcing teams, sustainability, logistics, public policy, really together, to really think through what are the strategies to make sure that we have the products that our customers need? And we're looking at things like the country of origin, diversification of sourcing, environmental and social sustainability aspects. And so the climate lens is applied to that and making sure that we're making the best strategic sourcing decisions that we can do. And so climate was definitely front and center into building up that strategy. And then one very specific example too, that's really helpful for us as we think about sighting new locations, our real estate team uses this information as we look at constructing new facilities. Our energy management strategy, which we obviously work through every day. This updated assessment helps to inform and guide those decisions. And we'll continue to do so as we build out new stores, new distribution centers, new fulfillment centers in the future.

Just jumping to 8 here. Question is, can you follow up on your points on Build Back Better? What has held you back from advocating fully for passage?

On the Build Back Better? Yes, so as I mentioned, we're extremely supportive of the climate provisions in Build Back Better. And let me start with that, and then I'll talk a little bit about the tax, too, because I think that's where the question goes. But just to be clear that on Build Back Better in the climate provisions, we do see it as an opportunity to advance climate. And we are happy that the infrastructure bill passed, I mentioned earlier, we were engaged in the CEPP and that didn't come to fruition. So Build Back Better, we really started back in August 2021 and we lobbied Senator Manchin, the Senate Energy and Natural Resources Committee staff, Senator Tina Smith, who was key supporter of policy, and that was the CEPP. And then once it got dropped, we said, okay, well, let's come back over on Build Back Better. I authored a blog on behalf of Walmart, which we published, and then we use that and took it around to the committee staff, to the member offices, and this is all disclosed in the Lobbying Disclosure Act reports. Then we worked closely with the Business Roundtable to have them come out with basically a climate statement, specifically on the climate provisions supportive of climate provisions in the proposal. And that's building on some work we had done earlier with the BRT to have them put together a climate statement in general with a real focus on advocacy for carbon pricing and market mechanisms. In terms of the tax provisions in the Build Back Better plan, the issue isn't with raising taxes per se. The issue is, if you look at it, it was a proposal to raise the corporate rate from 21% to 26%. But the way that was going to get applied to companies varies widely. And so like in our case, we've paid close to the statutory rate historically. And our largest competitor, basically pays in the 8% to 12% range. And the provisions in this field don't alter that. They wouldn't have altered that. And we just don't think that that's fair to have us pay for more than other people in terms of funding anything, all the other things in the bill, not just climate. So we have engaged productively to come up with alternatives. So what are other funding mechanisms from the corporate sector. So alternative strategies to get others who are not paying their fair share of tax up to the level of the rest of us who are. And that's what we've been focused on is what are some intentional aggressive tax strategies to get some revenue that could go toward climate and other things. So that's point one. It's not about not wanting to pay tax, it's the way it kind of played out in that. And then part 2, to be clear, even the Business Roundtable has not lobbied against the whole bill. It's been very specifically focused on the tax components of that. And then I can't speak. I know there was a question in the chat. I think, Frank, it was from you, that say, well, what about other associations? We actually don't belong to some of other -- like, we don't belong to, for example, the Chamber of Commerce. So I can't speak to what they may or may not have been doing around that. But for the one that we've been engaged with, the Business Roundtable, that's the stance of the approach that we took. The game isn't over. We're going to continue to advocate for policies in the right direction, including what will come through in this piece of legislation and other things. A carbon price, a market mechanism even with the provisions. We ought to have a price on carbon. So things like that. The game isn't over. We're continuing to stay engaged and supportive.

Great. Question, we followed CDP's rating release and noted that Walmart did not receive an A rating this year. Do you know what contributed to that decision? And what are your next steps?

Yes. As Kathleen mentioned, we've been a recognized leader here over the last several years with an A rating in 2019 and 2020. We did receive -- we just -- it was literally just this week that we learned that we received an A-. It's still a leading rating, but it's not the A rating we were hoping for, and we will work with CDP to understand where there are any things we can do better. They've been very open that they've raised the bar and a lot less people received their ratings this year, but we want to fully understand why we didn't, and we will work actively and aggressively to get that back on track.

Yes. Okay.

Yes. Well, we'll figure out what it is and do better.

Yes. The next question, what role has Walmart's Board had in overseeing the company's climate strategy and how is it keeping up with scientific and business trends in the space?

Yes. So under the charter the Nominating and Governance Committee has oversight for climate, it's part of their oversight for sustainability. And as you know, climate, nature, waste and human rights and supply chains, those are our big 4 issues under that agreement. I just was with them a couple of weeks ago, as I mentioned, updating them on our progress to date and we talked about the climate risk assessment, the findings, the implications for our business, what are the strategies around mitigation and adaptation that we're pursuing and then the results around our science-based targets. So that's discussed there, and then key findings are brought before the full Board. Like most Boards, the way ours works is there's a day of committee meetings and then the next day is full Board and people take things from the committee into the full Board. So yes, I mean, they've been extremely helpful. Very, very supportive of the direction of travel, very supportive of our advocacy. And I really -- our teams appreciate that. And as I mentioned before, we talk about climate specifically in those settings. We talk about the risk assessment and the strategies and the results and everything else. But it's so embedded. The actions are so embedded in the long-range plan of Walmart. In the annual operating plans of our operators and our merchants and so on that things come up in different ways through those conversations as well in other committee settings.

Okay. Next question. What type of assurance do you get on your climate numbers? What's the difference between Scopes 1 and 2 and your Gigaton numbers?

Zach, do you want to pick that up in terms of assurance and just parse what's in 1, 2 and 3?

Sure. So our Scope 1 and 2, as Kathleen laid out, that's operational emissions, ones that we actually collect with all international markets, all owned assets, and making sure we're tracking and reporting out all of the usage associated with that and then all the activities that we're doing to reduce those emissions. And we actually qualitatively report all this information publicly in our annual CDP disclosure as well as what's happening in CDP and what our estimations and assumptions are on disclosure. And so we are annually making sure we're improving the way we report that, the quality of data. And our goal is to continue to improve that process by strengthening the methods in which we collect as well as the types and level of disclosure and information we're providing on the activities that we're taking as a business to make additional progress. And so those are continually integrated into our ESG report. And this year, as Kathleen mentioned, our ESG report is now even easier to navigate through and review all the different work-in-progress year-over-year that we've been making on Scopes 1, 2 and 3. And so every year, we're going to strengthen that information to make sure it's easily accessible for anyone who wants to better understand the progress that Walmart is making on our goals.

Okay. We probably have room for another 1 or 2 questions. We'll go to the next one. Okay, so good wishes to us. Congratulations on issuing your green bond. Where do you expect to focus the use of proceeds? And when can we expect to see an issuance that includes social categories?

Yes. Well, thank you. And actually, before I jump to that, there was a follow-up question I just noticed in the Q&A about, would we have the Board, the nominating governance, to informally oversee climate? They do because they are formally -- in the charter, they oversee sustainability. Climates are #1 sustainability issue, and that's a matter of record in our ESG strategies and so on. So I think the spirit of the question is, gosh, should you spell it out like literally say, climate, and that's an interesting suggestion. We think it's pretty clear, but we'll take that under advisement. So thank you for that suggestion. It's helpful feedback. So back to the green bond. Yes. So it went very well. We were really happy with the response, a lot of interest in it. And we spent a lot of time on the framework trying to be as clear as possible of the different things we have in the works and where -- how we would apply those proceeds and so on, and we'll be disclosing against those. So another disclosure for folks to take a look at and read and hopefully give us feedback on 3 big categories, most likely, given where we have been focused, and as you can see from our strategy, we'll continue to be. So renewable energy, transportation and what we're calling high-performance buildings, which, of course, is the refrigeration, but anything around getting those buildings to be high performance from an emissions perspective or a sustainability perspective. So waste management is part of that, waste diversion, eliminating waste and all those kind of things. So meaning you'll probably be -- those will be the main ones in the next little while, but we'll be disclosing that soon. And in terms of social, yes, I could see it at some point. We don't have something immediately in the works. We want to get this right and learn from this and get the feedback and see how it goes, improve ourselves to earn the right. And then yes, I would imagine at some point we would because you look at what we've prioritized in terms of ESG and the social issues are extremely important and relevant to us too. So we're starting with this and we'll see where it goes from there.

Great, Kathleen. I think we're coming up here on the hour, so we'll wrap it up at this point. And I want to welcome -- thank everybody for joining. We had a great turnout. I'm pleased to see that you're finding value in these webinars. We had great feedback on the last one, and we hope to continue doing them.

And I guess I'd just say thank you for all the questions in the chat and the Q&A. We've captured those. And to the extent that we didn't get to something, we'll take it as an expression of interest for our disclosures. So thank you. It helps us provide you guys with better information. So thank you.

Great. Thanks, everybody.