ALAN MURRAY: When you started focusing on the environment at Wal-Mart, you were under an organized attack from union-backed groups that were attacking you for wage policies, immigration policies, health policies, but not necessarily for environmental policies. So what made you decide to bring the environment to the forefront of what Wal-Mart was doing?

H. LEE SCOTT JR.: It's consistent with what we say our purpose is, and that is saving people money so they can live better. We looked at what Sam Walton started and how he developed the company. It was by eliminating waste, bringing in efficiencies.

And by thinking about sustainability from our standpoint, it really is about how do you take cost out, which is waste, whether it's through recycling, through less energy use in the store, through the construction techniques we're using, through the supply chain. All of those things are simply the creation of waste. We found it's consistent with the entire model we've had since Sam opened the first store.

MR. MURRAY: So it's all about cost reduction. It's not about trade-offs? Is there never a point where you say, gosh, this is going to cost us a little more, but it's going to be much better for the environment?

MR. SCOTT: Well, there are things that you, as a business, have to think about that something may be more cost-effective but is just wrong -- pollution of the water or those kinds of things. Those things come into play.

One of the things people talk about is, will people pay more? Our question is, why should they have to? If you can take the waste out, if you can take the cost out, and you can provide people who are working people living paycheck to paycheck with an opportunity to be more sustainable, we think they will react to that, and they do.

MR. MURRAY: Will your consumers pay more for products that are environmentally green? Is there any willingness to pay more for something that is perceived as being good for the environment?

MR. SCOTT: Depending on the store, you see a difference in how people are reacting. Where you have a store that's in a higher-household-income area, you can see that people can afford to and are willing to pay a little bit more.

People in general are living paycheck to paycheck for a broad amount of American society. It's not that they don't care about sustainability; it's that they can't afford to pay more. They can't pay a dollar more for the cleaning supply. They can't pay $3 more for a T-shirt.

MR. MURRAY: If we impose either a tax or a cap-and-trade system on carbon emissions, that is like a tax, that means that those shoppers at Wal-Mart will have to pay more for most of the things they're buying from you, doesn't it?

MR. SCOTT: I think that's very possible. We believe a carefully crafted carbon program is something that probably is inevitable and probably positive. What we would ask is that people be mindful of the general population and not be so ideological that we simply say we're going to go from here to here and, yes, people have to pay more but it's worth it. How do you craft something that does the right thing for the environment and for sustainability but doesn't leave behind the basic population that we serve the most?

MR. MURRAY: Is 60% to 80% by 2050 too much? A 60% to 80% reduction [in carbon-dioxide emissions]?

MR. SCOTT: You're outside of my knowledge base. We have a very small Washington office. We have no scientists. We are a retailer, and we operate stores that serve customers.

MR. MURRAY: But let's take it to a level that you understand very well, and that is that you have done all that you've done in the past three years. You've focused on products, you've gotten your suppliers focused on these issues, you've gotten your trucking fleet focused on these issues, you've gotten your stores focused on these issues. And yet with all of that, you're still growing your carbon footprint by, according to your own reporting, what, 8% or 9% a year.

So how, after making all the efforts that you've made in the past three years and you still see your carbon footprint expanding at that rate, can we possibly hope to do 60% to 80% reductions by 2050?

MR. SCOTT: First of all, we have started on a program that has a long, long way to go. At the store level, we have what are called PSPs, which are Personal Sustainability Programs [which encourage Wal-Mart employees to embrace a cause in areas such as environmental sustainability or personal health]. We have, I think, 500,000 people who are signed up and have started recycling or using CFLs or that are doing something related to wellness.

We have these groups of people working on different things from our supply chain all the way into our communities. There is an energy about it, and it's real and it makes a difference. But it is simply the start.

MR. MURRAY: Give a couple examples of some of the low-hanging fruit you've found through this process of opportunities where you can make huge savings with things that are no-brainers.

MR. SCOTT: You had people who just took toys and they reduced packaging by 10% or 15%. Reduced all of that transportation cost associated with those hundreds and hundreds of containers. At Wal-Mart, we recycle cardboard. But we didn't recycle the loose plastic that apparel would come under or those kinds of things.

MR. MURRAY : On an issue like packaging, of course, there's a long way you could go. There's significant groups of people out there now who are saying we shouldn't be bottling water. Why bottle water? It's just an environmental waste. How do you decide how far you go and when to stop? You're still selling bottled water, I assume?

MR. SCOTT: A lot. If the customer wants bottled water, we are going to sell bottled water. But even if you're going to sell bottled water, you can sell it and have less of a negative impact. How have you arranged your transportation so that it's the most effective that it possibly can be? How do you price in a way that can help a customer make a choice that is more environmentally effective?

One of the things that's interesting about things that are sustainable is over the years the margins on sustainable products have historically been higher, because it is a higher income class that has been sensitive to that and purchased those. So organic products had a higher margin than products that weren't organically grown. And one of the things we can do is price product in a way that helps encourage the consumer to make a better choice.

MR. MURRAY: So not try and squeeze extra margin out of it.

MR. SCOTT: Right.

MR. MURRAY: You have set as company goals zero waste and 100% renewable energy. Those are very ambitious goals. What you haven't told us is when.

MR. SCOTT: I don't have a clue. We are not scientists. And so do you set a goal that you're going to reduce this by this and this by this and you put the time frame out there? I'm almost 60 years old. You want to put a time frame out there of 10 years when I'm long retired and if they don't hit it, it doesn't matter. Why do that? Why not just say that ultimately we think this is possible that the technology will develop, that there are things that we can do.

We've got solar now that is being installed in a number of stores in California and Hawaii . We have wind that we're experimenting with. But we have 7,000 stores. I think these are opportunities for us. Do you think electricity is going to be cheaper in 10 years than it is today? We need to be experimenting today and understand what works and be out there so that we don't subject our shareholders to inappropriate cost -- or our customers, because ultimately they pay the bill.

MR. MURRAY: When you launched this program several years ago, Wal-Mart at the time was getting some extraordinarily bad public relations. Today, if you look at the way Wal-Mart has been written about over the course of the past year, these green initiatives have generated enormously good public relations. Some people would say that's why you're doing it. This is all about public relations.

MR. SCOTT: You just need to work with our people. These things are real. The differences we are making are real. We face a number of challenges, and part of the challenges we face are related to the fact that we have probably the largest, most highly financed campaign against us in the history of business. Part of the issues we face are because we are not as good as we should be.

We sat down and we said 10 years from now what will the people in the company wish we had done, such as we wish that the prior generation in management might have done? And the thing that stuck was that this world is going to become more and more sensitive to environmental sustainability. Whether it's three years from now or five years or 10 or 15, ultimately society is going to hold you accountable for whether or not you participated appropriately and the role you played in advancing this area of environmental sustainability.

© 2008 Dow Jones Co.

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