Student Proposal for Whole Foods Sustainability Strategy by Erb Institute

Student Proposal for Whole Foods Sustainability Strategy MBA/MS Student Project Work (Sample)

This report is a representative sample of project work that MBA/MS students do at the Erb Institute. It was prepared as a critical analysis of a sustainability topic, based on publicly available information, and is not meant to illustrate either effective or ineffective handling of a management situation.

Contents

Introduction........................................... 3

Whole Foods Sustainability Strategy This publication was developed using available desktop research. Whole Foods was not consulted for commentary during the student project. These are solely the insights and opinions of our students.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Stakeholder Engagement Plan.................................. 5 Materiality Assessment........................ 11 Sustainability Strategy & Metrics..... 15 Global Value Chain.............................. 19 Human Rights and Whole Foods........................................ 23 Triple-Bottom-Line Decision-Making................................. 27 Conclusion........................................... 30

Introduction Every week, millions of consumers from across the country purchase groceries to feed their families. Spending roughly $150 per week,1 families bring their values to the checkout counter, prioritizing a range of issues, including price, health and even brand loyalty. Today, a growing number of consumers recognize the environmental and social implications of their purchase decisions. According to the Natural Marketing Institute, 59 percent of consumers prefer products that are sustainably made.2

Companies like Whole Foods Market (Whole Foods) have stepped in to meet this demand. Driven by the motto that “values matter,” Whole Foods “embraces the responsibility to co-create a world where each of us, our communities and our planet can flourish. All the while, celebrating the sheer love and joy of food.”3 At its core, Whole Foods serves as a marketplace for brands, goods and services that consumers trust are healthy, ethically sourced and environmentally sustainable. Today, Whole Foods does $16 billion in sales annually, reaches 1.7 percent of grocery shoppers nationwide, and was recently purchased by a leading online retailer, Amazon.4 Looking to the future, is Whole Foods’ value proposition to consumers sustainable? As it continues to expand and permeate American society, what are the risks and opportunities associated with Whole Foods’ long-term business model viability? This report will highlight a strategy to ensure the long-term sustainability of Whole Foods’ value proposition of connecting consumers to quality, healthy food.

We believe a central factor in this sustainability equation is trust. Underlying Whole Foods’ marketplace is an implicit trust between the company and consumers that both parties share the same values. When Whole Foods consumers reach the checkout counter, they are confident that each product they buy meets the highest standards of social and environmental responsibility. Consumers assume Whole Foods has done the hard work of sourcing, manufacturing and distributing its products and brands responsibly. Without this trust, consumers have no reason to walk into the store. To that end, this report will detail a threepronged sustainability strategy that strengthens Whole Foods’ trust with its consumers, thereby ensuring the long-term viability of its business model. This strategy includes three major pillars and outlines how Whole Foods can apply these pillars to its operations and human rights efforts. We will also highlight how active decision support tools can help apply this sustainability strategy.

1 http://news.gallup.com/poll/156416/americans-spend-151-week-food-high-income-180.aspx 2 https://www.nmisolutions.com/research-reports/sustainability-reports/2017-state-of-sustainability-in- america 3 www.wholefoodsmarket.com/mission-values/core-values 4 www.statista.com/topics/2261/whole-foods-market/

WHOLE FOODS SUSTAINABILITY STRATEGY

Stakeholder Engagement Plan

Whole Foods Sustainability Strategy

Stakeholder Engagement Plan SCOPE In the context of Whole Foods’ long-term business viability, the company should target and engage stakeholders that directly affect its trust with consumers. These stakeholders encompass those that support Whole Foods’ retail operations, private- label value chain, external brand relationships and outside investors (such as Amazon). Please note: While Amazon is included as a stakeholder, it’s considered only as an outside investor. Whole Foods’ online and in-store operations in support of Amazon’s ecosystem are excluded, given the sheer size and scope of those boundary constraints.

TO THAT END, STAKEHOLDERS ARE ORGANIZED IN THE FOLLOWING BOUNDARIES:

Stakeholder Engagement Plan

Organizational Boundaries IN SCOPE

OUT OF SCOPE

Retail Stores & Employees

External Brand Operations & Value Chains

Private-Label Business Units & Suppliers

Operations within Amazon’s Ecosystem

Relationships with External Brands Amazon Investment Partners

Operational Boundaries IN SCOPE Retail Operations

OUT OF SCOPE In-store or Online Operations that Support Amazon’s Core Business

Private-Label Operations & Value Chains External Brand Supply Chains Post-Manufacture Amazon Investment Partners

Geographic Boundaries IN SCOPE Worldwide

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

OUT OF SCOPE

Issues, Impacts & Relevant Stakeholders

ECONOMIC

ENVIRONMENTAL

Stakeholder Engagement Plan

Within these boundary constraints, Whole Foods creates a range of perceived and actual impacts across economic, environmental and social issues. These impacts concern both the risks associated with creating a trust deficit with consumers and the risks of upending Whole Foods’ license to operate. For example, an issue that creates a trust deficit with consumers may be child labor within the private-label value chain, while an issue that detracts from Whole Foods’ ability to operate may be climate change. Issues are mapped below:

SOCIAL

Local Sourcing

Pesticide/Fertilizer Use

Human Health

Fair Business/Trade

Forest/Land/Ocean Stewardship

Food Access

Fair Pay for Employees

Resource Efficiency

Community Engagement

Fair Labor Practices

Climate Resilience

Child Labor

Food Waste

Human Rights

Greenhouse Gas Emissions Water Usage

Numerous stakeholders are mapped to these issues and exist across the scope of Whole Foods’ operations. The below table provides an exhaustive list of stakeholders and explains their relationship to Whole Foods.

STAKEHOLDER

RELATIONSHIP TO WHOLE FOODS

Customers

Provide Whole Foods with Business

Employees

Facilitate In-Store Retail

Major Shareholders (Amazon)

Finance Whole Foods’ Activities

Brands (Tier I)

Provide Products to Whole Foods

Commodity Aggregators (Tier II)

Provide Inputs to Private-Label Manufacturers

Farmers (Tier III)

Provide Inputs to Private-Label Manufacturers

Communities (Global & Local)

Facilitate Supply Chains & Make Purchases

NGOs and Local Governments

Engage Communities and Whole Foods on Relevant Issues

WHOLE FOODS SUSTAINABILITY STRATEGY

STAKEHOLDER MAPPING Given this list, these stakeholders are mapped on the basis of their capability and interest in affecting Whole Foods’ long-term business viability. The key focus of this mapping is to

Stakeholder Engagement Plan

gain insight into the relevant stakeholders that can help dictate the long-term sustainability of Whole Foods’ business model, which is centered on building trust between the company and consumer around shared values.

Commodity Aggregators (Tier II) Farmers (Tier III)

KEEP SATISFIED: Local governments and

NGOs need to be kept satisfied, because they can erode customer trust if Whole Foods doesn’t stay in compliance with their priorities.

MONITOR: Tier II and III suppliers should

be monitored to ensure they follow Whole Foods’ standards. These suppliers do not have an appreciable stake in Whole Foods’ long-term value proposition.

(Tier I)

ENGAGE CLOSELY: Customers, employees,

communities and Amazon need to be engaged, because they have direct control over the business. Customers provide sales for Whole Foods, while employees help facilitate those sales. If either stakeholder is disenfranchised by Whole Foods’ business decisions, sales will decrease. Likewise, the communities that support Whole Foods and the investors financing Whole Foods’ operations provide a long-term license to operate nationwide.

KEEP INFORMED: Brands must be kept

informed on changes to Whole Foods’ standards and strategy. They rely on Whole Foods as an outlet for their products.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Stakeholder Engagement Plan

ENGAGEMENT PLAN Whole Foods must tailor its engagement to meet the needs of each stakeholder. The below list provides a detailed plan for each stakeholder group.

CUSTOMERS: Provide consumers with product narratives showing how social and environmental

responsibility is weaved into each product. This could take the form of an app that scans QR codes and provides a 30-second video on the productâ&#x20AC;&#x2122;s value chain and value to global communities.

EMPLOYEES: Provide training and employee retreats that communicate and reinforce the Whole Foods vision across the company.

AMAZON: Communicate how Whole Foodsâ&#x20AC;&#x2122; culture provides a competitive advantage in the grocery business, while working with Amazon to reduce prices. Provide consumer marketing insights to build business case.

COMMUNITIES: Host in-store events to foster community development. NGOS AND LOCAL GOVERNMENTS: Create partnerships on relevant business issues and garner industry peers in a pre-competitive capacity.

TIER II AND III SUPPLIERS: Monitor compliance to supplier code of conduct. BRANDS: Communicate changes to sustainability reporting and request participation among external brands.

WHOLE FOODS SUSTAINABILITY STRATEGY

Materiality Assessment 10

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Whole Foods Sustainability Strategy

Materiality Assessment PURPOSE & SCOPE CRITERIA The purpose and scope criteria developed in the stakeholder engagement strategy are the same for the materiality assessment. For reference, the materiality criteria are listed below.

PURPOSE & BUSINESS DRIVER: To assess the risks and opportunities associated with ensuring Whole Foods’ long-term business viability, which is centered on consumer trust.

SCOPE: To assess worldwide

operations and relationships that support Whole Foods’ customer experience, including retail operations, the private-label value chain, external brand relationships and outside investors.

TIME HORIZON: Analysis of

short-term and long-term risks with a 20-year outlook. (For example, child labor currently embedded in value chain vs. the impact of climate change on business operations 20 years from present day.)

RELEVANT STAKEHOLDERS:

Stakeholders identified in the “Engage” section of the stakeholder mapping (such as customers, employees, major shareholders and communities).

RELEVANT RISKS & OPPORTUNITIES: Issues identified in the Issues & Impact mapping.

STAKEHOLDER & ISSUE MAPPING To show the relevance of individual issues to stakeholders, issues are charted according to

Materiality Assessment

whether the issues affect stakeholders.

ISSUE

COMMUNITIES

CUSTOMERS

Local Sourcing

Fair Business/Trade

Fair Wages

Labor Compliance

X X

Forest/Land/Ocean Sustainability

Resource Efficiency (Food + Energy)

X X

Packaging/Materials Usage

GHG Emissions

Water Usage

Food Access/ Community Health

Community Engagement

Biodiversity (GMOs)

Labor compliance, food waste & spoilage, food access & community health, and community engagement are the only issues that affect all stakeholder groups.

EMPLOYEES

Pesticide Use (Organic Foods)

Food Waste and Spoilage

AMAZON

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

MATERIALITY MAPPING Issues are then mapped according to their impact on Whole Foods’ business model viability. Each issue’s relevance to stakeholders is shown in the size of the issue bubbles.

Materiality Assessment

LEADING BUSINESS DRIVERS: Organic

food practices and food access are the most pertinent issues, since Whole Foods’ business model relies on consumers’ willingness to pay for and ability to afford healthy, organic food. Food waste is also a leading issue because it increases inventory shrinkage, which increases the costs to Whole Foods and subsequently to consumers.

FUNDAMENTAL BUSINESS RISKS: Fair

wages, fair business/trade and labor compliance are key business risks, as any instance of non-conformity will have huge reputational consequences for the Whole Foods brand. However, these risks are fundamental in that consumers expect them to be mitigated regardless of Whole Foods’ value proposition.

STAKEHOLDER OPPORTUNITIES:

Local sourcing and community engagement are opportunities that Whole Foods can capitalize on to win over consumers, yet these opportunities will not fundamentally change the business model.

SLEEPING RISKS: Packaging and GMOs are

issues that Whole Foods should monitor given their relatively low importance to stakeholders and the business.

LONG-TERM BUSINESS RISK: Forest,

land and ocean stewardship, GHG emissions and resource efficiency will make it harder for Whole Foods to bring products to market as the issues of climate change, resource scarcity and environmental mismanagement become more prevalent in the future. However, stakeholders aren’t as worried about these risks given the longer perceived time horizon.

To that end, Whole Foods’ sustainability strategy should focus on the leading business drivers, stakeholder opportunities, and long-term business risks. These issues are addressed in the strategy’s three pillars. Fundamental business risk must be addressed within Whole Foods’ core operations.

WHOLE FOODS SUSTAINABILITY STRATEGY

Sustainability Strategy & Metrics

Whole Foods Sustainability Strategy

Sustainability Strategy & Metrics

PROVIDING ACCESS TO HEALTHY FOOD

Sustainability Strategy & Metrics

At its core, Whole Foods’ mission is to deliver food that is fresh, nutritious and safe to eat. This is the cornerstone of the company’s brand and what drives customer loyalty and shareholder value. Thus, Providing Access to Healthy Food is an obvious choice for the first of Whole Foods’ strategic pillars that make up its sustainability strategy. We recommend this strategic pillar because of the financial opportunities associated with meeting the market demand for convenient, high-quality food; this topic’s high ranking in our materiality assessment of all stakeholders,

particularly among customers and employees; and its congruency with Whole Foods’ corporate values, like selling the highest-quality natural and organic products available and satisfying, delighting and nourishing customers. Actionable tactics to achieve this objective include maintaining strict food quality and sustainability certification requirements, mimizing product freshness through just-in-time delivery and reducing food waste.

PROTECTING LONG-TERM ORGANIC FOOD PRODUCTION Our recommendation for Whole Foods’ second strategic pillar is Protecting Long-Term Organic Food Production. This objective pertains both to increasing the prevalence of sustainable and safe agricultural practices worldwide and to ensuring the stewardship of agricultural land and resources so that future generations will have access to high-quality food. Most agriculture today relies on unsustainable practices, such as the use of toxic pesticides, synthetic fertilizers and genetic monocultures that are

detrimental to human health, animal welfare and environmental integrity. Focusing on protecting long-term organic food production as a central pillar safeguards the company’s future financial viability by expanding and building resilience in Whole Foods’ value chain. It also underscores the company’s values of practicing and advancing environmental stewardship and creating ongoing win-win partnerships with its suppliers.

COMMUNITY ENGAGEMENT The final strategic pillar we recommend that Whole Foods adopt is Community Engagement. This entails maintaining positive relationships in the communities where Whole Foods stores are located, promoting consumer education about nutrition and healthy diets, lowering the barriers to access for high-quality organic food, paying living wages to employees and sourcing products in a socially responsible way. Community engagement is a key strategy, as it drives increased demand

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

for Whole Foods’ products. Moreover, it ensures a social license to operate and ranks high in our materiality assessment for all major stakeholders. This pillar aligns with the company’s core values of serving and supporting its local and global communities, promoting education on healthy eating, and supporting team member excellence and happiness.

Sustainability Strategy & Metrics

METRICS FOR STRATEGIC PILLARS It is critical that Whole Foods create metrics, in the form of key performance indicators, to monitor progress on each of these three strategic pillars. Tracking performance through metrics is essential for measuring progress against goals, allocating resources appropriately, attracting and retaining talent, responding to stakeholder 5 concerns and building accountability and trust. The following table breaks down a list of suggested actionable tactics and metrics for measuring Whole Foods’ progress toward its three sustainability pillars, as well as several environmental performance metrics that are standard practice for corporations to track.6

PILLAR

TACTICS

METRICS •

products with quality and sustainability certifications (organic, Marine Stewardship Council)

•

% of products that do not contain substances from restricted ingredients list6

•

average length of time between production and purchase of food product

Reduce wasted food.

•

pounds and % of unsold inventory

Help more domestic and

•

% of food producers certified organic

international food producers

•

% of fisheries Marine Stewardship Councilcertified

•

# of food producers that label GMO products

•

# of food producers reached through educational campaigns

•

% adoption of practices like crop rotation and biochar use by participants

Maintain strict food quality requirements.

Provide Access to Healthy Food Maximize product freshness.

achieve sustainability

Protect Long-Term Organic Food Production

certifications. Partner with local governments and NGOs to support the education of suppliers in sustainable agriculture, livestock and fishing practices.

5 Kuhn, R. W., Arvai, J., Anupindi, R., Nelidov, T. (2016). “Business Case.” Sustainability Toolbox: Metrics + Reporting. P. 1. 6 Whole Foods. “Unacceptable Ingredients for Food.” Our Quality Standards. www.wholefoodsmarket.com/about-our-products/quality-standards/food-ingredient.

WHOLE FOODS SUSTAINABILITY STRATEGY

PILLAR

TACTICS

Sustainability Strategy & Metrics

Pay all employees a living wage.

Educate consumers about healthy eating.

METRICS •

employee wage and benefit costs

•

basic standard of living costs by geographic region

•

# of grants and total $ donated through Whole Kids Foundation

•

# of grants and total $ donated through Whole Cities Foundation

•

# of nutrition workshops held

•

# of participants in attendance

•

% of population in communities served that is food insecure

•

median household income in communities served and % of income spent on food

Community Engagement

•

# of grants and total $ donated through Whole Kids Foundation

•

# of grants and total $ donated through Whole Cities Foundation

•

# of salad bars established in school cafeterias

•

# of school gardens funded

•

% of products that are sourced locally (within 200 miles)

•

% of stores that sell locally sourced products

•

# of loans and total $ amount distributed through Whole Planet Foundation

•

geographic distribution of loans and grants

•

% of female business owners funded

•

repayment rate

•

tons of CO2 emitted

•

kilowatt-hours of energy consumed on-site

•

% energy sourced from renewable sources

•

gallons of water consumed on-site

•

tons of solid waste produced

•

tons of materials recycled

•

tons of materials composted

•

% diversion from landfill

Increase community access to healthy foods.

Source food that is produced locally, near stores.

Support economic development of communities company sources from.

Reduce Scope 1 and 2 GHG emissions. Increase energy efficiency and transition to energy from renewable sources.

General Reduce water consumption.

Reduce solid waste production.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Whole Foods Sustainability Strategy

Global Value Chain A sustainable value chain, for both internal and external brands, is critical for Whole Foods to achieve the three strategic pillars outlined above. As with most value chains, Whole Foodsâ&#x20AC;&#x2122; value chain risk can be broken into three main categories: environmental, social and governance. The environmental category covers the value chainâ&#x20AC;&#x2122;s general footprint, including its carbon emissions, waste production, land/water use and other forms of resource consumption. The social category entails human rights, fair labor practices (to include child labor), diversity and inclusion, and economic empowerment. Finally, governance covers issues of corruption, bribery, transparency and disclosure, and generally being good corporate citizens.

Global Value Chain

Each of these categories naturally aligns with our sustainability pillar recommendations. Environmental speaks to the pillar of protecting long-term organic food production. Without a value chain that encourages sustainable resource use, the future of Whole Foodsâ&#x20AC;&#x2122; healthy and affordable food supply would be in jeopardy. The social risks are aligned with the pillar of community engagement, as Whole Foods must ensure worker rights, safety and fair compensation to truly support the communities in which it operates (more on Whole Foods and human rights in the subsequent section). Finally, governance speaks to the pillar of providing access to healthy food. To ensure the health and quality of its products, Whole Foods must maintain proper governance and transparency over its value chain. To address these risks and effectively implement its sustainability strategy, Whole Foods must develop a code of conduct for its first- and secondtier suppliers. A code of conduct is a set of clear, measurable and enforceable rules and regulations that every supplier must agree to in order to do business with Whole Foods.7 In establishing its code of conduct, Whole Foods can draw from preexisting standards developed by organizations such

as the International Organization for Standardization (ISO), United Nations Global Compact on Supply Chain Sustainability, or the Sustainable Purchasing Leadership Council benchmarks, or Whole Foods could choose to develop its own criteria. Regardless of the source, Whole Foodsâ&#x20AC;&#x2122; code of conduct must cover three main categories, which align with the strategic sustainability pillars. The first is requirements for labor standards and practices. This aligns with the pillar of community engagement and speaks to issues of workersâ&#x20AC;&#x2122; rights, fair compensation and elimination of forced and/or child labor. Environmental standards would comprise the second code of conduct and cover issues of pesticide and synthetic fertilizer use, land and water use, and any other resource management germane to protecting long-term organic food production. The final code of conduct covers documentation and compliance. This code underlies the pillar of providing access to healthy food by ensuring that Whole Foods has oversight and transparency throughout its value chain, that its dealings are with ethical and compliant companies, and that its food quality and labeling standards are met and accurate.

To address these risks and effectively implement its sustainability strategy, Whole Foods must develop a code of conduct for its first- and second-tier suppliers.

7 Kuhn, R., Arvai, J., Anupindi, R., Nelidov, T. (2016). Sustainability Toolbox: Global Value Chains.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Global Value Chain

CODE OF CONDUCT Requirements for labor standards & practices

Enforceable environmental standards

Documentation and compliance

ASSOCIATED RISKS •

Forced/child labor (Social)

•

Fair compensation (Social)

•

Worker rights (Social)

•

Pesticide/fertilizer use (Environmental)

•

Water/land management (Environmental)

•

Resource management (Environmental)

•

Transparency (Governance)

•

Disclosure/labeling (Governance)

•

Ethical business (Governance)

The code of conduct must be both clear and enforceable. Enforceability can come by way of direct inspection (preferably unannounced) on the part of Whole Foods or through third-party audits. Such audits should ensure that the criteria set forth are being met, and that failure to meet these criteria will result in removal of that supplier from the value chain. This should be done for all tierone, -two and -three suppliers, and each of those companies should be encouraged and supported in developing their own codes of conduct for their suppliers. However, given the time and resources involved in value chain monitoring and audit, we feel it is unreasonable for Whole Foods itself to

PILLAR ADDRESSED Community engagement

Protecting long-term organic food production

Providing access to healthy food

enforce a code of conduct beyond its third-tier suppliers. Finally, Whole Foods should look ahead to value chain “ownership” as a longer-term alternative to codes of conduct. Audits’ cost, difficulty and unreliability make codes of conduct an imperfect system. An ownership model that views the value chain as an integrated, internal business function rather than a system of financial exchanges can move Whole Foods from a risk-based approach to value chain to an approach that incorporates best practices, mentoring and innovation to achieve the greatest environmental and economic impact.8

8 Ibid.

WHOLE FOODS SUSTAINABILITY STRATEGY

Human Rights and Whole Foods 22

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Whole Foods Sustainability Strategy

Human Rights and Whole Foods

Human Rights and Whole Foods CURRENT EFFORTS AND POLICIES From an external perspective, Whole Foods’ stance on human rights appears to be largely reactive rather than proactive. Its most visible statements and policies highlight how the company assesses human rights risk in its value chain and workplace environment and demonstrate compliance with pertinent regulations, such as the United Kingdom’s Modern Slavery Act of 2015 and California’s Transparency in Supply Chains Act of 2010.9 10

9 Whole Foods. (2012). “Supply Chain Disclosures.” Retrieved: www.wholefoodsmarket.com/sites/default/files/media/ California_Transparency_in_Supply_Chains_Act_Disclosure.pdf 10 Whole Foods. (2017). “Supply Chain Disclosures.” Retrieved: https://assets.wholefoodsmarket.com/www/misc/UKModern-Slavery-Act-Disclosure.pdf

Human Rights and Whole Foods

Whole Foods provides robust disclosure on human rights in its direct value chain. Procurement teams assume the primary responsibility for validating suppliers, and identifying and remediating concerns about products linked to forced labor or human trafficking. Procurement teams also receive tailored training to identify high-risk suppliers. Within its product offering, Whole Foods’ 365 Everyday Value product line has the most rigorous controls to ensure that suppliers do not use forced labor or touch human trafficking. For these suppliers, Whole Foods engages third-party assurance teams to conduct production facility audits and monitoring.

Although the majority of these efforts are under the guise of complying with regulation, we believe that Whole Foods is actually much more proactive on human rights than it discusses currently. In Whole Foods’ Core Values, the company emphasizes its commitment to supporting the health and wellness of its customers, communities and employees, but it does not explicitly connect these commitments to human rights. With the proper framing and analytical tools, Whole Foods can expand its discussion of human rights to cover downstream aspects of its business, specifically its relationships to customers and communities.

DIRECT AND INDIRECT HUMAN RIGHTS RISKS As part of framing its human rights discussion, Whole Foods should focus on the human rights that it can directly influence through the course of its business operations, specifically Article 23 ( just and favorable remuneration) and Article 25 (adequate standard of living, health and wellbeing) in the United Nations Universal Declaration of Human Rights.11 We consider these to be “direct” human rights that Whole Foods can address in its daily operations. While it is important to verify that its suppliers/products are not associated with forced labor and human- trafficking, Whole Foods has to rely on third-party audits and ultimately its suppliers’ integrity and practices. For this reason, we believe these value chain risks are tied to “indirect” human rights, specifically Articles 4

(no slavery or servitude) and 5 (no torture, cruel or inhuman treatment) in the Universal Declaration of Human Rights. Through its direct operations, Whole Foods can make sure employees are justly compensated and live with dignity (Article 23) while also ensuring customers have adequate access to healthy organic food (Article 25). Whole Foods is already making significant contributions to human rights, such as by limiting the difference between all full-time employees’ (FTEs’) compensation to be at most 19 times—meaning that the CEO can be paid only 19 times more than a regular FTE.12 Moving forward, it is a matter of framing these actions as customer-, employee- and community-centric human rights.

HUMAN RIGHTS IMPACT ASSESSMENT Looking at the four United Nations Human Rights (UNHRs) mentioned above, we can analyze how Whole Foods should address the risks and opportunities that each right presents for Whole Foods’ long-term business viability. Per the Human Rights Risk Assessment chart, Whole Foods has the most direct control to contribute to UNHR 23 and 25, which represent the most significant human rights risks in terms of scale and scope to the business.

In contrast, Whole Foods can only monitor UNHR 4 and 5 through internal verifications and supplier audits as a means of “indirect” control. As mentioned earlier, Whole Foods performs well in these functions and has robust value chain management systems, which is why the scale of these human rights risks is low and remediation potential is high. Whole Foods can quickly identify these risks in its systems and, if needed, terminate supplier relationships quickly and remove noncompliant products from shelves.

11 “Universal Declaration of Human Rights.” United Nations. Retrieved: www.ohchr.org/EN/UDHR/Documents/UDHR_Translations/eng.pdf. 12 Mackey, J. (2006). Compensation at Whole Foods Market. Retrieved:www.wholefoodsmarket.com/blog/john-mackeys-blog/compensation-wholefoods%C2%A0market

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

HUMAN RIGHTS RISK ASSESMENT HUMAN RIGHT

UNHR 23

Well-Being + Food Access UNHR 25

No Slavery UNHR 4

No Cruelty UNHR 5

STAKEHOLDERS

SALIENT RISKS

RISK PRIORITIES

Whole Foods markets, suppliers

Whole Foods employees, suppliers’ employees

Scope: High Scale: High Remediability: High

Attribution: Contribute Control: Direct Management: Excellent

Customers, communities

Scope: High Scale: High Remediability: Medium

Attribution: Contribute Control: Direct Management: Fair

Tier 1, 2, 3 Suppliers

Primary producers (ex: sugar cane farmers, fishermen)

Scope: Medium Scale: Low Remediability: High

Attribution: Monitor Control: Indirect Management: Good

Tier 1, 2, 3 Suppliers

Primary producers (ex: sugar cane farmers, fishermen)

Scope: Medium Scale: Low Remediability: High

Attribution: Monitor Control: Indirect Management: Good

Human Rights and Whole Foods

Fair Compensation

SOURCE

OUR HUMAN RIGHTS STRATEGY: EXPANDING DUTY AND RIGHTS HOLDERS Customers and employees drive Whole Foods’ long-term profitability, and communities provide Whole Foods’ social license to operate, so Whole Foods should explicitly recognize all three groups as holders of human rights. The practice of human rights is defined by two groups: duty holders and rights holders. The duty holder is responsible for respecting and protecting the rights holders’ ability to exercise a particular human right.13 In the table below, we describe how Whole Foods should conceptualize the duty holders and rights holders of human rights embedded in each of our sustainability strategy pillars.

In its Core Values, Whole Foods comes close to discussing customers’ human rights when it emphasizes its role as a “buying agent” of organic food for its customers rather than a “selling agent” for its suppliers.14 As a buying agent for customers, Whole Foods is the duty holder for providing access to healthy food and protecting long-term organic food production, whereas its customers, communities and, more broadly, humanity are the rights holders.

IDENTIFYING DUTY AND RIGHTS HOLDERS SUSTAINABILITY STRATEGY PILLARS

DUTY HOLDER

RIGHTS HOLDER

Whole Foods Market locations Employees Suppliers

Employees Customers

Protecting Long-Term Organic Food Production

Whole Foods Suppliers Farmers Policymakers

Employees Customers Communities Humanity

Community Engagement

Whole Foods Market locations Local governments

Communities Children Vulnerable Groups

Providing Access to Healthy Food

13 Boesen, J.K. and Martin, T. (2007) Applying a Rights-based Approach, DIHR. 14 Whole Foods. “We sell the highest quality natural and organic products available.” Core Values. Retrieved: www.wholefoodsmarket.com/mission-values/corevalues/we-sell-highest-quality-natural-and-organic-products-available

WHOLE FOODS SUSTAINABILITY STRATEGY

BUSINESS INTEGRATION RECOMMENDATIONS + MATRIX

Human Rights and Whole Foods

These four elements are key to integrating human rights into the business:

1. general awareness raising

3. policy and procedure modifications

2. capacity building

4. performance management

With these elements in mind, Whole Foods should raise awareness among customers about how its current values are related to human rights. For example, Whole Foods Market locations’ marketing teams can partner with local environmental and food justice organizations to communicate healthy food access and organic foods as human rights. These partner organizations can co-host events at store locations or run social media campaigns, bolstering Whole Foods’ brand recognition.

direct human rights into the culture and business operations. Whole Foods’ corporate strategy team can incorporate the importance of food access when selecting locations for future stores. Whole Foods’ retail pricing team can ensure that the food prices are accessible to the predominant income bracket represented in the communities in which they operate—an effort to support the human right to healthy food. In store locations, Whole Foods can adjust product offerings—without sacrificing quality—to make sure affordable organic food products are available to communities. These practices can be codified into internal policies regarding store expansion and community engagement.

Whole Foods needs to sensitize several internal functions to their stores’ role in human rights: marketing teams, corporate strategy, retail pricing and customer-facing store employees. Each of these functions is imperative in integrating

HUMAN RIGHTS INTEGRATION MATRIX FUNCTION

Marketing/ Communications

HUMAN RIGHTS AT A HIGH-LEVEL Collaborate with environmental and food justice organizations

FAIR COMPENSATION Tailored communications about wages, job availability

WELL-BEING + FOOD ACCESS Increase customer awareness of food access as human right

Corporate Strategy

Design store location to be a sustainable system for community

Wages align with average cost-of-living in store locations

Select new store locations in areas with need for food access

Retail pricing

Ensure pricing is inclusive; allows for dignity of customers

Products must be affordable with employee wages

Prices are inclusive of local community’s average income

Customer-facing store employees

Respect of customers as rights holders

Awareness of right to fair wages

Communicate food access as human right to customers

15 Miller, D., Schantz, K., McElrath, R. (2017). “Integrating Human Rights into Decision-Making Systems: A Management Approach.” Business and Human Rights Toolbox: Implementation. P. 8-9.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

Whole Foods Sustainability Strategy

Triple-Bottom-Line Decision-Making 16

DECISION SUPPORT TOOL OVERVIEW Two types of support can be applied to motivate triple-bottom-line decision-making: passive and active decision support. Passive decision support entails taking advantage of the biases and heuristics that inform the descriptive decision-making process, to guide the decision-maker toward a better decision. This type of support is often most effective with small, flippant decisions on a topic with which the decision-maker has limited experience. When it comes to Whole Foods, chances are that leaders are abundantly aware of the importance of their strategic triple-bottom-line decisions. There are numerous attributes and scenarios to consider before arriving at a course of action. For these more complex decisions, we rely on active decision support, where context, information and structure are provided to facilitate thoughtful decisionmaking. To employ active decision support, we must understand that a gap will always exist between how people actually make decisions, often with biases and heuristics at play, and the normative standards that should guide their decisions.

16 Kuhn, R. W., Arvai, J., Campbell-Arvai, V., Nelidov, T. (2017). â&#x20AC;&#x153;Which Active Support Tool is Right for Your Organization.â&#x20AC;? Sustainability Toolbox: Decision-Making for the Triple Bottom Line. P. 8-9.

UNIVERSITY OF MICHIGAN | Erb Institute | Business for Sustainability

and inefficient. In addition to cost and efficiency, there are clear social and environmental metrics to consider in this decision, such as greenhouse gas emissions and community buy-in. Whole foods could use two techniques to make this complex decision. One is structured decision-making (SDM), where the decision is broken down into manageable steps and stakeholder input is critical throughout the process. Another is m ultiplecriteria d ecision analysis (MCDA), where a computer program calculates scores for different alternatives based on decision criteria.

Triple-Bottom-Line Decision-Making

Although our strategic sustainability pillars of providing access to healthy foods, protecting longterm organic food production and community engagement are probably not novel to a Whole Foods stakeholder, it is not always apparent how different corners of the organization can apply these pillars to their workflow decisions. Let’s use a hypothetical decision that Whole Foods might need to make to depict how active decision support can be implemented. We will assume that Whole Food is considering cutting all local sourcing efforts in the Southeast region because it is costly

STRUCTURED DECISION-MAKING (SDM) TOOL We recommend that when it comes to issues that involve the community, such as deciding whether to cut local sourcing, Whole Foods should use SDM rather than MCDA. SDM incorporates all stakeholder values throughout the process. If Whole Foods ultimately decides to move forward with cutting local sourcing in the Southeast, it

is important for the community and customers to feel as though their voices have been considered. Although the MCDA approach can be reliable and comprehensive, it is less flexible to changing decision criteria and can feel more sterile to external stakeholders.

THE SDM PROCESS CONSISTS OF SIX STEPS: 1. DEFINE THE DECISION PROBLEM AND CONSTRAINTS. In our hypothetical example, there are likely non-negotiable constraints to the ultimate decision. These need to be laid out before setting objectives or alternatives. Examples: Quarterly growth objectives, organic sourcing. 2. IDENTIFY OBJECTIVES AND APPROPRIATE METRICS. Whole Foods should spend most of its decision support efforts in understanding the values and objectives of various stakeholders, beyond annual performance metrics. To avoid groupthink—a situation where people in a group make less efficient, less effective and less moral decisions as a group than they would individually— we recommend sending out a survey or holding interviews to identify qualitative and quantitative attributes to measure good triplebottom-line decisions against.

3. DEVELOP ALTERNATIVES THAT ARE INNOVATIVE AND DISTINCT. Based on the survey results, Whole Foods should create a handful of solutions that address stakeholders’ common values. 4. FORECAST RISKS AND UNCERTAINTIES. At this point, allow all stakeholders to regroup collectively and assess the overall group’s risk tolerance. Start to eliminate options that are too risky for the group. 5. CONFRONT TRADE-OFFS. Disagreement about the means by which to achieve the end goal is inevitable. It is important not to let this process bring the decision to a standstill. 6. ADAPT AND ITERATE. Whole Foods should be prepared to go through this process a few times before making a decision on cutting local sourcing in the Southeast. The right decision could change as attributes and stakeholders change over time.

WHOLE FOODS SUSTAINABILITY STRATEGY

Conclusion In a market where sustainable practices are becoming table stakes, Whole Foods can engage key stakeholders and address material concerns through three strategic pillars: providing access to healthy foods, protecting longterm organic food production and community engagement. These pillars can be addressed throughout the company in several ways. In global operations, these three pillars align closely with Whole Foodsâ&#x20AC;&#x2122; global code of conduct. Also, a deep dive into these pillars would allow Whole Foods to expand its discussion of human rights to cover downstream aspects of its business. Finally, these pillars can be integrated into a structured decision-making model that will allow Whole Foods to make business decisions that account for people, planet and prosperity.

Whole Foods Sustainability Strategy

The Erb Institute is the University of Michiganâ&#x20AC;&#x2122;s businesssustainability partnership between the Ross School of Business and the School for Environment and Sustainability. We work with business leaders to help them improve company competitiveness through enhanced social, environmental and economic performance. Our degree programs prepare students to be future business leaders for sustainability, while our research and executive education prepare current business leaders for whatâ&#x20AC;&#x2122;s next in sustainability. Ross School of Business 701 Tappan Street AnnArbor, Michigan 48109-1234 School for Environment and Sustainability 440 Church Street Ann Arbor, Michigan 48109-1041

ERB INSTITUTE MBA/MA STUDENT AUTHORS: Lexie Carr Evan Leon Dan Partin

Harrison Rogers Kathy Tian

SUPERVISED BY COURSE INSTRUCTORS: Terry Nelidov December 18, 2017

Emily Keeler