These should be crucial sustainability matters for investors but too many still see them as minor issues compared with other industries. We are, however, seeing some creative efforts by companies around the world to address the problem. Robust environmental policies from ecommerce businesses can serve as examples of industry best practice and are key factors we look for when picking ecommerce names. Investors should not shun investing in these fast-growing companies, but instead should use their voice to get companies to adopt the most innovative and smart methods in the business. Robust environmental policies from ecommerce businesses can serve as examples of industry best practice and are key factors we look for when picking ecommerce names. Investors should not shun investing in these fast-growing companies, but instead should use their voice to get companies to adopt the most innovative and smart methods in the business.
Life in plastic, it’s fantastic?
Many investors still see the environmental effects of ecommerce as a minor issue compared with the energy sector for example, but this view will rapidly become outdated as consumers’ insatiable hunger for ever-faster online delivery grows. We are still very early in the shift of human activity from offline to online and global ecommerce currently only accounts for around 17% of the retail market, but as penetration rises, packaging waste and emissions will become an increasingly critical issue. The Covid-19 pandemic has speeded the adoption of online retail, making it more important for us to address its negative effects.
Chief among these is what we do with all the packaging created by online shopping. Global demand for filled-air packaging is expected to increase by US$1.16 billion between 2020 and 20241, while some estimates claim that the plastic air-filled packaging created from Amazon deliveries in 2019 could circle the Earth a staggering 500 times.2 Much of this packaging ends up polluting the world’s rivers, lakes and seas, affecting water supplies, soil, plants and wildlife.
The downsides of packaging, logistics and current incentives
Paper can be recycled and is less toxic than plastic if it finds its way as waste into natural habits, but it still can have negative effects. The pulp and paper manufacturing industry is the single largest industrial consumer of water in the developed world and pollution caused by discharge from mills harms aquatic habitats as well as human health in some countries. Recycling reduces the need for virgin fibre, but it does not eliminate it. Recycled paper uses around 25% virgin fibre for better strength and quality.
Ecommerce is also leading to more delivery vehicles on our roads. Last year, the World Economic Forum estimated that under a ‘business as usual’ scenario, the number of delivery vehicles in the world’s largest 100 cities would increase by 36% over this decade, resulting in 32% higher CO2 emissions and a 21% increase in congestion.7 Given the increase in ecommerce use in the past year, these numbers are likely to be an underestimation.
Current incentives work against greener practices. Free delivery for consumers means they tend to opt for home rather than local collection point delivery. Drivers race to deliver in the shortest amount of time possible, leading to speeding, distractions from mobile phones and satnavs, tiredness and engines left idling between drop-offs rather than switched off. Recent investigations into the rights of gig workers have perversely meant that companies have rescinded the few perks available to avoid appearing like employers.8
The other incentive problem is around packaging. It is more economical for companies to have standardised boxes, often resulting in oversized packaging. In addition, the surge in demand during the pandemic has increased the price of recycled board to such an extent that it may not be economic for many retailers to use recycled packages.
Addressing the ecommerce problem
Packaging solutions
Ecommerce companies are increasingly having to confront the issue of sustainable packaging because of more environmentally conscious consumers, legal challenges from environmental groups9 and, particularly for the largest global players, reaching their operational capacities to meet demand.
Amazon’s “Frustration Free Packaging” initiative involves collaborating with brands to eliminate supply chain waste and redesigning packaging to be more sustainable. Its “Ship in own container” program encourages brands to make packaging more shipping friendly and its “Shipment Zero” scheme aims to make half its shipments net carbon zero by 2030.
Other regional companies that started as ‘local’ copies of Amazon have become industry leaders on environmental policies. Coupang, the largest ecommerce platform in Korea, has introduced a packaging light model for some products and will accept used packaging for recycling. It has reduced packaging bulk by more than 60% and halved delivery distances while speeding up delivery times from 2018 to early 2020. Its grocery ‘rocket fresh bags’ give customers the option of a reusable box or cooler bag with reminders about bag returns.
Cutting emissions
More companies like Amazon are starting to publish carbon footprint data to give investors a better sense of their emissions profiles. Uber, for example, tracks individual driver’s mileage, engine size and idle time to track emissions. It also requires drivers to only use hybrid or electric vehicles, and has launched dockless e-bikes and electric vehicle products. In certain cities, Uber has added a small clean air fee to help the company become a zero emissions platform in European, US and Canadian cities by 2030 and globally by 2040.
Government initiatives
Where ecommerce companies are not seriously addressing their environmental footprints, regulators and governments need to step in. This can be necessary for small businesses, which are mostly focussed on growing market share, but local policymakers can often be effective in driving change early in the life cycle of new companies. While unit costs of compliance may be greater for smaller enterprises, they are more versatile and nimble, which can make it easier to adopt new sustainability standards.
Coupang’s innovation in Korea reflects broader Asian leadership on ecommerce sustainability. The Taiwanese government has partnered with four major platforms to produce more environmentally friendly packaging with returns made easy.10 In India, Amazon has committed to a “100 percent successful transition” away from single-use plastics following the government’s move to phase them out.
Sustainable packaging is a win-win situation
We are seeing significant innovation from companies in both developed and developing countries to deal with the challenge of sustainable packaging. Pressure from consumers, environmental groups and a gradual realisation from the companies themselves are helping to change ecommerce practices. Investors also play an important role by holding the industry to account for their delivery systems.
Solving the packaging waste and delivery problem is not a zero-sum game, it can be a win-win where the environment benefits and so do companies. If an ecommerce business model is designed with sustainability in mind, it can be both economical and sustainable.
Footnotes
- Businesswire.com, June 2020
- Oceana.org, December 2020
- Ibid
- Ibid
- Commonobjective.co
- Ibid
- Scientific American, January 2020
- UCL Centre for Transport Studies ‘The emerging issues for management of occupational road risk in a changing economy: A survey of gig economy drivers, riders and their managers’
- https://www.greenpeace.org/usa/news/greenpeace-inc-sues-walmart-for-deceptive-recyclability-labels-on-its-plastic-products-and-packaging/
- Focustaiwan.tw, September 2020
Important Information
This information must not be reproduced or circulated without prior permission.
Fidelity only offers information on products and services and does not provide investment advice based on individual circumstances, other than when specifically stipulated by an appropriately authorised firm, in a formal communication with the client.
Fidelity International refers to the group of companies which form the global investment management organisation that provides information on products and services in designated jurisdictions outside of North America. This communication is not directed at, and must not be acted upon by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required.
Unless otherwise stated all products and services are provided by Fidelity International, and all views expressed are those of Fidelity International. Fidelity, Fidelity International, the Fidelity International logo and F symbol are registered trademarks of FIL Limited.
Third party trademark, copyright and other intellectual property rights are and remain the property of their respective owners.
Issued by FIL Pensions Management. Authorised and regulated by the Financial Conduct Authority.
GLEMUS3628-0621
