Shopping

How does online retail measure up in terms of sustainability?

Amazon and other companies face challenges

  • The boom in online shopping is having an impact on society and the environment.
  • But delivery direct to the customer is not an environmentally harmful sales model per se.
  • Transportation and packaging are the keys to improving sustainability.

Unstoppable rise

It is said that one of the names Jeff Bezos originally considered for the online bookstore he started in his Seattle garage in 1994 was ‘Relentless’. In the end he went for ‘Amazon’ instead – a name that is now near synonymous with the seemingly unstoppable rise of e-commerce.1 Online retail has grown and grown over recent years, and now accounts for almost 20 per cent of total retail sales. In 2019, online retailers sold goods worth US$ 26.7 trillion globally.2 The coronavirus pandemic has further fuelled the boom, and in 2020 online sales rose by 32 per cent in the US. This also has consequences for other sectors, such as transport. In 2012, UPS carried 16.3 million packages a day globally but by 2020 this had risen to 24.7 million. This paper analyses the most important sustainability aspects of e-commerce. It also looks at the challenges and sustainability strategies of Amazon as the best-known and, in the western industrial nations, the biggest representative of the sector.

 

Online retail still has work to do with regard to sustainability

As the success of online retail grows, so too does its impact on society and the environment. Some of these aspects are specific to the online nature of the business, such as packaging, data protection and returns. Others apply to the bricks-and-mortar retail sector too, but their impact manifests in different ways.

They include the transportation of the goods, especially the ‘last mile’. This delivery to the customer’s front door is more significant in terms of carbon footprint than the transportation from the factory to the warehouse. Put simply, the share of emissions per tonne-kilometre attributable to an individual product is significantly smaller when transported in a large HGV than in a small van. However, the significance of transport for the total quantity of CO2 emitted between manufacture and disposal can vary enormously (see Chart). For books, for example, most of the carbon emissions are generated during production, with relatively low emissions being produced during transportation, use or disposal. The picture is very different for textiles though, where transportation is far more significant due to the volume of the goods and the special packaging.

On the plus side, purchases – including those from different product categories – can be bundled together when shopping online. Customers can buy from different retailers without making separate trips and a van delivers the goods along a planned route. The goods transportation element of online retail is thus probably more efficient in terms of emissions. It is hard to quantify how high these are in total, as less than a third of companies publish any emissions data at all. Transport also causes other environmental impacts. It increases the strain on the transport infrastructure through an increased number of deliveries, and generates more particulates and noise, especially in urban areas.

Minimum and maximum shares of CO2 emissions in individual phases of the life cycle of different products3

Minimum and maximum shares of CO2 emissions in individual phases of the life cycle of different products<sup>3</sup>
Sources: German Environment Agency, Ökopol.

One sustainability aspect specific to online sales is the packaging used in transport and shipping. According to the German Environment Agency, the packaging generates additional emissions of between 20 and 1,000g CO2 equivalent4, depending on size and material. It is difficult to estimate how much packaging waste e-commerce produces globally each year. Only around 16 per cent of online retailers publish data on waste and recycling (if any) of shipping packaging. One thing is clear though: the total amount of packaging waste collected is rising. More than three million tonnes of paper and cardboard was collected in Germany in 2019, compared to just 2.8 million tonnes in 2012.5 The online shopping boom is likely to be one cause of this increase and it seems inevitable that the trend will have further accelerated in 2020, the first year of the pandemic when there was a huge leap in online sales. The packaging used to ship goods is in addition to the packaging used in traditional stores. However, online retailers have more efficient warehousing structures. Less packaging is generated there, relatively speaking, as the number of products is higher.

Additional packaging, emissions and waste are also generated by returns. Some returns in the online retail sector are simply destroyed, as the environmental organisation Greenpeace first revealed following an investigation into Amazon in 2019. The company says that the quantity of discarded products is extremely small, and items would usually only be destroyed for hygiene reasons or because they are damaged. Amazon does not give specific numbers. In Germany, legislation was passed in 2020 that aimed to prohibit retailers from destroying as-new goods. However, the new law is not yet being enforced as the necessary regulations are not in place. The destruction of returned goods is also a known phenomenon in high-street stores.

A range of data is collected during online shopping, from demographic information to individual preferences. The resulting customer profiles enable an online retailer to make recommendations or offer alternative products when a customer places an order, so it can tailor its product offering more closely to customer demand and thereby create greater planning certainty. This could increase customer satisfaction and reduce the number of returns – a clear benefit of online retail over traditional stores. However, the collection, storage and use of data gives cause for concern from a data protection perspective. Online retailers are also exposed to greater risk of cybersecurity attacks. Companies have therefore begun to beef up their privacy policies, partly in response to the EU General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).

It is estimated that around 1.1 million people were directly or indirectly employed in online retail in eight European countries in 2018. In 2020, the first year of the pandemic, this number rose sharply. However, there have been many reports of unacceptably low wages and poor working conditions in the sector over the years. Companies are far from transparent in this regard, with fewer than 10 per cent of online retailers publishing data on accidents at work, staff turnover or health and safety measures to protect workers.

Background: Amazon

Amazon is the second-largest online retailer in the world and dominates the western markets,6 which is why it has always attracted so much attention. Public debate often tends to focus on working conditions while other aspects remain under-reported. One allegation is that Amazon uses its monopoly-like position to copy competitors’ successful products and sell them under its ‘Amazon Basics’ product line. The company also holds extensive customer data. This is particularly true in the US, where Amazon is also strong in the grocery business – a sector that provides highly detailed information about overall purchasing behaviour. The size of the company and the structure of its product offering also have an impact on its environmental footprint. The diversity of the products offered makes it even more challenging to work out how the quantity of waste can be reduced through particularly efficient packaging. On the other hand, Amazon can use economies of scale and (unlike the smaller online retailers) has better access to the entire value chain. For example, it can put pressure on suppliers and optimise workflows. Amazon is also one of the founder members of ‘The Climate Pledge’7 initiative. It plans to achieve net zero carbon by 2040. By 2030, it aims to obtain all its electricity from renewable sources and ensure that 50 per cent of its deliveries are carbon neutral.8 However, it is still far from clear how Amazon intends to implement this strategy. And the company is not very transparent when it comes to sustainability metrics. There is still much to be done: Amazon grew massively in 2020 and its absolute carbon emissions rose by 19 per cent relative to 2019.9 Carbon intensity10 fell by just 16 per cent in the same period. To achieve its target of net zero, Amazon will have to reduce its carbon footprint more quickly than its business grows.

Summary

Overall, online retail is not an environmentally harmful sales model per se, but it does face a number of challenges when it comes to sustainability. Companies have the opportunity to use economies of scale and the bundling of goods to make processes more sustainable and efficient. The way logistics processes are designed affects the environmental impact. The delivery of goods and the packaging they are shipped in appear to be the most important levers from a sustainability perspective. These are the areas in which companies such as Amazon are making changes in order to improve their climate footprint. However, there is still a lot of work to be done when it comes to implementation.

Online retailers realise that they have to tackle sustainability issues if they are to remain competitive in future, given that consumers are increasingly demanding more sustainable behaviour. This also includes aspects of data protection and working conditions of employees, which pose potential risks for the reputation of online retailers and thus also for their commercial success.

  1. 1 The URL www.relentless.com still diverts to www.amazon.com.
  2. 2 Global e-commerce jumps to $26.7 trillion, COVID-19 boosts online sales | UNCTAD
  3. 3 This refers to CO2 equivalents – a unit of measurement that expresses the warming effect of a certain quantity of greenhouse gas in comparison to carbon dioxide (CO2). The red area shows the share of emissions. Depending on the type of product, this share varies over the life cycle from manufacture to disposal.
  4. 4 For a small folding carton with a volume of 2.4 litres or a large cardboard box with a volume of 128 litres.
  5. 5 Collected used transportation and shipping packaging – Federal Statistical Office (destatis.de)
  6. 6 In terms of gross product sales, the Chinese trading group Alibaba is the world's biggest online retailer. Amazon dominates in the West with a market share in the US, for example, of almost 50 per cent.
  7. 7 'The Climate Pledge' is a call to companies and organisations to take action on the climate crisis. Amazon has committed to publish data on its CO2 emissions regularly, to reduce these emissions and to neutralise any remaining emissions.
  8. 8 Between 2015 and 2019, the company reduced the weight of its shipping packaging by a third.
  9. 9 This growth is due to factors such as increased consumption of fossil fuels and the building of new logistics centres and additional servers.
  10. 10 This figure is calculated from the grammes of CO2 emitted per dollar of gross trading volume.

Authors:

Elias Halbig, Linda Kscheschinski, Dijana Lind, Christopher Krämer.

 

As at 3 February 2022.