Sumant Wahi and Jon Guinness, Portfolio Managers, Fidelity International
Surging ecommerce use during the pandemic comes with the environmental costs of increasing waste from packaging and emissions from delivery vehicles. These should be crucial sustainability issues for investors but too many still see them as minor concerns compared with other industries. We are, however, seeing some creative efforts by companies around the world to address the problems.
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 these fast-growing companies, but instead use their voice to get them to adopt the most innovative and smart methods in the business.
Not so fantastic plastic
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effects of ecommerce as a minor issue, compared with the energy sector for example, but this view will rapidly become outdated as consumers’ insatiable hunger for ever-faster online delivery grows.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.1 The Covid-19 pandemic has accelerated the adoption of online retail, making it more important for us to address its negative effects.
Chief among these is what will be done 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 20242, while some estimates claim that the plastic air-filled packaging created from Amazon deliveries in 2019 could circle the Earth a staggering 500 times.3 Much of this packaging ends up polluting the world’s rivers, lakes and seas, affecting water supplies, soil, plants and wildlife.
Packaging dominates plastic waste
The downsides of packaging, logistics and current incentives
Paper can be recycled, and is less toxic than plastic as waste in natural habitats, but it can still have negative effects. The pulp and paper manufacturing industry is the single largest industrial consumer of water in the developed world and the 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 still 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 100 largest cities would increase by 36% over this decade, resulting in 32% higher CO2 emissions and a 21% increase in congestion.4
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, tiredness and engines left idling between drop-offs rather than switched off.
The other incentive problem is regarding 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 economical for many retailers to use recycled packages.