Company and Sector
Amazon primarily operates two businesses: its traditional marketplace and its B2B cloud computing business (Amazon Web Services).
In 2015, Amazon’s marketplace saw just under $100B in global sales, shipped products from 172 countries to 189 countries, and incurs billions of shipping costs annually.
Amazon Web Services (AWS) originally supplied cloud computing services to startups, but has grown to over a million clients including some of the world’s largest brands (e.g. GE, Airbnb, Johnson & Johnson, McDonald’s, Philips, etc.).
Due to the logistical needs of its marketplace business, the power consumption needs of its cloud computing services and the rapid growth of both businesses, climate change is a key consideration for Amazon.
Threats and Opportunities Posed by Climate Change
A number of aspects of Amazon’s marketplace business will be impacted by climate change and by public opinion of climate change. For example, Amazon could very well be scrutinized for its need for vast amounts of transportation resources and packaging materials. Also, as the company continues to develop and produce more and more private label products, the public may consider the environmental cost of producing those products. Likewise, the various suppliers and sellers utilizing the Amazon marketplace could face similar challenges.
AWS requires considerable energy consumption. This dependence on energy production could entail massive future costs in the event of rising energy prices as well as in potentially negative public perception if Amazon’s power mix skews towards traditional energy sources. However, Amazon is also facing a significant opportunity in that the use of centralized data centers (e.g. AWS) is far more cost effective and energy efficient for corporate clients. Corporate clients under pressure to become more environmentally friendly would likely be more inclined to consider a transition towards off-premise solutions.
Amazon has gone to great lengths to consider its role in energy efficiency and is actively engaged across a number of fronts to reduce both its, and its clients’, environmental impact.
In its marketplace business, Amazon has sustainability efforts on packaging and process improvement. Recently, Amazon has introduced “frustration-free packaging” that is 100% recyclable. Amazon states that most orders are shipped in corrugated packaging that is fully recyclable and is composed of 43% reclaimed materials. The company has also started working with other suppliers and vendors on its platform to provide free analysis and advice around packaging innovation with the ultimate goal of reducing resource needs. In addition to packaging efforts, Amazon has introduced a sustainability bent to its Kaizen Program. Under Kaizen, employees are encouraged to consider continuous improvement opportunities, including energy efficiencies and opportunities to reduce consumption. For example, employees redesigned the process by which trucks were filled with product ready to ship. The reconfiguration of product layout increased truck capacity by 20%, decreasing the net need for transport. Another example includes the selective operation of conveyors and lights based on employee presence and usage in lieu of continuous operations
Other efforts include Amazon’s emphasis on sustainable buildings and preference for LEED-certified facilities and Amazon Green, a cross-category program that includes a customer-generated list of the ‘best’ green products available on Amazon.
Amazon’s AWS business has confirmed a long-term commitment to achieve 100% renewable energy use for its global infrastructure footprint. Amazon sees three levers in regards to efficient power consumption: the number of servers running, the energy required to power each server, and the energy input type of each server. The company notes that in general, cloud solutions (e.g. AWS) consume 84% less power vs. on-premises solutions. This is driven primarily by two factors: large-scale server farms generally achieve 65% utilization vs. 15% utilization of on-prem solutions; and dated on-premise solutions are 29% less efficient in energy usage for comparable computing resources. Also, even as they consume less energy as compared to the technologies they’re replacing, AWS also uses a ‘less-dirty’ power mix, stating that their inputs are 28% less carbon intense. In 2015, 25% of power consumed by AWS was renewable, with a goal of 40% in 2016. To achieve this, Amazon has started to build/acquire their own power generation facilities. Amazon owns solar and wind farms across the US generating 1,660,000 megwatts of power annually (the equivalent power consumption of all homes in Cleveland, Ohio)
Additional Steps to Consider
Although Amazon’s efforts thus far have been commendable, there are a number of other steps they should consider:
- Investing in additional power generation sources
- Fulfillment efficiency and alternative means of fulfillment, in-housing logistics
- Energy-efficient production of low impact, private label products
- Leveraging supplier power to enable market-based influence of production
- Incentivizing sale and use of energy efficient, low impact, products in new and emerging markets. Hopefully encouraging “leapfrogging” consumer behavior and tastes
- Leveraging marketing spend to portray environmental efforts and contribute to global climate change awareness