Amazon Works to Balance Growth with Sustainability

While Amazon is making tangible progress in its approach to sustainability, can it ever be truly environmentally conscious within its current business model?

 

Although most frequently discussed in a regulatory sense, climate change and its effect on the planet is undoubtedly a private sector issue.  Businesses of all sizes participate in habits that exacerbate greenhouse gas emissions and stand to lose tremendous value in the long run if operating costs subsequently rise.  Data centers, transportation expenses, utility costs for office buildings and warehouses—energy accessibility greatly shapes the outcome of a business model.

Additionally, companies are incentivized to take a stand on issues of importance to their customers.  Sixty-eight percent of Americans believe climate change is caused by human activities and forty-five percent of individuals are deeply concerned about its reverberating effects—as a result companies must deliver in this area.[1] The largest American technology companies addressed their participation in this phenomenon in a 2016 U.S. Court Briefing filed in support of the Clean Power Act.[2]  Through this forum and others, Amazon has signaled this as an area of perpetual focus for the company going forward.

Current & Future Initiatives

Through its public relations arm, Amazon has clearly outlined a plan to lessen its energy consumption and production of waste.

Energy Consumption. Amazon aims to support its Amazon Web Services through 100% renewable energy sources in the short term and will be at 50 percent by the end of 2017.[3] Amazon currently has 10 renewable energy projects in process that will generate over 2.6 million megawatt hours of energy annually when completed.[4]  Additionally, Amazon is currently utilizing recycled energy to warm its newest buildings in Seattle by capturing the heat created by a nearby data center and piping it into its buildings.[5]

Packaging.  As the Amazon logo has become ubiquitous on the side of packaging, the company has funded initiatives to make delivery more eco-friendly.  Through eliminating excess packaging—multiple boxes inside of larger boxes—Amazon cut 55,000 tons of produced waste in 2016.[6]  Additionally, they are moving to 100% recycled packaging and recently arranged for some suppliers to ship directly to consumers, bypassing repackaging and transportation to and from an Amazon distribution center.[7]

Transportation.  While drone delivery is intended to solve the “last mile” problem in the mid-term, it also could cut Amazon’s and its customers greenhouse gas (GHG) emissions.  The drones are battery powered, providing a clear alternative to the current carbon emitting transportation options today.[8]  Additionally, Amazon can more efficiently supply a neighborhood with goods instead of each house acting independently.  If the company is successful with wooing more customers by the convenience of drone delivery, families will travel to the store less and emit less carbon into the air.[9]

Ongoing Criticisms

While Amazon is taking concrete steps to reduce its direct involvement in climate change, it is still far behind its industry peersIt only recently began hiring personnel for sustainability related positions.[10]  Further, at the 2017 Annual Shareholder Meeting the motion to include sustainability targets as part of executive compensation was voted down.[11]  Carbon Disclosure Project, a nonprofit that queries companies on annual carbon emissions data, reported that Amazon is in the minority of S&P500 companies that chose not to report in 2016.[12] Amazon’s peers (e.g., Apple, Walmart) have taken these steps to show dedication to change.  It is hard to excuse Amazon from what seems to be the evolving industry standard.

Additionally, Amazon does not impose environmental standards on its marketplace suppliers.  Therefore, although Amazon is improving its own supply chain, it may concurrently encourage the growth of companies that are not pursuing the same type of improvement in their own operations.  While it is extremely difficult to pinpoint Amazon’s culpability (or lack thereof) for the actions of third party actors on its site, it must be accounted for when reviewing the sustainability of the supply chain that has fueled Amazon’s success.  Though it may not be feasible in the short term, offering incentives towards positive supply chain behavior is a powerful tool Amazon could someday wield.

As Amazon and ecommerce continue to change the way we purchase goods, the intersection of business and sustainability becomes more complicated.  Can Amazon overcome the inherent friction between being environmentally conscious and supporting a business model built on frequent consumption of goods?  If Amazon is serious about decreasing humanity’s contribution to climate change, should they enforce production standards on the companies that use its marketplace?

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[1] Lydia Saad, “Global Warming Concern at Three-Decade High in U.S.,” GALLUP News (blog), Gallup, March 14, 2017, http://news.gallup.com/poll/206030/global-warming-concern-three-decade-high.aspx?g_source=Politics&g_medium=lead&g_campaign=tiles, accessed November 2017. boom

[2] “Brief of Amici Curiae Amazon.com Inc., Apple Inc., Google Inc., and Microsoft Corp. in Support of Respondents,’ https://www.edf.org/sites/default/files/content/2016.04.01_major_tech_companies_amicus_brief_for_epa.pdf, accessed November 2017.

[3] Amazon.com, Inc., “AWS and Sustainability,” https://www.amazon.com/p/feature/ 9xtek3a9d9cd3wb, accessed November 2017.

[4] Ibid.

[5] Sanjay Bhatt, “Amazon, Data Center Turn Hot Idea into Cool Technology,’ The Seattle Times, November 12, 2015, https://www.seattletimes.com/business/real-estate/amazon-towers-will-be-heated-by-neighbors-excess-energy/, accessed November 2017.

[6] Amazon.com, Inc., “Packaging,” https://www.amazon.com/p/feature/c76chxvxrraw7hj, accessed November 2017. boom

[7] Matt Richtel, “E-Commerce: Convenience Built on a Mountain of Cardboard,” The New York Times, February 16, 2016, https://www.nytimes.com/2016/02/16/science/recycling-cardboard-online-shopping-environment.html, accessed November 2017.

[8] Bryan Walsh, “Shopping by Drone Could Be Good for the Environment,” December 03, 2013, Time, http://science.time.com/2013/12/03/shopping-by-drone-could-be-good-for-the-environment/, accessed November 2017.

[9] Ibid.

[10] Marc Gunther, “Can Amazon’s New ‘Dream Team’ fix the company’s sustainability reputation?”, The Guardian, February 2, 2016, https://www.theguardian.com/sustainable-business/2016/feb/02/amazon-sustainability-edf-epa-best-buy-walmart-apple-microsoft-csr-child-labor, accessed November 2017.

[11] Amazon.com, Inc., May 23, 2017 Proxy Statement (filed April 12, 2017), via SEC.gov, accessed November 2017.

[12] Angel Gonzalez, “Amazon Gets an ‘F’ from the Carbon Disclosure Project,” November 1, 2016, https://www.seattletimes.com/business/amazon/amazon-reluctant-to-share-carbon-emissions-data/, accessed November 2017.

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5 thoughts on “Amazon Works to Balance Growth with Sustainability

  1. Megan, this discussion reminds me of the classroom discussion for the Ikea case. Even though Amazon has taken several steps to become more sustainable within its business model, its current business model remains unsustainable with individual delivery and packaging for each purchase. Since Amazon does not disclose carbon emissions data unlike peers and did not hire sustainability personnel until last year, it seems that Amazon remains more focused on growth and customer convenience rather than on sustainability.

    Due to SEC rules, Amazon identified no suppliers that were sourcing through a supply chain that benefited armed groups in the Congo. Thus, it seems possible, though likely expensive, to conduct a similar review for specific sustainability purposes.

    https://www.sec.gov/Archives/edgar/data/1018724/000101872417000088/amzn-20161231xex101.htm

  2. Very interesting read Megan. To Pratik’s point, I don´t think it is cost-effective for Amazon to check the sustainability practices of all of its marketplace players. As we saw on Ikea’s case, simply defining what those standards are for a single input (wood) is an herculean and resource-heavy task. Nonetheless, I think that Amazon should provide online buyers with as much readily-available information as possible concerning the suppliers they are buying from. In this sense, Amazon could display on its website sustainability ratings created by third parties (such as Sustainalytics, whose ratings are used by Morningstar to evaluate mutual funds and ETFs on sustainability practices) for each of its market place suppliers. I reckon that this could be a good compromise between promoting sustainability and being cost conscious in a company with thin margins and still investing a lot in growing its business.

    Additionally, I agree with you that Amazon’s business model promotes consumer behavior that to some extent harms the environment – Amazon Prime’s free shipping feature does not provide incentives for customers to concentrate purchases and consequently decrease the pollution arising from several shipping runs. I think there could be some cost-effective ways to mitigate this effect, such as providing “sustainability points” to customers that choose to ship more than X products together. These points could then be redeemed in selected items.

    Useful links:
    http://www.sustainalytics.com/press-release/morningstar-acquire-stake-sustainalytics/

  3. Great article, Megan. I was also reminded of the Ikea case while reading this article and further this made me think about marketplace solutions, like the Fasten case that we discussed today. Although Amazon has some level of control over what is sold on its platform, at its core the retail business is a marketplace and there are many similar marketplaces out there. To me, this raises the question of how we can better promote sustainability for individuals and small businesses. Similar to Miguel’s suggestion, maybe Amazon could offer their suppliers incentives to package and ship their goods sustainably?

  4. Thanks for the interesting read. As one of the largest companies in the world, I’m surprised Amazon hasn’t taken the initiative to be at the forefront of addressing climate change like its peers, such as Walmart. Amazon has a huge potential to leverage its size and power over its supplier network to make a positive impact on climate issues. I agree with the point that enforcing sustainability practices with Amazon suppliers is much more complicated than Ikea’s situation, but if a company like Walmart can implement a supplier sustainability program, Amazon should be able to as well, at least for its large suppliers.

  5. I really like your post, Megan! It showed how sustainability can be profitable for companies. Specifically, you mentioned saving opportunities in energy consumption, packaging, and supply chain. These are all common practices that corporate America is adopting too. With Amazon being one of the largest in the US, its impact is substantial. Unfortunately, most of the sustainability initiatives prosper when the economy is going strong but get cut back when the economy turns weak. I believe to change this, companies need to change their mindset and view sustainability as a cost-cutting strategy that has a long-term impact on company profitability.

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