The debate about the future of the retail sector continues, even while the lines between offline high street retailing and online shopping are blurring.  E-commerce already accounts for around 8.7% of retail sales worldwide, and is expected to hit 15% by 2020. Meanwhile, online heavyweights have been quick to claim ‘green’ and ESG credentials for their business models.

However, sustainable solutions in the retail sector are more complex than first appears. At Candriam, we perceive e-commerce as a disruptive innovation, with dematerialization set to be a powerful driver in the push to transition to clean energy. As shown by the MIT Center for Transportation & Logistics[1], the use of carbon foot printing from scope 1 to scope 3 appears as an effective way to compare the environmental impacts of online and offline business.

By rationalizing transport flows and logistics , E-commerce offers a real opportunity to tackle environmental challenges, particularly the climate change solutions called for by United Nations Sustainable Development Goal 13. The most obvious environmental benefits from online shopping are energy and resource savings. The dematerialization of traditional distribution eliminates individual vehicle emissions, which account for about two thirds of total emissions from the traditional shopping experience. One can argue that delivery is still generating emissions but it has been estimated that the ‘last mile’ carrier distribution is 24 times more energy efficient than customers using their own cars. It also reduces company inventories, waste and the energy needed for lighting and cooling physical retail spaces.

Candriam therefore grants a bonus to pure online stocks in its Best-in-Class macro analysis. For example, online travel agencies indirectly promotes mass tourism, which has significant environmental impacts, resulting in a very negative Climate Change score in our assessment. However, as they are online players, this business model benefits from an e-commerce bonus, to improve its final score.

But neither online nor offline business models are carbon free. For offline retailers, transport is the major source of emissions (80%), while packaging is the main component (65%) for online retailers. Even if e-commerce is less carbon-intensive than high street shopping, several factors can erode its environmental credentials. These include how and where customers choose to shop, delivery modes (express/air freight) or failed delivery, returns, the frequency of purchases and item-bundling, the use of non-recyclable packaging and the energy consumption of huge data and dispatch networks. Candriam’s micro analysis covers all these endogenous factors which affect customer satisfaction ratings and future sales.

Candriam SRI  research process allows us to further our goal of contributing to the development of a sustainable economy through responsible long-term investment strategies. Rather than ‘bricks’ OR ‘clicks’[2], we see the combination of physical stores and online services as the most sustainable  business model. Indeed, this model tends to lower a firm’s carbon footprint and improves customer experience, two pillars of our sustainability analysis.

Environmental benefits of E-commerce: reality or illusion?  (download the PDF)

By Wim Van Hyfte, Ph.D, Global Head of Responsible Investments and Research, Arnaud Peythieu and Alexis Gouin SRI analysts.

[1] Weideli, D., & Cheikhrouhou, N. Environmental Analysis of US Online Shopping.

[2] Agatz, N. A., Fleischmann, M., & Van Nunen, J. A. (2008). E-fulfillment and multi-channel distribution–A review. European journal of operational research, 187(2), 339-356.