Amazon's sustainability initiatives: Half empty or half full?
Amazon's public perception and investment profile are at stake as altruism and self-interest mix in its efforts to become a more sustainable company.
No stranger to controversy, Amazon finds itself in the midst of an intractable contest between environmental activists and its mission as a profit-driven business. The battle has raged back and forth for years and shows no sign of abating, despite a recent spate of initiatives by the retail and cloud giant in a bid to claim the mantle of environmental leadership.
In June 2020, the company launched a $2 billion Climate Pledge Fund to invest in sustainable companies and technologies that will help protect the planet. The company also purchased the naming rights to Seattle's major indoor sports facility, which will be known as "Climate Pledge Arena."
"Given the scale and size, it's a big deal," said Christopher Marquis, professor of sustainable global enterprise and management at Cornell, of the Climate Pledge Fund. "And it will lead other companies to do it as well. It creates a virtuous circle."
In February 2020, Amazon CEO Jeff Bezos announced a $10 billion fund, now called "Bezos Earth Fund," dedicated to investing in environmental initiatives. In 2019, the company pledged to achieve net zero carbon by 2040 and to reach 100% usage of renewable energy by 2030. It recently fast-tracked that effort to 2025. Also in 2019, the company pledged to purchase 100,000 electric-powered delivery vehicles to help with Amazon's carbon footprint.
Amazon sustainability initiatives prompt mixed reviews
Despite the multipronged climate push, the company faces an uphill battle of perception in some quarters. Sustainalytics, a unit of Morningstar that provides research and rankings on sustainability risk factors, currently ranks Amazon dead last out of 441 retailers with regard to environmental, social and governance (ESG) issues.
But not all opinions on Amazon ESG are so negative. Just Capital, a nonprofit research organization that seeks to help companies better serve workers, customers, communities and the environment as well as shareholders, ranks Amazon 75th out of 830 companies. Among retailers, Just Capital ranks Amazon second out of 50 overall, and 14th out of 50 in environmental impact.
As these inconsistent Amazon ESG assessments suggest, ESG lacks standard measurements. "There aren't many standards in how ESG portfolios are created," said Junta Nakai, global industry leader for financial services at Databricks, a data analytics and AI company.
"There is a big disconnect. A lot of companies are putting out grand plans, but there is not an ecosystem to analyze, verify and make sure there is no gap between stated goals and reality," Nakai said.
Amazon is no stranger to sustainability. It hired its first head of sustainability in 2014. But recently, initiatives have accelerated and are consistent with demands from the investment community. In January 2020, Lawrence Fink, founder and CEO of BlackRock, an investment management company, issued a letter to corporate CEOs demanding they address ESG factors or face disinvestment from BlackRock.
Amazon has proclaimed its commitment to sustainability in public statements. The company said it has thousands of employees that work on sustainability initiatives across the company and it will continue to make it a core focus. Further, the company said it monitors its own carbon emissions and communicates that information to its business leaders so that they can incorporate that into their decision-making. Amazon's recent sustainability report is here.
Despite mainstream acceptance of ESG, there will always be tension between activists and the companies they seek to influence, according to Klaas Baks, executive director and co-founder of the Emory Center for Alternative Investments and a professor at Emory University's Goizueta Business School.
"ESG is driven by activists. It's a small, vocal group that drives it, for better or worse. It's very easy to be in favor of green, but what are you willing to give up for that?" Baks said.
According to Morningstar, however, sacrifice is not always necessary. The financial analysis firm found that that ESG funds outperformed conventional funds in 2019.
Oil in the cloud
Perhaps the most contentious environmental issue that Amazon faces is the use of its AWS cloud computing platform for oil and gas exploration. But Amazon is not the only provider of such cloud-based number crunching for oil and gas companies. Greenpeace recently released a report called "Oil in the Cloud" that covers how companies in the oil and gas industry use cloud services from Microsoft, Google and Amazon.
"There's no reason anyone should be engaging in new exploration. We need to make sure the fossil fuel we already have ends up staying the ground. It raises questions about what we should think about Amazon's [climate pledge] actions," said Brian Berkey, assistant professor of legal studies and business ethics at the Wharton School of Business at the University of Pennsylvania.
Of course, companies are free to pursue business opportunities as they see fit, said one researcher. "I think a more relevant question is, do such contracts align with the spirit or goal of Amazon's climate pledge? That is ultimately a decision that rests with Amazon and its overall business and sustainability strategy," said Moin Syed, manager of ESG research at Sustainalytics.
Amazon said in a statement, "The energy industry should have access to the same technologies as other industries. We will continue to provide cloud services to companies in the energy industry to make their legacy businesses less carbon intensive and help them accelerate development of renewable energy businesses."
There are other environmental factors to consider with regard to Amazon sustainability, such as the impact of companies who sell products on Amazon's online retail platform. "Given that Amazon, as an e-commerce platform, functions as an intermediary between sellers and buyers, the carbon emissions associated with the products that are sold via its marketplace are also an important aspect to consider," Syed said.
Amazon's emissions tally only includes emissions from Amazon-branded product manufacturing, he said, adding that third-party emissions are an "important element" to consider with regard to the company's total carbon impact from operations. However, he said it's unclear whether Amazon plans to impose emissions requirements on third parties operating in its marketplace.
Activists want more
Amazon sustainability initiatives have not placated activists, which raises the possibility of continued pressure, adverse publicity and perhaps further action by Amazon in response.
Amazon's carbon footprint grew 15% in 2019. In response to this increase, the Amazon Employees for Climate Justice (AECJ) stated, "A 15% increase in Amazon's total emissions is the opposite of what we need to stabilize rising temperatures in the climate crisis. Amazon is prioritizing growth and sales over reducing carbon emissions. Amazon still has not proved that its business model can be sustainable." The organization also referred to the company's $2 billion climate pledge as an "obvious PR stunt."
Further, the AECJ excoriated the company for "environmental racism" by locating a large truck depot adjacent to a largely minority community in San Bernardino, Calif., which the AECJ claims afflicts residents with harmful diesel fumes. The group said Amazon invests in "green futures for white people and more asthma, COVID-19 risk and death for Black, Indigenous and other people of color."
In April, Amazon fired two AECJ employees.
Shuli Goodman, executive director of LF Energy, a nonprofit organization whose goal is "decarbonization of the grid and the mobility of electricity," said Amazon's efforts are praiseworthy so far but she would like to see the company assess its supply chain for sustainability, which the company has yet to do. The supply chain assessment would take into account "sources they do not own, including transportation, procurement, waste, water and the energy used to make a widget," Goodman said. She also noted that oil and gas producer Shell, in contrast, tracks the emissions produced by its supply chain.
The electrical power for Amazon's forthcoming fleet of electric delivery vehicles should come from sustainable sources, not coal-fired power plants, Goodman said. She said that given the current state of the U.S. power grid, that will be a tall order.
"I cannot tell you how they are getting power for their [electric] trucks, but I can tell you our grids are not yet ready," she said. Amazon, however, maintains the electricity for its delivery vehicles will come from "renewable energy sources."
Given its mixed ESG perception, Amazon has not finished its quest to be considered a sustainability leader. However, Amazon is not a B Corporation created for the main purpose of providing social or environmental benefit, Baks said. B Corporations are certified by B Lab, a nonprofit organization that promotes sustainability.
Klaas BaksExecutive director and co-founder of the Emory Center for Alternative Investments and a professor at Emory University's Goizueta Business School.
"Amazon incorporated itself as a for-profit business," Baks said. "If we want to force big companies to be B Corporations, there are costs. It would fundamentally change how we do things."
"I think Bezos cares about the environment, but he operates in a competitive environment," Baks added. "Their [Amazon's] aim is to be viewed positively, which is good for their business. I think they're doing it because it helps them."
As to whether fund managers will include Amazon in ESG-focused funds, Syed of Sustainalytics would not speculate. "In terms of inclusion, we are unable to comment on this as there is no universally accepted market definition of a green company and each ESG fund has its own inclusion criteria."
Marquis of Cornell remains unconvinced. "It's unlikely they'll ever be an ESG star. They'll do things when the writing is on the wall. But they are so ruthless as a competitor they are not going to prioritize either E, S or G."
Nakai of Databricks is more upbeat. He said Amazon, given its size and commitment, could have a strong positive impact on the sustainability movement. "If they take a data-driven approach and can articulate and disclose the progress they are making toward these goals -- then absolutely it will make a huge difference."
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