Towards net zero
The relative performance of ecommerce and bricks and mortar retail today clearly matters, but the sector’s transition to net zero emissions, in line with the Paris Agreement, matters even more. For this, we need to consider whether the shift to ecommerce will help or hinder retail’s efforts to decarbonise.
1. Transition levers
Ecommerce companies have more control over transport-related emissions.
Via their procurement choices, they can ensure a rapid switch to electric vehicles for last mile deliveries – this alone wouldmove them much closer to the ‘ecommerce heaven’ scenario. Battery powered vehicles and hydrogen are likely to provide further opportunities for longer distance freight in the coming years.
In contrast, high street retailers have very limited tools to influence consumer transport choices.
Ecommerce companies also have more leverage over emissions associated with buildings. A traditional store designed to make shopping easy for the consumer is unlikely to ever be as efficient as a custom-built warehouse. Warehouses will likely get more efficient still, as automation takes over a growing range of tasks. In any case, bricks and mortar logistics chains also require warehousing (you can see this in our base case results in Figure 1).
This is also a numbers game. Amazon has 200 buildings in the US, including around 100 operational sites.12It’s possible to tackle emissions from electricity use at these sites through a relatively small number of renewable projects or purchasing contracts. In contrast, Target has around 1800 physical stores in the US. Meanwhile, there are over 8,000 large-scaleshopping malls.13
In two categories where ecommerce appears to have higher emissions, there are significant opportunities for near term decarbonisation. Data processing and computing centres can be supplied by renewable energy. Indeed, many technology companies already have commitments in this area. For packaging, all retailers are under pressure to cut out all unnecessary single-use materials, especially plastics.
2. Supply chains
This piece focuses on the journey of a product from original seller to customer.
But it’s worth bearing in mind that the emissions embedded in the actual products sold are usually several times larger than the associated emissions from this journey. For electronic and electric items, this also applies to the emissions footprint of theproducts when they are used.
How best to drive down these supply chain emissions (known as ‘scope 3’) is determined by the business model. Stores that make direct purchasing decisions have significant leverage over manufacturers of those products, whether they are sellingonline or in physical stores.
Major retailers have acknowledged this. Target, for instance, has a commitment that 80 percent of its suppliers will set ‘science-based targets’ by 2023 (see the box below for more examples). Walmart is working with suppliers to avoid 1 billiontonnes of CO2 emissions by 2030.14It has also created a sustainability index for its 2,800 suppliers.15Omnichannel retailers, and ecommerce companies that source the products that they sell, can take a similar approach.
The opportunity comes in a different form for ecommerce marketplaces, which are not making direct procurement choices to the same extent. They can, for instance, ensure that near-zero emissions products move to the top of search results.They can also impose minimum standards or clearly label the environmental footprint. We think this is a largely untapped opportunity, and it will be a key focus for our engagement with ecommerce marketplace companies.
Retailers commitments to climate action
Some of the largest players in retail have made ambitious commitments on climate action.
Walmart, for instance, will source 50% of its energy needs from renewables by 2025. It is now the largest onsite green power generator in the US.16Target will source 100% of electricity from renewables by 2030.17 Best Buy aims to be carbon neutral by 2050.18 In the UK, supermarkets Tesco and Sainsbury’s have net zero targets (by 2050 and 2040 respectively).19 Landsec plans to be net zero by 2030.20 Retailers that are part of the Science Based Targets initiative 21are presented in the chart below. ‘Committed’ means they have joined the initiative. ‘Targets set’ means they have gone through a verified process to set a short-to-medium-term emissions-reduction goal in line with the Paris Agreement.