E-commerce continues to boom and is increasingly displacing traditional sales outlets. But with new online sellers come new problems: CO2-intensive shipping, data security concerns, opaque supply chains – how are e-commerce companies responding?
At first glance, everything looks clean at Germany’s major listed e-commerce companies. In 2020, Zalando itself consumed 9,621t of CO2, Delivery Hero 4,377t and About You even only 371t (Scope 1 and Scope 2 emissions in each case) – very little in each case when measured against their respective sales.
But the big chunk comes in the form of indirect CO2 emissions that come from the upstream and downstream value chain (Scope 3): In 2020, it was 39,706t CO2 at About You (98.6% of all CO2 emissions), 278,361t at Delivery Hero (98.5%) and a whopping 4,510,094t CO2 at Zalando (99.8%), measuring their indirect CO2 emissions very comprehensively.
A high proportion of CO2 emissions in the value chain is normal for most industries. But in the e-commerce sector, the proportion is particularly high. The reason is simple: the e-commerce sector’s own CO2 footprint is comparatively low, because online stores can be operated with far fewer resources than physical stores or their own production facilities. E-commerce companies themselves are therefore (in climatic terms) rather small emission sources – but they are located at the most important interface for influencing the entire value chain.
E-commerce: an industry in (ESG) transition?
A big lever for all e-commerce companies selling physical products: shipping the goods. Every failed delivery and every return generates avoidable emissions. Returns, in particular, have already become the focus of political attention: In 2020, for example, the Recycling Management Act in Germany was expanded to include requirements for the so-called duty of care for online retailers. In plain language: Since then, it has been forbidden that as-new goods from returns are simply destroyed – just because it is cheaper.
E-commerce companies from the B2C fashion sector in particular feel the pressure to become more sustainable. Driven by up-and-coming investor darlings such as the Lithuanian e-commerce unicorn Vinted, a C2C platform for second-hand clothing, established online retailers such as About You and Zalando are also increasingly focusing on second-hand offerings with products such as About You Second Love and Zalando Zircle, On the other hand, the companies can sell returned goods on their own second-hand marketplace and, ideally, earn some money.
At the same time, such offers are also a double-edged sword for suppliers: companies like About You and Zalando can use them to show their contribution to the circular economy and thus also position themselves for future EU sustainability criteria. However, there is a risk of cannibalizing the actual, more lucrative business with new goods to a certain extent.
E-commerce: These are the relevant ESG criteria
In addition to the delivery of goods, however, numerous other ESG issues are relevant for e-commerce companies: For example, in the environmental area, the ESG standard SASB still counts energy and water management among the important topics from an investor’s point of view.
In the social area, the focus is primarily on employee issues. For fast-growing e-commerce companies, it is important to recruit new employees effectively and retain existing employees for as long as possible, which can be expressed, for example, in a low fluctuation rate and high employee satisfaction.
And – last but not least – data protection and data security issues naturally play a prominent role. Here, companies operating in e-commerce must find convincing answers to questions such as: Is customer data sold to third parties? To what extent is customer data used for advertising purposes? How is professional data theft prevented?
A look into the future: the supply chain law
And it will not stop at the ESG requirements mentioned above. One legal initiative in Germany that particularly affects e-commerce companies with long supply chains is the Supply Chain Act.
The aim of the law is to better protect human rights and, in particular, to prevent child and forced labor. To this end, from 2023 all companies in Germany with more than 3,000 employees, and from 2024 all companies with more than 1,000 employees, will be required to set up a detailed supply chain risk management system. This means a detailed risk analysis, a functioning complaints mechanism and comprehensive reporting on the supply chain.
At the beginning of 2022, the EU Commission also presented an EU supply chain law that goes even further: It is intended to affect companies with 500 or more employees and demands a review of the entire supply chain and not just – as in Germany – the direct Tier 1 suppliers.
It will still take some time before this EU-wide law is passed. But it is clear that e-commerce companies such as Zalando or About You, which as fashion specialists have particularly deep and sometimes complex supply chains, will face much stricter ESG requirements in the future. It remains exciting to see how the historically lean e-commerce industry responds to the challenges.
All e-commerce companies must meet ESG requirements from two worlds. Firstly, those that apply to their actual business model: the sale of a specific good or service. And on the other hand, those that result from their online-based sales system.
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