The trend of investing in E-commerce has been identified by other asset managers as an investment opportunity, because of the industry's potential to enable inclusion, but we have taken a more holistic approach when identifying investment opportunities through the lens of the 2030 Agenda for Sustainable Development. Lessons from the pandemic has taught us that an even more emphasis should be put on the interlink between the SDGs. Health is linked to climate, climate is linked to finances, finances is linked to education etc. Thinking holistically, however, can sometimes be tricky as potential investment opportunities can slow down the development of other SDGs.
Investing in e-commerce:
Empowerment lies in the heart of the Sustainable Development Goals (SDGs). A company's approach to equal rights and opportunities is an important factor in its business activities and its effect on sustainable economic growth in society.
E-commerce can be an important enabler for, especially women entrepreneurs to take part in the global market. According to World Economic Forum (WEF) the unfolding of the e-commerce revolution, has created a fairer and more inclusive balance by reshaping the global business environment to provide more room and opportunity for small business, especially those headed by women. The World Trade Organization (WTO), WEF and the Electronic World Trade Platform (eWTP) launched the initiative 'Enabling E-commerce' in 2017 to start the conversation on how e-commerce policy and practices can benefit small businesses.
Evidence show that e-commerce could be an important industry to drive inclusion. However, e-commerce can be harmful in the development of other key SDG themes, here is why:
- Consumerism: consumer shopping habits have drastically changed over the last couple of years, even more so as a result of the ongoing pandemic. E-commerce has been a part of driving this habit as more products are available at competitive prices, driving the consumer to buy a new product rather than fixing the existing one. This concept can harm the development of a circular economy. Some parts of the industry, however, have addressed this issue by creating platforms that sells second-hand products.
- Environment: the environmental impact of e-commerce has been proven difficult to measure, due to local transport, type of delivery etc. Studies have shown that 1 / 3 of all customers have returned purchased items within the period of three months. This causes double transportation and may require disposal of the returned product rather than resale. Some platforms disclose information on the environmental impact of the product, making some customers choose the eco-friendlier option. Even with this option many customers are likely to choose the cheapest and fastest solution, because the customers of e-commerce demand fast delivery. According to ICAO and McKinsey, air cargo transports 80% of cross-border B2C e-commerce shipments. On the contrary, some studies suggest that e-commerce can reduce CO2 emissions because customers will use their cars less by receiving their purchased goods at the door. Moreover, music and e-books are positive aspects of e-commerce because it replaces physical products with virtual ones. This reduces the use of raw materials and the energy needed to manufacture and transport the product¹.
These factors will make it difficult for players in this industry to be aligned with the upcoming EU Taxonomy.
Moreover, to ensure an inclusive e-commerce landscape other challenges of the industry needs to be addressed. Without the right approach big players can easily dominate the market. Reducing the digital divide should be emphasized to make sure that every stakeholder has access to digital services:
- Connectivity: Making sure that everyone has the skill and capacities of broadband connectivity
- Infrastructure: Having the infrastructure in place to ensure internet access.
As we have demonstrated we can see several ESG risks linked to the industry. As of today, it is difficult to identify potential e-commerce companies to invest in, that does not harm the development of other SDGs. Hopefully new and emerging business models in e-commerce will develop in the future. As an investor, it is interesting to follow how the industry will develop, because it can be a powerful tool for growth and inclusion. The industry should take use of the potential it has to make an inclusive and environmentally friendly industry, creating growth for the global community.
¹Research and Markets, 2020 Report on the Environmental Impact of E-Commerce, 2020