Article by Iris Konrad

Over the past decades, e-commerce has seen substantial growth that is expected to continue. While customers appreciate the convenience of shopping online, companies also need to consider the direct impact of e-commerce on sustainability indicators. Sustainability indicators are used to assess various aspects of sustainability, such as environmental, social, and economic factors.

Customers have become increasingly conscious about a brand’s ESG (environmental, social, and governance) performance and consider it a decisive purchasing criterion. Accordingly, companies that implement a holistic sustainability strategy for their online business improve their sustainability performance while creating additional sales options and increasing revenue and customer loyalty.

To help companies navigate sustainable e-commerce, we highlight sustainability challenges companies face and suggest actions companies can take to design their e-commerce in a more sustainable way.

Challenges

Some of the challenges faced by companies with e-commerce shops include the following:

Returns & Packaging

A recent University of Bamberg study on e-commerce in Germany found that almost every fourth package is returned to the retailer and an estimated 17 million returned items end up in a landfill in 2021. The reasons given include liberal return regulations and usually free returns. These return practices contribute to enormous resource consumption and pose a burden on logistics service providers, both of which create further challenges to sustainability.

Impact on labor and value chains

E-commerce activities tend to be associated with fragmented value chains—i.e., different functions are performed by many different subcontractors. This fragmentation comes with substantial risks, such as

• Violations of individual labor rights,

• Financial and operational risks borne by contributors to the value chain with less power, and

• Inequalities in negotiation power between different value chain parties.

One such example is labor conditions in outbound logistics or last-mile delivery. These activities are typically performed by delivery companies, subcontractors, or self-employed workers who experience risks associated with increased workloads, decreased safety, or no relationship with their real employer due to a subcontractor relationship.

Data privacy

Customers appreciate the more convenient shopping experiences e-commerce offers—from 24/7 shopping from anywhere to the availability of a wider product range and comfortable delivery services. Nonetheless, these offerings require customers to share sensitive personal data (personally identifiable information, or PII). At an individual level, data breaches and misuse may lead to deanonymization of individuals (uncovering the real-world identity of users) or the loss of sensitive data. At a global level, monopolistic tech companies accumulating big data may be widening the gap between advanced economies and economies in development.

Actions

Sustainability cannot be considered as a “nice to have”; rather, it is crucial in responding to customers’ changing expectations and helps brands to remain competitive.

To get you started, we offer some recommendations on integrating sustainability into your e-commerce operations.

Re-commerce

“Re-commerce” and “rental” are both managed via a digital (secondary) marketplace where a customer can find products that have been used by other customers. These approaches extend a product’s lifecycle, increase actual consumption, support the transition from fast to sustainable consumption, and leverage aspects of the circular economy (i.e., eliminate waste and pollution, circulate products and materials, and regenerate nature) for an online shop.

Sustainable packaging

Sustainable packaging assessment criteria include the use of compostable and/or recycled materials, recyclability, water usage, worker impact, and required transportation space. While the list of corresponding criteria may vary between use cases, the actual assessment and choice of criteria will need to fit the corresponding product strategy and business steps involved.

Sustainable packaging requires initial investments that may have a substantial negative bottom-line impact in the short term, but the long-term return on investment is significant, as packaging sustainability represents an essential factor in customers’ brand choices. Indeed, 41% of respondents to a 2021 US survey stated that sustainable packaging made them want to shop from a company online (Dotcom Distribution, 2021).

Holistic supply chain assessments

By performing holistic supply chain assessments, companies can work to meet growing supply chain due diligence requirements in Europe and elsewhere for both environmental and social concerns. Particularly in times of low vertical integration and complex global supply chains, companies must be able to ensure that production and delivery processes follow high social standards—for example, sourcing products that are not made with child labor or in poor working conditions.

The resulting comprehensive value chain assessment and ESG optimization (integration of ESG factors into decision-making processes to enhance sustainability) often lead to high levels of complexity, which can be reduced by using relevant software, supplier management systems, or supplier/ partner/customer codes of conduct.

ESG transparency for more sustainable purchasing decisions

Calculating and assessing relevant ESG indicators (for example, greenhouse gas emissions, water consumption, or labor conditions) and highlighting them in your e-commerce user interface will allow customers to make better, more informed purchasing decisions. This will ideally lead them to opt for the most sustainable products or services, which in turn will improve a business’s sustainability performance. Basing these calculations on trusted data will help avoid greenwashing and social washing risks and build customer trust. A great example for promoting sustainability KPIs as additional sales drivers is to embed them prominently in the product detail section or as filter criteria in the product catalogue.

For an individual assessment of how to make your e-commerce business more sustainable, please contact Momentum Novum...