Source: Amazon Sustainability Report 2020

That the pandemic increased Amazon’s revenues and profits by a good margin is old news now. The company posted record revenue of US $ 386 billion in 2020. The new fact is that the increased revenues drove Amazon’s emissions higher. So while profits could be a cause of cheer for the company, the rising emissions sure don’t bode well with its nascent sustainability pledges.

As can be seen from Figure 2, Amazon’s absolute carbon emissions increased 19%, from 51.17 mmt CO₂e in 2019 to 60.64 mmt CO₂e in 2020. While this might be fodder for critics to claim that Amazon is putting profits over sustainability commitments, a careful look at the above table shows that Amazon’s carbon intensity decreased 16%, from 122.8 grams of CO₂e per dollar of GMS in 2019 to 102.7 grams of CO₂e per dollar of GMS in 2020. Carbon intensity is a metric that quantifies total carbon emissions, measured in grams of carbon dioxide equivalent, per dollar of gross merchandise sales. It essentially measures the amount of carbon dioxide emitted for every dollar earned in revenue. In simple terms, carbon intensity is the classic “good penny worth”. So a reduction in carbon intensity means that Amazon is emitting less greenhouse gas for each dollar it earns.

Amazon also mentions in the report that “We will continue to rapidly scale our investments in carbon reduction solutions that have large, long-term impacts that will move us forward on our path to net-zero carbon by 2040”.

Amazon 401k: The pebble in the shoe

While the Sustainability Report is very wide, precise, and neatly structured, news emerged in recent days that while Jeff Bezos public stand on sustainability is commendable, Amazon employees may be unaware that the retirement money that is being saved in their employee 401(k) plan is being invested in the very companies that are contributing most heavily to climate change. On the first read, this may not mean much. But if unaddressed, this could potentially boil up into a PR crisis for Amazon.

As You Sow, a non-profit foundation chartered to promote corporate social responsibility released a corporate 401(k) sustainability scorecard grading companies on their retirement plan investments. For Amazon, it found that 52% of plan assets were invested in Vanguard Target Retirement Funds Series, which was the default option. The fund has significant investments in weapons companies. The report further showed that Amazon’s retirement plans had millions of dollars invested in fossil fuels and deforestation risk agribusiness. It won’t be a stretch to say that most of the employees would be unaware of where their retirement funds are invested in. As such knowledge of the same could draw a backlash on Amazon, as people today are increasingly advocating sustainability in many aspects of their life.

Bedding controversies through the pandemic

Amazon has been, in the past, called upon to improve its working conditions by its very own employees. Workers have urged Amazon to increase the bathroom break time, citing the heavy workload and expected high level of efficiency. In a stunning New York Times reveal, it came to light as to the tactics used by Amazon to curb unions. From trying to put its employees under surveillance to retaliating against employees who protested against supposed inadequate pandemic safety measures, the report shows the harsh behind-the-scenes reality of the behemoth company.

The issue of union has been going on for some time now and Amazon has a history of triumphing over unionization efforts. As recently as of April, so-called unhappy warehouse workers in Alabama voted against unionizing, giving Amazon yet another victory. Amazon had hired the country’s top anti-union lawyers to get the workers to vote against forming a union.

While it may be a victory for the company, it must not be lost on Amazon that Alphabet (parent company of Google) workers, in early 2021, formed a minority union comprising of independent contractors as well as high tech workers. There are only as many times that Amazon can curb union efforts. But eventually, there is a high chance that workers will unionize and make a stronger demand to the management.

Considering a company of the size of Amazon, it is natural that there will be some controversy lingering in the periphery. But for Amazon, which portrays itself as a sustainable leader, it will be in its best interest to address the union issues as well as take care of the 401(k) discrepancy. Failing which, it could be very well blamed for greenwashing the masses. The hard but necessary want of sustainability is that: You are either all in or you are unsustainable.

How EMAlpha can help

There is, undoubtedly, a profound ESG movement going all over the globe right now. From countries to asset managers, from millennial investors to the old school stalwarts, everybody’s counting on the ESG chip for a better future and a better return on investment. It is here that EMAlpha with its proprietary AI-ML techniques becomes useful for investors to gauge companies on the ESG front.

The changes in perception on the ESG track record of a company and reactions from institutional investors have become an important driver of stock prices, and especially in cases where the volatility is high, it matters even more. The EMAlpha sentiment and ESG scores have been reasonably accurate and there is a strong linkage between stock price performance and these scores. Asset managers are increasingly incorporating ESG factors into investment decisions.

The recent ExxonMobil vs Engine No 1 case shows that even the giants can’t get leeway if they default on ESG. As such, for Amazon, it is necessary to address these issues. While the ESG deliberation is appreciable, one can’t deny the challenges facing the ESG movement and asset managers are naturally worried. Be it greenwashing, lack of proper metrics, frameworks, or quality of ESG information, ESG still has plenty of hurdles to overcome for it to be a sustainable investment instrument. It is here that EMAlpha with its proprietary AI-ML techniques becomes a much-needed tool for investors.