OPINION: Why ESG investors need to think twice about Amazon

by Khalil Abdullah | Ethnic Media News Services
Tuesday, 18 January 2022 16:15 GMT

A damaged Amazon truck is seen at the site of a roof that collapsed at the Amazon distribution center, after clean up stopped in Edwardsville, Illinois, U.S. December 12, 2021. REUTERS/Lawrence Bryant TPX IMAGES OF THE DAY

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* Any views expressed in this opinion piece are those of the author and not of Thomson Reuters Foundation.

Although Amazon’s ESG profile is far from perfect, the company is still a favorite for many on Wall Street.

Khalil Abdullah is contributing editor to Ethnic Media News Services

In recent years, more environmental, social, and governance (ESG) investors have come to view Amazon as a must-have for their portfolios. On the surface, that makes sense; some bold-sounding initiatives on climate and workforce seemingly align with the corporate worldview of ESG investors and Amazon has itself invested in some noteworthy companies that have ambitious environmental agendas. But while Amazon’s ESG reports might look good on paper — or, particularly on a quarterly earnings report — a deeper look reveals that Amazon’s record on ESG issues should be viewed with skepticism by socially conscious investors.

Although Amazon’s ESG profile is far from perfect, the company is still a favorite for many on Wall Street.

In 2020, MSCI — the largest ESG index provider — bumped up Amazon’s ESG rating from BB to BBB. And while that may be an average rating, it is not deterring those who manage some of the largest ESG funds from buying in. According to Morningstar data, eight of the 10 best performing large-cap U.S. funds that incorporate ESG into their selections had either Amazon, Apple, or Microsoft as their largest holding. Amazon’s average annual holding for these funds sits somewhere between 3 percent and 6 percent.

But ESG analysts and like-minded investors should reconsider giving Amazon any stamp of approval. For starters, take a look at the company’s egregious greenwashing campaigns. While Amazon has continually boasted of its Climate Pledge and the latest signatories, it has scrupulously shrouded its own environmental impact in secrecy — leading investors to demand answers — and only recently began publishing information about its carbon footprint.

One can understand why the company may opt for caution when it comes to disclosing details about its sustainability commitments. Amazon generated 465 million pounds of plastic packaging waste in 2019 alone, with up to 22 million pounds of it polluting freshwater and marine ecosystems.

Amazon’s warehouses, even with its increasing utilization of robotics as highly touted in a recent NBC series, continue to pump toxic pollution directly into low-income and minority communities. These communities have historically borne and continue to bear the worst impacts of climate change and its deleterious health effects.

It is not just Amazon’s logistics network to blame. Amazon Web Services, a burgeoning cash cow for the technology company, is not as green as one may assume. According to a Greenpeace report, Amazon’s cloud computing centers in Virginia are powered by only 12 percent renewable energy — a stark contrast from the 100 percent renewable energy commitment it had previously touted.

At the moment, we can only wonder what Amazon’s true environmental impact really is. There is the distinct possibility, if the company’s current behavior continues unabated, we may never find out.

As two supply chain experts — including one former Amazon consultant — recently noted, Amazon’s total reported emissions do not account for the emissions generated by its vast network of third-party sellers and overseas suppliers. While decentralization has fiscal benefits to the company’s bottom line, it essentially renders its carbon footprint report incomplete if not meaningless.

Unfortunately, some critics consider Amazon’s record on social issues more abhorrent than its failed environmental initiatives. Although the company may earn more favorable ESG marks because of its pay and benefits, stories from Amazon workers paint a grim picture. As the COVID-19 pandemic tore through its warehouses, Amazon opted to prioritize growth over the health of its employees. Reports from the outset of the pandemic to recent months reveal how little the e-commerce giant cared for its workers in those facilities amid the pandemic. The company has also sought to stifle employee voices — from its warehouse workers in Bessemer, Alabama, to those at its headquarters in Seattle.

When it comes to corporate governance, Amazon’s views could not be made clearer. At its last annual shareholder meeting, the company opposed without shame all of the shareholder proposals aiming to make the company more transparent — everything from a mandatory independent board chair policy to enhanced reporting on demographic salary statistics.

Striving to be “Earth’s Best Employer” and “Earth’s Safest Place to Work” are laudable goals every corporation should strive for. But Amazon’s behavior has rendered it a dismal prospect to achieve those aims.

Until it can prove real progress on these critical issues, socially conscious investors should be bearish about Amazon’s ESG commitment. The e-commerce behemoth has proven it still has a long way to go when it comes to focusing on anything beyond its balance sheet.