Online-retail, a low carbon business model

The shift towards a low carbon economy

One investment theory that we have examined under the energy efficiency theme is that of the online-retail model versus the traditional bricks-and-mortar model, and whether the former will benefit from the efforts to develop a low carbon economy.

The majority of carbon in a product is embedded in the raw materials used to make it, its manufacture and its packaging. However, the shift towards a low carbon economy will see the price of carbon becoming an increasingly important competitive differentiator within the distribution of a product as well as its upstream production.

Does online retail mean less carbon and therefore more profit?

The carbon costs associated with heating, lighting, warehousing and transporting, for example, will increasingly influence the ability of retailers to extract profit from their operations.

Our research shows that when one compares the carbon footprint of bricks-and-mortar to online operators the online business model is by far the most efficient, as shown in Figure 1.

Figure 1: Emissions comparison of bricks-and-mortar retailers and on-line retailers










Source and additional data information: Data is taken from the Carbon Disclosure Project (2011 analysis) and uses those responding companies listed as apparel retail, computer and electronics retail, department stores, general merchandise stores, home improvement retail and speciality stores for calculating the bricks-and-mortar figures [30 companies responded] and those listed as internet retail for on-line retail [3 companies responded]. Scope 1 emissions refers to the emissions from sources that are owned or controlled by the company, Scope 2 emissions are emissions from electricity purchased by the company

At this stage we believe that the carbon footprint of the operations is the predominant factor to consider when looking at the carbon footprint of the different retail business models, but that in time other factors associated with the “last mile” will become increasingly important.  The “last mile” commonly refers to the final method of transport for a product from its site of purchase (whether in a bricks-and-mortar store or from an online retailer’s warehouse) to the consumer’s home.

Within this consideration one has to account for the efficiency of multiple drops that one would get through purchasing online versus the efficiency of customer visits to stores, but one would also have to consider issues such as how many items may be purchased at stores or the influence of missed drops and product returns on the overall carbon footprint.  The influence of these various factors can be seen in figures 2 and 3.

Figures 2 and 3: CO2 emissions (grams) per consumer trip

Bricks-and-mortar retail trip emissions




















Online delivery trip emissions






















Sources: “Shopping trip or home delivery: Which has the smaller carbon footprint?” Edwards & McKinnon, 2009

In drawing our conclusions we looked at four factors that influence the carbon footprint of the retail model (see figure 4). As carbon costs are introduced across the economy, we conclude that the online business model will benefit over traditional retail due to lower operating costs, and that this is the key differentiator for consideration when asking the question how will a stock benefit from efforts to mitigate or adapt to climate change?

In time we believe that the carbon footprint of the “last-mile” will be increasingly important as fuel prices influence consumer travel behaviour. The online model may also generate some unintended consequences (e.g. purchasing single items from remote distances due to the “proximity” of online retail stores afforded by the internet), which warrants further analysis.

Figure 4: Conclusions drawn on the consideration of different factors when comparing the carbon footprint of online versus bricks-and-mortar retail












Based on our analysis we have decided to include the following stocks within the climate change universe: Amazon.com; Mercadolibre; Asos; Yoox; Blue Nile; Ocado Group; and Ebay.