Amazon Redefines Shareholder Value.

Amazon Redefines Shareholder Value.

November 12 2020

Nobel Prize winning economist Milton Friedman famously wrote: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits.” Amazon (Nasdaq: AMZN market cap $1.6 trillion) is joining a growing list of major global corporations that are redefining shareholder value to include social impacts, including the corporation's impact on the planet. In 2019, Amazon made a Climate Pledge with 11 other companies (including Mercedes-Benz, Verizon, Siemens and Best Buy) to reach net zero carbon by 2040, 10 years ahead of the Paris Climate Accord’s target. The Pledge includes reporting greenhouse gas emissions, carbon elimination, credible carbon offsets and targeting 100% renewable electricity for its operations by 2025.

In 2020, Amazon contributed $2 billion to the new Climate Pledge Fund and Right Now Climate Fund, which aim to support fledgling climate-focused companies and projects. To date Climate Pledge capital has been put to work in five startups: Redwood Materials (battery recycling), CarbonCure Technologies (recycled CO2 for concrete manufacturing), Panchama (AI for carbon capture), Truntide Technologies (smart motors) and the startup EV maker Rivian. The Right Now Climate Fund focuses on climate mitigation solutions, investing $100 million in reforestation projects.

“The future of last mile delivery.” Amazon aims to have 100,000 electric delivery vehicles on the road by 2030. Amazon has a whopping 40% market share of all e-commerce in the US, delivering over 7 billion packages and $320 billion in revenues per year. Half of those packages are now delivered by Amazon’s own distribution network. In partnership with Rivian, Amazon recently unveiled its futuristic electric delivery van, which will start hitting the road in 2021 with as many as 10,000 vans making deliveries by 2022. The shift to electric delivery will go a long way to decarbonize the impact of the billions of items Amazon delivers each year. Prime Air, Amazon’s new drone-based delivery service, may start air-mailing time sensitive packages by next year. UPS and FedEx, which each have just over 100,000 trucks, are also getting into the game, adding thousands of new electric and alternative fuel vehicles where possible.

Amazon is also committed to increasing the sustainability of its packaging and Amazon Web Service (AWS) datacenters. E-commerce in North America, alone, generated 1.3 million tons of containerboard in 2018 with Amazon contributing more than its fair share. Amazon uses artificial intelligence to optimize package sizes and materials, which has helped to reduce packing requirements by 33% over the last five years. Decarbonizing AWS data centers, which demand an immense amount of energy to cool data servers, will require a combination of investments in technology, renewables and fuel cells. To that end, Amazon currently has 91 renewable energy projects totaling over 2.9 gigawatts of capacity, delivering more than 7.6 million megawatt hours (MWh) of energy annually, enough to power 680,000 homes.

“Climate change is the biggest threat to our planet," says Amazon CEO Jeff Bezos. "I want to work alongside others both to amplify known ways and to explore new ways of fighting the devastating impact of climate change on this planet we all share.” Amazon and other big companies are expanding the definition of shareholder value to include their impact on climate, allowing them to utilize corporate funds in their environmental efforts. These efforts are receiving a major boost from some of the largest shareholders themselves. As we reported in a previous CAPM 2.0 issue, when the CEO of Blackrock Larry Fink, one the biggest money managers in the world, wrote in his letter to shareholders that “climate risk is investment risk”, the game changed for climate-conscious companies, enabling them to pursue more aggressive strategies to decrease their impact on the environment, even at the expense of near-term profits.

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