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How eBay embraced ‘circular economy’ lingo in the age of sustainability

May 30, 2022, 4:00 PM UTC

A pioneer in e-commerce and one of the original online resale shops, eBay has spent the past several years quietly leaning into “circular economy” language and increasing its focus on the company’s environmental and social impact.

The company’s impact disclosure not only outlines eBay’s environmental and social goals but also quantifies the environmental benefits of its core business: the purchase of pre-owned products versus new ones.

While eBay’s previous impact reports included general notes describing its methodology, this year a separate methodology report expands upon past descriptions, listing product categories, the sources of external data, the calculations carried out, and assumptions made. The company, which has been publishing reports since 2016, first used the term “circular economy” in 2015.

In its recently released annual impact report, the company highlighted a 26% total reduction in direct and indirect greenhouse gas emissions in 2021. In 2020, the company’s direct greenhouse gas emissions totaled 53,781 metric tons; that dropped to 47,315 metric tons in 2021. In that same year, the company obtained 90% of its electricity from renewable sources for eBay-controlled data centers and offices globally, up from 81% in 2020. The company’s goal is to source 100% of its electricity from renewables by 2025. 

Also made public for the first time is eBay’s recently updated methodology for avoiding carbon emissions and limiting any waste from pre-owned products purchased through the site.

According to an eBay survey, the majority of its customers said they buy pre-owned products to save money, but almost 35% said they make such purchases for sustainability reasons. Sustainability is an increasingly significant factor for sellers as well. About 16% of U.S. sellers cited sustainability as an important aspect of buying and selling on eBay in 2020, a figure which rose to 19% last year.

The methodology report is the latest data provided to consumers along with the impact report, which outlines eBay’s goals regarding sustainability. The first report detailed company goals from 2016 to 2020. The latest statement outlines and broadens eBay’s impact targets to include environmental goals, which the company hopes to fulfill by 2025. 

The disclosures place eBay among top-rated firms relative to other internet and direct marketing retail firms, including competitors such as Amazon, Etsy, and Rakuten, according to Kosmas Papadopoulos, head of Americas sustainability advisory services for ISS Corporate Solutions, a Maryland-based provider of ESG (environmental, social, and governance) data and analytics that helps companies design and manage their ESG goals. 

“[The company’s] disclosures provide valuable qualitative and quantitative information in alignment with standards and market expectations,” Papadopoulos said. “These types of disclosures include policies, implementation measures and standards, metrics, and targets.” 

The e-tailer decided to disclose publicly how it calculates the economic and environmental benefits of purchasing pre-owned goods this year after working with a third party in 2020 to update its methodology.

“There’s been a lot of effort for companies recently around transparency, and eBay typically is a very transparent company,” Renée Morin, eBay’s chief sustainability officer, told Fortune. “So it was just a really synced moment of setting a new goal, having the methodology expanded and written out in more detail, and wanting to share that.”

As investors’ interest in environmentally and socially conscious companies has increased, so has regulators’ scrutiny of their methods—to ensure companies are not misleading anyone regarding their environmental efforts. Earlier this year, the U.S. Securities and Exchange Commission issued draft rules around corporate climate disclosures. 

Consumers are more responsive to sustainability trends as well. With 80% of Gen Z buyers more likely to purchase pre-owned items, according to eBay data, the company is making a bet that “recommerce” in the circular economy will remain in fashion. 

While eBay’s release of its methodology is in the same spirit of increased disclosure, it won’t be affected by the proposed rules, which focus on Scope 1 and Scope 2 emissions. 

Scope 1 and 2 include emissions from company-owned facilities and from electricity and heating purchased for its buildings. Morin is optimistic about the company’s ability to reach its 2025 goals regarding those emissions.    

“We’ve got a pretty good handle on [Scope 1 and 2 emissions] because we’ve invested so much in renewable energy, which is a big portion of our footprint electricity,” Morin told Fortune. 

The challenge for eBay, and other e-commerce companies, is adequately reducing Scope 3 emissions, which include transportation and distribution. 

“For anybody who’s dealing with the Scope 3 goal—you don’t control it, so you have to work with others,” Morin said. “In this case, it will be our carriers, also policymakers. There’s also certain things that we can do internally to potentially give more information to buyers and sellers so that they can make more informed decisions and meaningful choices.”

On a relative scale, eBay’s ESG corporate rating is one of the top in its industry, Papadopoulos of ISS Corporate Solutions (ICS) said. 

ISS ESG gave eBay an ESG corporate rating of C, which may not seem high, but the score assesses performance on an absolute best-in-class performance, which means to receive an A+ rating, a company would have to achieve all the criteria in ICS’s stringent methodology—a difficult challenge for most firms.

“There are a lot of parameters that perhaps are harder to achieve in this sector, and that type of rating is among the best in the industry,” Papadopoulos said.

In eBay’s category, interactive media and online consumer services, a company can be designated as “prime” even with a C rating; eBay is among those companies that have achieved “prime” status, as its level of performance and transparency is among the best in its industry, Papadopoulos noted. 

Among eBay’s environment-related strengths, Papadopoulos highlighted the company’s robust climate change strategy, including greenhouse gas emissions inventory, reduction targets, and risk mitigation, as well as the company’s energy efficiency and water efficiency programs.

Morningstar’s Sustainalytics, which provides ESG research to institutional investors and companies, gave eBay a low ESG risk rating (a score of 17.1) and a ranking of 115 out of 1000 in the software and services industry, citing the company’s management of risk associated with Scope 1 and 2 emissions. Other notable companies in this group include Twitter and Expedia, both with slightly higher ESG risks. Sustainalytics’ impact assessment noted that eBay’s Scope 1 and 2 emissions are marginally higher than the IT industry average, but the company uses significantly less water than the rest of its peers. 

Sustainalytics gave the e-commerce giant Amazon a high ESG risk score of 30.2. The difference between the two companies is partly due to the difference in their business models. Amazon, one of the largest retailers worldwide, operates like a traditional retail store, whereas eBay relies more heavily on digital-only services.

On the other hand, Etsy and Rakuten occupy the same industry subgroup as eBay. Both of these companies also have a slightly higher ESG risk score than eBay, a 22.3 for each. That score is not related to their environmental footprint, but reflects weak disclosure of governance around data privacy for Etsy, and weak management of product governance risk for Rakuten.

Its impact report outlined some of eBay’s challenges in reaching its environmental goals. Like other tech companies, its largest environmental impact comes from energy use in its offices and data centers. In 2021, electricity use increased in its data centers as the marketplace business grew, the report said.  

The company was founded in 1995 as an e-tailer focused on connecting sellers to buyers. While the concept of a circular economy has been around for more than 20 years, it wasn’t necessarily used in communication with consumers, Morin said, as eBay doesn’t sell new products directly to customers or have brick-and-mortar stores.

In 2020, eBay exceeded its initial circular commerce goal, avoiding a total of 3.1 million metric tons of carbon emissions and contributing $3.8 billion in positive economic impact from 2016 to 2020. 

The impact report went through an evolution since Morin came on board in 2018, and the company redid the materiality assessment—engaging both internal and external stakeholders to determine the economic, environmental, and social issues most crucial to its business.

“We thought about how we wanted to talk about our themes: economic opportunities, sustainable commerce, culture and workforce, and a trusted marketplace,” Morin explained. “These are all key pillars to how we discuss a wide range of individual material issues under each of those four topics. I think it’ll evolve again. I think it’s important to keep reevaluating what the company is doing in terms of business and then where we need to focus in terms of sustainability as well.”

Correction, June 10, 2022: A previous version of this article misstated the name of the investment arm of Institutional Shareholder Services that provides ESG rankings.

This story is part of The Path to Zero, a special series exploring how business can lead the fight against climate change.