• Erste Asset Management emphasises the positive development in the logistics sector in terms of working conditions and environmental responsibility
• Deutsche Post is re-admitted to the sustainable investment universe after successful engagement process
• Willingness to establish a dialogue among listed e-commerce retailers leaves a lot to be desired

Logistics form the backbone of our economy. A globalised world including free world trade would not be conceivable without it. Speed plays a central role in the value chain, and the rising demand for speedy processes leads to problems of sustainability that affect both working conditions and the environment. The non-localised character of the sector also causes an international market price, which does not take into account national minimum standards in the area of working conditions, environmental impact, or technology. This situation has led the Responsible Investment Team of the Austrian Erste Asset Management (Erste AM) to have a closer look at the handling of environmental, social, and governance aspects by the sector in collaboration with its research partners.

Logistics sector on a good path

Erste AM regards the logistics sector as well on the way when it comes to taking environmental responsibility. “Almost all logistics provider report on their efforts in the environmental arena; Fedex even does so by illustrating their financial effect on the company,” as Dominik Benedikt, Senior ESG Analyst with Erste AM explains. One of the outstanding positive examples is Deutsche Post DHL Group, which introduced its own electric car, the StreetScooter, in 2016. In 2018 the company wants to double its production capacities to 20,000 electric vehicles. According to Jörg Salomon, Vice President of the business unit E-Mobility of Deutsche Post DHL Group, a total of 3,500 of these emission-free vehicles are already in use in-house. As was made clear during a conversation with Erste AM, the total cost of ownership is comparable to that of conventional cars.

Working conditions as biggest problem of sustainability

According to Benedikt, the biggest problem of sustainability in the logistics sector are the working conditions, where the wages are often bad and the job itself is hard. “Since up to 80% of all parcel deliverers are not employed by the postal company itself but by sub-contractors, we as sustainable investors expect the contractors to hold their suppliers accountable,” says Benedikt.

However, only few companies fulfil these expectations.

Österreichische Post AG is a positive exception to this lamentable rule: it is among the few companies in the sector to largely abstain from outsourcing delivery, and instead relies on in-house staff. Deutsche Post, too, has set an example with its own staff: “While the company has been involved in labour law infringements and conflicts with unions in Latin America, these issues have been sorted out and agreements have been signed with the respective unions in the meantime, not the least as a result of the sustained engagement by a coalition of German-speaking investors,” as Benedikt points out. Due to this success, Erste AM has recently re-admitted the company into its sustainable investment universe.

Lacking willingness to enter dialogue displayed by listed e-commerce retailers criticised

On the other hand, the willingness to enter into a dialogue displayed by the listed e-commerce retailers, which Erste AM had also scrutinised as part of the analysis of the logistics sector, has been a sobering one. “The union ver.di and Amazon have been locked into an argument for years on whether the warehouse of an e-commerce retailer is similar to a brick and mortar retailer or to the distribution centre of a logistics company,” says Benedikt. “But neither Amazon nor Zalando were interested in having a dialogue. Amazon has also rejected numerous motions by shareholders in favour of a more transparent way of handling sustainability criteria in the past. This is also one of the reasons why the company has remained excluded from our sustainable investment universe for a while now.” Only the unlisted German Otto Group has recently entered into a dialogue with Erste AM and its research partners. According to Benedikt, the company does not only have a transparent sustainability reporting in place, but it also promotes social and environmental standards and a high degree of transparency about the factory structures that manufacture its in-house labels in the management of its supply chain. “Hermes, the logistics company of Otto Group, also subjects its German sub-contractors to annual audits of the working standards of its deliverers as one of the first companies in its sector,” says Benedikt. “As we understand from our talks with the company, contracts with sub-contractors who infringe with the standards repeatedly are terminated.”

Please also visit our ESG Letter that focuses on logistics here: http://www.esgletter.com/