If the environmental cost is dominated by shipping I could see destruction as more environmentally friendly. This is likely the for many small cheap items.
Their return policy is designed to make you buy things without thinking too hard about it or worrying about the quality - the "ah who cares, if it sucks I can just return it" mentality. That strategy means that you buy things you don't need, causing a TON of environmental externalities. So, yeah, they'd have more fraud - maybe their return policy isn't compatible with the environment. Maybe their profit margins are not compatible with the environment. Maybe... just maybe... their entire business model isn't compatible.
My thought was, if I knew it was being thrown out, I would be more careful about what I buy. I suspect a lot of people would feel the same way. It's like a mini trolley-problem, but for the guilt of throwing something perfectly good in the trash.
