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Professor Thomas P. Lyon. Erb Institute Overview. Named for Fred (BBA ’47) and Barbara Erb who have committed $20 million to the Institute to date.
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Erb Institute Overview • Named for Fred (BBA ’47) and Barbara Erb who have committed $20 million to the Institute to date. • Established in 1994 as a joint MBA/MS program between the Ross School of Business and the School of Natural Resources & Environment. Class of 2011 is our 17th! • Research Programs • Erb Conferences • Erb Colloquium • Erb Post-Doctoral Scholars • Erb Doctoral Fellowships • Erb Doctoral Student Small Grants • Erb Faculty Fellowships Fred and Barbara Erb Erb MBA/MS Student Enrollment
Corporate Green Claims • Green advertising has doubled in recent years. • In addition, companies increasingly make specific “green claims” about the firm or its products • Terrachoice Environmental Marketing (which sponsors the Ecologo label), studied products in Big Box retailers, and found 2,219 products making 4,996 green claims. • This number was up 79% from previous year • 23.4% of the products have ecolabels
Greenwash • TerraChoice found that in 2008, 99% of the green claims were false or misleading. • Fortunately, matters improved in 2009. • Only 98% were misleading!
“The Six Sins of Greenwashing” http://www.terrachoice.com/files/6_sins.pdf
Much Current Activity on Ecolabeling • Ecolabels are seen as a way to provide more objective information than corporate self-claims • However, the proliferation of ecolabels worries some observers, who fear consumers will become confused and overwhelmed • Federal Trade Commission is revising its Green Guidelines. DEFRA in UK recently issued its revised Draft Guidance on Green Claims. • Multi-stakeholder groups have formed • The Sustainability Consortium (TSC) • Packard Foundation, Walton Foundation, MARS • Keystone Center Green Products Roundtable (GPR)
Conference organized by the Erb Institute June 17-19, 2010 • Mix of academics, industry, gov’t., NGOs • Representatives of TSC, Packard, GPR • Goal: To assess what we know and what we don’t know about the impact (current and potential) of certification and labeling.
Years Ecolabels Were Launched Source: Global Ecolabel Monitor, 2010.
Types of Organization Sponsoring Ecolabels Source: Global Ecolabel Monitor, 2010.
Key Points • Proliferation and competition among ecolabels has both good and bad consequences. • There is little hard evidence that ecolabels improve environmental and social performance. • Small changes in label design can have big effects on program impact. • The B2B market, not consumers, is driving demand for detailed information about the social and environmental attributes of products. • Limited transparency undermines credibility of many ecolabels.
Is Label Competition Good or Bad? • Label competition can be good when it helps meet the needs of different market segments or drives labels to enhance their credibility. • When for-profit labels enter to compete with NGO labels, environmental results can worsen. • Lax for-profit labels draw off demand from stringent NGO labels. • Especially problematic when most firms have similar costs of greening. • When consumers are uncertain of the meaning of particular labels, label competition performs poorly. • Weak labels may come to dominate the market • Good firms may decide not to get labeled
Little Hard Evidence on Ecolabel Impacts • Blackman and Rivera (2010) find just 37 relevant studies of ecolabel impact in agriculture, tourism and fish and forest products. • Only 14 of these use a reasonable counterfactual from which to measure impact. • 11 of the 14 examine Fair Trade and Organic certification, which means the impacts of other ecolabels are especially under-studied. • Of these 14, only 6 find evidence that the ecolabel had positive impacts. • Caveat: these studies did not test whether certified producers increased their market shares.
Label Design • Exactly how labels are structured can have big impacts on their effectiveness. • Over time, diffusion of best practices means that more and more products meet ecolabel standards. To encourage further innovation, labels much be upgraded • Thus, labels should be designed to be compatible with dynamic upgrading.
Dynamic Improvement • In 2003, A+ and A++ were added. • In 2009, European Parliament approved addition of A+++ too.
EPA Vehicle Label Revisions---What Does Each Option Communicate?
Demand Drivers • Consumer surveys typically find a large share of people claim a willingness to pay (WTP) for sustainable products. • Evidence in practice is scarce. • Typical finding is about 3% of customers will pay a premium. • Details influence WTP • Private benefits vs. public benefits • Positioning of sales display • Whether there is a sales representative present • Whether other consumers observe your choice • However, retailers and institutional buyers show a real preference for green products • Walmart’s drive for sustainability metrics for its suppliers
Information Processing • Consumers have limited capacity to process label information • Little evidence that nutrition labels have changed behavior • Large commercial customers can process more complex information. • For example, architects responded more positively to ads for home insulation if they included detailed life-cycle data
Limited Transparency • Big Room/WRI found that • "over half of the ecolabels surveyed, including some prominent ecolabels, were unreachable, difficult to reach, or uncooperative when asked about core metrics." • 13% of respondents do not make public their criteria for awarding the label!
Burning Questions • How can researchers account for ecolabel impacts beyond changes in participant behavior? • How does ecolabel design affect producer and consumer behaviors? • Do ecolabels complement, substitute for or undermine government regulation? • Why do producers participate in ecolabel programs and what are the relative strengths of their motivations? • What – if anything -- should be done about ecolabel proliferation? • Do single-issue labels cause "burden shifting"? • How can ecolabels best encourage innovation?
Ecolabels and Public Policy • If label competition reduces environmental gains, government may have a role in regulating entry. • If label confusion is present, government may have a role in rating the labels. • Voluntary labels may empower government policy in such areas as purchasing, imports (e.g. Lacey Act), and minimum quality standards.
Summary • Large retailers and institutional buyers are key demand drivers, and have the capacity to process and act upon more detailed sustainability information than consumers. • There is no assurance that competition between ecolabels will produce socially optimal results. • In some situations government involvement may be warranted • Empirical evidence about the impact of ecolabels on the environmental and social performance of participants is limited. Need more work on: • What is the direct impact of ecolabels in particular industries? Why does their impact vary? • What is the indirect impact of ecolabels? • How do specific elements of an ecolabel affect its impact? • More attention is needed to when labels replace the need for government regulation, and when they need to work together.
