4
Standard Development and Implementation

Within any certification program, much effort is devoted to developing and then agreeing upon the standards. These standards become the rules of the game, and they are important because certification is a voluntary process—entities determine that it is in their best interest to participate, to access a market, secure long-term contracts, or exercise a competitive advantage. However, standard setting is not routinely a transparent or inclusive process. As such, some programs are criticized for being exclusive or discriminatory—at the same time, more flexible programs are criticized as being “watered down” or so permissive that they lose credibility. Some of the key issues workshop participants identified when considering standard development are stakeholder engagement, flexibility and credibility of the standards, implementation obstacles, and compliance costs. Other issues, such as third-party audits, were not discussed in detail but were acknowledged as being important parts of a credible process.

STAKEHOLDER ENGAGEMENT

The way that many certification programs have developed is analogous to creating a new game, albeit based on and adapted from existing rules. Imagine a group deliberating for many hours about a game called “Save the World,” and then inviting the entire neighborhood to play. They would like everyone to join in, but there are a few complications. First, several of the others in the neighborhood are frustrated that they were not initially invited to help decide on the rules. So they go off to invent their own game. Second, the game requires equipment that only some people have—the rest



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4 Standard Development and Implementation Within any certification program, much effort is devoted to developing and then agreeing upon the standards. These standards become the rules of the game, and they are important because certification is a voluntary process—entities determine that it is in their best interest to participate, to access a market, secure long-term contracts, or exercise a competitive advantage. However, standard setting is not routinely a transparent or inclusive process. As such, some programs are criticized for being exclusive or discriminatory—at the same time, more flexible programs are criticized as being “watered down” or so permissive that they lose credibility. Some of the key issues workshop participants identified when considering standard development are stakeholder engagement, flexibility and credibility of the standards, implementation obstacles, and compliance costs. Other issues, such as third-party audits, were not discussed in detail but were acknowl- edged as being important parts of a credible process. STAKEHOLDER ENGAGEMENT The way that many certification programs have developed is analogous to creating a new game, albeit based on and adapted from existing rules. Imagine a group deliberating for many hours about a game called “Save the World,” and then inviting the entire neighborhood to play. They would like everyone to join in, but there are a few complications. First, several of the others in the neighborhood are frustrated that they were not initially invited to help decide on the rules. So they go off to invent their own game. Second, the game requires equipment that only some people have—the rest 

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8 certIfIaBlY sustaInaBle? are forced to figure out how they might afford to play. Third, the rules are rather complex, and so for those who have played a similar game before it is not a problem, but many others are left to try and learn as they go, even though the rulebook is thin and not always accessible. Inevitably, there is cheating which undermines the game. Finally, and perhaps most frustratingly, the originating group intends to start playing this game in eeryone’s yard throughout the neighborhood. The game will not realize its full potential if confined to a single backyard, but they understandably meet resistance, confusion, and frustration as they have to go from backyard to backyard trying to teach the game. Some neighbors are asked to stop play- ing older games, others are eventually crowded out of their own yards as the new game takes hold. This illustrates, in a nutshell, the key criticisms of existing certifica- tion programs, including the claim that standards tend to be set without substantial input from diverse stakeholders. Conversely, involving a broad range of stakeholders often means pitting contentious viewpoints against one another—for voluntary mechanisms this can mean resorting to less- stringent consensus-based goals. Many participants emphasized that certi- fication networks are driven by politics and power—scientific knowledge has a place, but it is not the key driver. Instead, standard setting is often a political process that at best is informed by science.1 Additionally, certifica- tion programs do not always transfer well across different climatic zones or ecosystems. Singapore established its own green building program, Green Mark, in part because it considered the LEED standard inappropriate for tropical climates. Certification has traditionally been viewed as an exclusionary pro- cess. Programs may be considered “global” but must be implemented and adopted locally. This is problematic for several reasons, chief among them is that such meta-standards do not adequately reflect local needs or goals. One participant remarked that, especially for the developing world, a cer- tification program must demonstrate that environmental concerns are not trumping social concerns. Even certification programs that focus on social concerns, such as reducing child labor, need to answer to the criticism that the approach is not simply being imposed from afar, or that local entities are incapable of sustainably managing their own resources and production practices. Most participants agreed that a multistakeholder, collaborative approach to third-party certification may be the most effective way to identify sus- 1 The term “science” was not explicitly defined during the workshop, and so participants likely had different perceptions of what the term encompassed. For the purposes of this report, science, unless otherwise noted, refers to a systematic knowledge base that includes the natural, social, and applied sciences.

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 standard deVeloPment and ImPlementatIon tainable outcomes for certification programs. Practically, this might mean an increasing reliance on public-private partnerships. To that end, there is likely much to be gained from a better understanding of partnerships. One of the key lessons from existing multistakeholder partnerships is that engaging the right stakeholders at the outset is critical to long-term success (NRC, 2009). Failing to do so has resulted in programs that mischaracterize the problem to be addressed, are vulnerable to competing efforts, and have difficulty scaling up. There are existing forums to hold these sorts of multi- stakeholder discussions. The American National Standards Institute (ANSI) hosts multistakeholder policy and position-related workshops and panels (e.g., a 2009 workshop toward Product standards for sustainability) that are not intended to result in specific standards, but are held to facilitate dialogs on issues of national importance and to potentially develop related recommendations. FLExIBILITy AND CREDIBILITy There appears to be a disconnect between, on the one hand, the desire for credible standards that can be grounded in scientific knowledge, and on the other hand, flexibility within the standards system, to allow for some local interpretation, regional differentiation, or learning curves. One par- ticipant pointed out that having consensus-based standards (e.g., where all stakeholders must agree on the terms) may sound appealing, and may be viewed as politically legitimate, but that science is based on evidence, not on consensus. It is both a body of knowledge, and a process, and in that regard it must also be recognized as being dynamic. Several participants suggested that certification systems could benefit from following scientific principles, such as having empirically verifiable results, and a peer-review process. Most systems allow for slight variations based on regional conditions (e.g., the FSC differentiates between the Pacific northwest and the north- eastern United States) but the more dramatic variation may be between pre- scriptive standards and systems-based standards. In the latter, the emphasis is on fostering continual improvement within a company’s or producer’s management system, but the baselines and goals are typically defined by the user. While there was disagreement on the proper role for science in setting voluntary standards, it seems that taking a scientific approach, i.e., adopt- ing a rigorous (peer-reviewed) process informed by science and agreed-upon guide posts, could be the most effective way to encourage and verify mean- ingful progress. As one participant put it, “we need a common yardstick, not necessarily just a height requirement.” Several participants remarked that science can be useful in setting the “gold” standard, or an aspirational standard to certify top performers. However, participants also pointed out a number of trade-offs between a

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0 certIfIaBlY sustaInaBle? program designed to cherry pick from the top, and a program designed to improve performance at the bottom. Stringent, prescriptive standards can be a useful tool to benchmark the most sustainable products or practices. But within a certification system, there is no mechanism to eliminate the worst performers. As a result, existing standard systems appear to be contributing to a market differentiation, but not exactly a transformation. Market forces alone do not seem to be capable of compelling noncompliant producers to change practices or leave the marketplace. As one participant put it, the strengths of certification as a tool are also its weaknesses. A reliance on science-based standards might make the system mobile (e.g., to govern fisheries in New Zealand or Namibia) but inflexible (the principles are established without much local input). Schemes are generally product based so that they can influence markets, but from an ecological standpoint, this is not desirable—several participants noted the body of literature on natural resource governance and community- based management. Another participant pointed out that, in the textiles and carpet industry, it has been crucial that science underpins many of the environmental standards developed, so that compliance can be verified and so that firms’ investments in upgrading their practices do indeed contribute to environmental improvements. Others suggested that discussions of stan- dards ought to begin with “what does the evidence tell us about . . .” but this is rarely the case since these processes are political. Still others noted that standards are not static, and should evolve as the science improves, and as the notion of “innovative” changes over time. Conversely, some standards systems may become lax over time to incorporate more of the market, but this causes problems from a consumer confidence perspective. Credibility means different things to different stakeholders, with regards to certification standards and programs. Some of the general themes include: • Is the label meaningful? What value differentiation is a business attempting to communicate with a particular label? • Is the label consistent? Does it mean different things if applied to different products, and if so, are there appropriate disclaimers? • Is the label verified? There may be disagreements on the role of a “third party” (i.e., independently creating the standard vs. certifying and auditing a multistakeholder standard) but in general, credibility will depend on having a neutral body verify the process before awarding a certification. A few participants remarked that the most credible schemes and labels are the ones which are developed and certified by independent bodies. As some participants noted, if the private sector is the primary stakeholder

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 standard deVeloPment and ImPlementatIon group, develops its own standards, or serves as the primary verification body, then a standards system will have a credibility problem. However, many participants countered that broad stakeholder engagement is crucial to the success of certification programs. Though this invites inquiry into potential conflicts of interest, many schemes have developed structures to guard against this, such as the FSC’s three chamber governance which separates economic, environmental, and social interests with the intention that no single interest dominates the process. There is also an important question of who determines what is “cred- ible.” Standards are thought to be grounded in science, but there are few provisions for local people to conduct monitoring and evaluation. MSC may be the most credible existing system for certifying fisheries, but it does not address social concerns (see Box 3), and it is difficult to achieve sus- tainable management systems if these concerns are not taken into account. Within the United States, ANSI plays a leading role in facilitating the development of voluntary consensus standards and conformity assessments. ANSI creates a venue where all stakeholders may participate when discuss- ing standard development. It routinely audits programs to strengthen the integrity of the programs and their associated deliverables. It is also asked to conduct peer evaluations, such as its review of USDA’s compliance with international requirements during implementation of the National Organic Program. ANSI is a process organization, not a technical organization—it accredits certifiers of products and systems—it does not get involved in evaluating the technical content of or establishing leadership standards. The National Institute of Standards and Technology (NIST) focuses more on working with industry on innovation and raising the bar for performance. Instead, ANSI’s focus has been on uniformity within the United States, not a differentiation, suggesting that it can play an important role in supporting a uniform sustainability standard, but not a differentiated standard. To that end, ANSI has facilitated national conversations on product sustainability standards and legal issues with ecolabeling. Participants did point out that certified standard setters might be using their ANSI accreditation (awarded on a case by case basis) to enhance their credibility, and that this might deserve more scrutiny. In other cases, organizations may characterize their program as being “accredited” even though the accreditor is not a globally recognized or independent body. It seems imperative that green noise be reduced, to sharpen the top and eliminate nonsense background noise which confuses consumers and under- mines honest efforts. Most participants suggested a need for fewer claims, and more standards upon which claims can be credibly based. In many respects, the current situation resembles the state of health and nutrition claims for foods in the 1980s, where so-called healthwashing led to food labeling and regulation. Claims in this segment of the industry are closely

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 certIfIaBlY sustaInaBle? BOX 3 Marine Stewardship Council and Sustainable Fisheries History and Mission The Marine Stewardship Council (MSC) was created in 1997 as a result of two global organizations, the World Wildlife Fund and Unilever, wanting to tackle the issue of seafood sustainability. Together they founded MSC to: • Recognize and reward good fishery management • Work with fishery and commercial partners to build a market for sustain­ able seafood • Provide an easy way for buyers and consumers to identify sustainably caught seafood MSC’s mission is to use the ecolabel and fishery certification program to contribute to the health of the world’s oceans by recognizing and rewarding sustainable fishing practices, influencing the choices people make when buying seafood, and working with partners to transform the seafood market to a sustain­ able basis. To this end, it is collaborating with fishermen, retailers, processors, consumers, and others to popularize its program. Additionally, MSC’s certification program adheres to the following environ­ mental principles for sustainable fishing: • A fishery must be conducted in a manner that does not lead to overfish­ ing or depletion of the exploited populations and, for those populations that are depleted, the fishery must be conducted in a manner that demonstrably leads to their recovery. • Fishing operations should allow for the maintenance of the structure, pro­ ductivity, function, and diversity of the ecosystem (including habitat and associated dependent and ecologically related species) on which the fishery depends. • The fishery is subject to an effective management system that respects local, national, and international laws and standards and incorporates institu­ tional and operational frameworks that require use of the resource to be respon­ sible and sustainable. Stakeholders MSC’s stakeholders include fisheries, retailers, brand manufactures, food­ service providers, restaurants, other businesses, and the consumer. Currently, there are 30 certified fisheries in the MSC program. During the 2007/2008 year, approximately 59 retailers, 40 food service providers, and 550 business­to­ b usiness providers took part in the MSC program. Additionally, nearly 100 manu­ facturers’ brands were part of the program as well. Unfortunately, no consumer involvement numbers could be found. Other nonprofit organizations’ opinion of MSC is varied. For example, the Marine Conservation Society has stated that they agree with most of MSC’s practices but have concerns with how some of the fisheries have been certified. Greenpeace remarked that MSC has done a good job consulting industry but has to work on its involvement with the environmental sector. Competitors and Parallel Certification Efforts MSC appears to have no fisheries certification competitors. There is some competition with consumer education regarding seafood watch lists, which

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 standard deVeloPment and ImPlementatIon a dvise consumers on what is sustainably best, acceptable, and worst to eat. The Monterey Bay Aquarium, the Blue Ocean Institute, the Marine Conserva­ tion Society, and the Environmental Defense Fund (and possibly others) publish online and “pocket” seafood and sushi watch lists; while MSC’s guides are less consumer­friendly and only online. Additionally, some organizations coordinate with MSC for various reasons. One example is the World Wildlife Fund, which provides sustainable seafood and MSC information on its web site to share outreach and education efforts. Market Share and Impact The number of fisheries taking part in the MSC certification program has increased 4 times over since 2004, and each year, more fisheries express interest in getting certified. (Currently, 72 fisheries are in “full assessment,” and 20­30 others are in “pre­assessment.”) At the end of 2007, MSC­certified fi sheries were catching more than 4 million tons of seafood or approximately 7 percent of the world’s edible marine fish catch. Globally, MSC­certified product availability is increasing. For example, the number of products (currently 217) available in the United States grew 101 percent from 2006/2007 to 2007/2008. The North American supply chain (including the United States and Canada) is extensive, with more than 150 companies meeting the MSC Chain of Custody for seafood traceability, which ensures the MSC label is only displayed on seafood from a MSC­certified sustainable fishery that meets the MSC environmental principles for sustainable fishing. In 2007/2008, the global retail value of MSC­labeled seafood was close to US$1 billion. This marks an increase on the previous year’s figure of nearly 100 percent. MSC feels that their certification program brings a range of potential benefits to stakeholders in the supply chain, including the following examples: • Fisheries—Secure contracts, access to new markets, potential price pre­ miums, good reputation, improved relationships, economic stability, and confi­ dence in the future. • Retail and brands—Customer loyalty, enhanced brand, improved cor­ porate reputation, promotional opportunities, staff training, and new product development. • Food service and restaurants—Assurance of provenance, communica­ tions opportunity, customer and staff loyalty, enhanced reputation, and evidence of sustainable sourcing. • Supply chain—Unique selling point, preferred supplier status, improved traceability, new contracts, and stable supplies. • Consumer—Knowledge that purchase is sustainable, advocacy for a cause, and opportunity to influence businesses’ purchasing. Overall, consumer familiarity with MSC and MSC­certified seafood seems limited. MSC has done a good job consulting industry and working with fisheries, but consumer knowledge and participation are generally minimal. It seems that this is a key area of growth necessary for MSC to be truly successful. However, MSC has involved large, well­known retailers, such as Costco, Kroger, Safeway, Sam’s Club, Target, Wal­Mart, and Whole Foods, and this is likely to increase consumer awareness in the future.

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 certIfIaBlY sustaInaBle? regulated now, though several participants pointed out that the increase of credible information did not necessarily lead to healthier behavior (or people) overall. The U.S. Federal Trade Commission (FTC) now examines certain claims, such as “renewable” and “sustainable.” Other leading claims that are cur- rently adding to consumer confusion include “natural,” “carbon-neutral,” “nontoxic,” and “environmentally safe.” The FTC encourages claims that are verifiable and enforceable, and to that end, it publishes “Green Guides,” FTC-approved guidelines which offer a safe harbor for companies to reduce their liability. When a company is found to be noncompliant, it may be subject to fines or injunctive relief (e.g., taking its products off the market). Noncompliance claims are mostly brought by industry competitors, or by states on behalf of their citizens. One participant noted that the number of registered complaints against environmental labels is low, but it is unclear why this is the case. IMPLEMENTATION CHALLENGES Certification programs, like many innovations, have run into the most challenges during the implementation phase. As several participants noted, existing schemes either underestimate or do not understand the complexity of the issue before they jump into it. As a result, resources are devoted to creating the standards, but there is insufficient attention to the acceptance, adoption, and implementation of these standards. It is important to recog- nize that standard systems are what should be credible. Implementation will be slow, and this may be a difficult proposition for stakeholders eager to demonstrate short-term impacts. As a participant noted, one must strike a balance between a program with a 5 year impact, and a 30 year research project. Another participant suggested that programs consider the idea of a one year trial period to implement a new standard, but acknowledged that some groups do not want to give the impression that they cannot get a standard going without a trial phase. Participants remarked that many programs lack sufficient business skills and schemes have poor business models. Certification programs have been developed as market-based approaches, but existing programs tend to be heavily subsidized (typically by NGOs and foundations). Some participants suggested that there has been insufficient attention paid to making these programs cost-effective over the longer term. Subsidies are to be expected, particularly in the early stages as a market develops, but many participants (some of whom represent organizations and agencies supporting existing programs) indicated that continual financial support is not guaranteed. Especially as these programs scale up to reach new constituencies, it is not a given that current supporters can maintain or increase their financial sup-

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 standard deVeloPment and ImPlementatIon port. This could signal a need for more government involvement, but that in turn will raise the question: Are certification programs the most efficient use of government resources? Additionally, highly technical standards systems do not easily lend them- selves to many developing country scenarios. As a feasibility study of eco- labeling fisheries in Senegal reveals, most constraints relate to low levels of organization, insufficient regulatory and enforcement procedures, limited availability of reliable data, and insufficient monitoring capacity (Blueyou and ENDA, 2007). In other words, in spite of potential willingness to partic- ipate, and the desire to access the market for certified products, many devel- oping country producers are constrained by systemic challenges. Finally, as the next section describes in detail, complying with a new standards regime entails costs that can be burdensome to individual producers. ASSESSING COMPLIANCE COSTS The costs of complying with a certification program are often cited as a key barrier to widespread implementation. Since these programs are voluntary, firms understandably must evaluate support for certification as being in their self-interest, and not putting them at an economic disadvan- tage. As a participant pointed out, certification’s impact is contingent on both stringency and rate of adoption, and there is a trade-off between the two. Thus, the expected value calculus is fundamental. In addition to costs associated with a particular scheme, firms are devoting resources to sift- ing through competing standards, and producers must often comply with multiple schemes, driving up their own transaction and compliance costs. Therefore, an important first step in assessing compliance costs entails an evaluation of the assorted costs and economic benefits of certification programs. Currently, most certified products do not command a price premium, nor has there been a demonstrated willingness to pay such a premium for most products. There are notable exceptions for organic produce and fair trade products, and an emerging market for green building practices. This latter market helps illustrate a participant’s remark that compliance costs must be measured against the potential benefits—the green building sector appears to be enjoying growth thanks to its ability to communicate (and quantify) savings to developers and occupants. However, such savings are not passed on to consumers of most other types of products. Instead, they may be asked to pay a premium for a product so that the producer, located elsewhere, can comply with a higher set of social and environmental stan- dards. The benefits of this can be substantial, but are diffuse. Organic pro- duce commands a higher price in the marketplace to help offset producers’ higher costs associated with avoiding chemical fertilizers and pesticides, and

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 certIfIaBlY sustaInaBle? though such methods benefit the surrounding ecosystem, research indicates that most consumers prefer organic products due to the perceived health benefits (NMI, 2008). Price premium is not the only incentive for producers to change their practices, as evidenced by the fact that most certified products do not yet command a higher price. When evaluating the range of costs and benefits of a certification program, one could also consider increased productivity, market access, and improved efficiency. Some of these benefits will be longer- term prospects and thus require up front investment that will be recouped over time. Other benefits, notably market access, are viewed as a critical lever, particularly if a standard is backed by consumer demand. As the experience of the ISO 14000 standards indicates, improving performance and certifying this improvement may become a typical cost of doing busi- ness. Before this occurs, however, large-scale purchasers are still able to exert some influence here by demanding that the products they source be certified. In this respect, they are able to offer large, stable, and long- term contracts to producers who can commit to meeting their certification requirements. Even in the absence of a price premium, this sort of market access can help producers justify up front costs of becoming certified. It is also useful to identify the specific parts of the value chain where costs are incurred, where savings or value accrue, and which actors have a stake. Each part of a certification system tends to be funded separately: standard development, accreditation of certifiers, on-the-ground verification of practices, and any changes in practices in order to become compliant. This may be complicating efforts to establish a more effective standards system. One participant pointed out, for example, that accrediting certi- fiers is one of the most difficult, but least sexy, tasks, and thus is sometimes overlooked in favor of more visible elements of the certification scheme. The costs of compliance tend to be borne by producers, excluding some and reducing the scale of a scheme’s impact (Ellis and Keane, 2008). Even if these costs may be justified by the benefits described above, some producers may simply not have access to the capital, technology, or information to comply. Included in these transaction costs are mundane but substantial costs associated with data gathering, document management, and report preparation. Loan programs were suggested as a way to bring compliance costs down, and the Rainforest Alliance is now working with the Inter- national Finance Corporation on programs to help offset one-time costs. Some participants noted that efforts to simply subsidize smallholders have not been sustainable. Schemes may pass some costs on to retailers, like Fair Trade, which charges for use of its logo, though these fees are not necessarily reinvested into upgrading producers. Financing seems to be needed on two levels: to the accreditation/ certification process, and to producers to help them upgrade their practices

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 standard deVeloPment and ImPlementatIon and come into compliance. The original hope for certification schemes was that market forces would favor those producers willing to improve their performance, but experience has shown that the existing market is not sufficient to drive this transformation. If financing is concentrated on developing standards but not to helping producers meet the standards, cer- tification schemes may have a real difficulty moving beyond their current niche applications.

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