Surveying the Landscape: Certification Schemes for Sustainable Products and Services
The National Academies
The field of certification standards and ecolabels has grown substantially since the early 1990s and now encompasses numerous complex issues, from labor and production processes to lifecycle and end-use considerations. However, like the diverse products and services which exist in today’s marketplace, these new standards and labels present consumers and buyers with a surfeit of options which can lead to confusion. Additionally, existing certification schemes are not uniform, nor are they immune to competing and sometimes false claims which, at best, contribute to “green noise” and consumer fatigue, and at worst, undermine the efforts which do contribute to environmental and social improvements. Just as there is no precise technical definition of sustainability, there is no precise set of metrics or immutable standards on which certification schemes might be based. Instead, as this field matures and advances, there is increasing evidence of what works and why, and where there is room for improvement. This paper attempts to analyze the vast field of certification as an approach to sustainability, and in particular it considers the dimensions of sustainability being certified; how certification standards are developed and implemented; impacts to producer communities, businesses, consumers, and the environment, and; future areas for potential growth.
DIMENSIONS AND SECTORS BEING CERTIFIED
Ecolabels trace their history to Germany’s “Blue Angel” label, introduced in 1978. As the term ecolabel implies, it was developed to communicate that a product or service has “environmentally friendly” characteristics.
While the definition of what constitutes environmentally friendly evolves as the science and our understanding evolve, the basic notion behind this effort influenced several subsequent labels which seek to convey information, make environmental performance transparent, and empower consumers.
Several factors explain this growing interest in certification as a tool, including the ineffectiveness of many governmental and intergovernmental processes, the rapid pace of economic globalization, and a general interest in pursuing innovative “smart regulation” to address adverse environmental and social impacts (Auld et al., 2008). Businesses have generally accepted this approach because they tend to be risk averse, although there is limited evidence that activist pressure actually affects market shares. Corporate strategies are changing and increasingly engaging nonbusiness stakeholders, and there is a perceived lack of credibility for industry self-regulation (Vogel, 2008).
Certification of sustainably produced products first emerged, and has witnessed arguably the largest growth, in primary industries such as agriculture, fishing, and forestry. Auld et al. (2008) attribute this to the fact that certification is likely to be effective in sectors dominated by large, vertically integrated firms which are vulnerable to public pressure, and more able to afford additional costs of certification. It may also be a response to highly visible production practices in these sectors—unsustainable practices can lead to resource depletion as well as spillover effects which negatively impact the surrounding ecosystem. Additionally, these natural resources are primary inputs to manufactured items, from food products to furniture, and so secondary industries and those higher up in the value chain often rely on certificates or labels from their upstream suppliers if they intend to promote their own products as ‘organic’ or ‘sustainably sourced.’
As the market for green products has grown, and as regulators continue to seek innovative approaches to pollution prevention, voluntary certification standards have appeared in numerous secondary and service industries. The International Organization for Standardization’s ISO 14000 series for environmental management is easily the best known, and for many industries it has become a de facto requirement for conducting business internationally. It has in some respects become its own brand and brings with it recognition benefits which help justify its costs (Vogel, 2008). However, it is not a brand geared towards household consumers. Industries such as apparel are currently working on developing environmental and social certification schemes which might appeal directly to consumers, but to date they have not enjoyed the brand recognition of those in primary industries.
There has been parallel growth in fair trade certification, which focuses on mitigating the negative impacts which a globalized economy imposes on small-share farmers and other producers in the developing world. More recently, some of these efforts, such as RugMark, have also focused on elim-
inating child labor. While fair trade is generally thought of as encompassing environmental sustainability as one of its tenets, its focus is inarguably on social and trade impacts. Similarly, some of the better known environmental standards, such as the Forest Stewardship Council (FSC), attempt to take a holistic approach to resource management, including the economic and social implications of practices. However, as will be explored later, fair trade and environmental standards have taken divergent approaches and each has had mixed results in building market share.
While there is no doubt that public pressure from activist campaigns, coupled with the threat of regulation, both influenced private regulatory standards in environmental protection and worker rights (Haufler, 2001), this also suggests that their development has been reactive and ad hoc rather than systematic. David Vogel (2008) and others have been critical of the notion that the ‘public’ participates in the development of many of these standards, and contend that western activists and NGOs have been the primary drivers and consumers. The FSC was created after NGOs failed to persuade governments to enact an effective international forestry treaty. Nonetheless, there does seem to be a correlation between existing regulatory requirements and establishment of third-party certification standards. In general, businesses have tended to support certification in areas where government regulations are most prescriptive, and the certification rules represent an incremental improvement over required practices (Auld et al., 2008).
IMPLEMENTING CERTIFICATION SCHEMES
Implementing a certification program has generally required that stakeholders from different sectors cooperate. In this respect, there seems to be much that can be learned from the broader spectrum of multistakeholder or public-private partnerships. Specifically, three issues have been raised through recent analysis of these sorts of partnerships (Vollmer, 2009):
During the initiating phase, more time could be spent identifying and engaging the necessary stakeholders (including national governments)—by rushing through this step and into implementation, programs have often overlooked crucial segments within their value chain, leading to competitive efforts, slow progress, and ultimately weakening the sustainability of the program itself;
Reputational benefits appear to be a key but often overlooked driver for participation in these partnerships. When placed in the context of certifying products, it is likely worth exploring how much additional value,
in terms of reputational benefits, businesses attribute to their participation in or support of certification schemes;
It is critical that more resources be devoted to studying and reporting on the impacts of these efforts; self-reporting has focused on processes and outputs, but without demonstration of more tangible progress towards sustainability, these programs will remain vulnerable.
Stakeholder engagement has indeed been a fundamental challenge for many certification programs. Often times, it appears that local communities are being excluded from substantial participation in setting standards or making certification decisions (Vandergeest, 2007). And while certification efforts have been characterized as “nonstate market-driven” approaches (e.g., Cashore, 2004), this term is not meant to imply no government involvement. The reality is that governments frequently play at least a peripheral role in the implementation and uptake of these standards. Certification institutions often comprise shifting networks of actors, and are driven not only by markets but also by complex intersecting motives (Vandergeest, 2007). In fact, the success of many multistakeholder partnerships relies on government participation, most notably in the developing world (where participation lags), and most importantly in scaling up outcomes (NRC, 2009).
One criticism of certification, despite the interaction of different stakeholder representatives, is that the schemes lack independence and fairness because they are developed in isolation, and can reflect a narrow set of perspectives (Lebel and Lorek, 2008). There are also questions of transparency. Industries are able to play an active role in creating voluntary standards and the methods to certify them, but these standards may also be implicitly endorsed by regulating agencies. This has of course been a major criticism of the multistakeholder approach, where industries are accused of becoming unduly influential in setting the global environmental governance agenda (e.g., Pattberg et al., 2007)
Costs of Certification
The high cost of certification compliance is often cited as a key impediment to its growth in the market. Though there are potentials for price premiums, and in certain instances consumers are willing to pay higher prices (e.g., organic food, fair trade items), there is little evidence that these premiums are sustainable over the long term (UNEP, 2005). Moreover, it appears likely that producers are not the main beneficiary of the investments they need to make in order to become compliant (Ibid). Several schemes impose the costs of certification directly onto the producing entity, and impose complex documentation and monitoring requirements which put
small or less-organized producers at a disadvantage (Vandergeest, 2007). The growth in the organic food market has been aided in part by governments subsidizing part of the cost to farmers who adopt organic farming methods.
For industries, it is important to consider what impact these added costs may have on their research and development (R&D) efforts. If compliance costs are high, in terms of changing production practices to meet a standard, industries must determine how best to invest resources. Managing an R&D portfolio is arguably more art than science, and so it becomes even more complex when voluntary standards are introduced and R&D resources must be divided among regulatory requirements, voluntary standards (there may be several competing standards), and more general innovation. This begs the question of whether or not there is a learning curve for certifying products. In other words, can compliance costs come down on a predictable path, or might costs go up as scale increases beyond a certain level? If so, this could have important implications for both the producers of certified goods and consumers who desire these goods but are unwilling to pay the price premium.
It is also worth noting that costs need not be directly offset by a price premium. Guaranteed long-term contracts and increased market access are two potential benefits of undergoing a certification process. There is anecdotal evidence that large firms are beginning to require that their suppliers undergo certification (e.g., Home Depot purchasing FSC-certified timber). In addition, many certification programs seek to improve efficiencies (reduce energy, inputs, waste streams) and mitigate risks (accidents, social unrest, regulatory action). What is needed is a comprehensive calculation of the costs and benefits of undergoing certification.
Scientific Standards and Flexibility
There is an important and dynamic tension between the desire for rigorous science-based standards, and the reality that for many producers and suppliers, such standards are either deemed too costly or too difficult to achieve without technical assistance. Technical standards have been described as “immutable mobiles,” those which could be developed in a think tank and then applied universally with very little flexibility (Vandergeest, 2007). From a business perspective, however, sound standards and guidelines are often preferable to the current situation, which is a crowded and confusing marketplace. Early adopters of rigorous standards fear being undercut by less rigorous competitors, and collectively the industry ends up diverting resources to marketing competing claims. Moreover, businesses may be hesitant to invest time and resources into changing production or sourcing practices if they do not have a clear signal
that the standards they are pursuing are in fact moving towards becoming an industry standard. This partially explains the relative success that certain standards have enjoyed through negotiating long-term contracts with large retailers. In the absence of government mandates, these large-scale buyers are offering guaranteed markets over specified amounts of time. Overall, there does appear to be a need for efforts to harmonize and define key terms for certification to succeed (Medina, 2005).
A major limitation of environmental standards is that they are framed in technical terms and developed with limited input from producing communities. Setting aside the argument that these communities may have different definitions of what ‘sustainability’ means, it is important to recognize that diverse ecological and social conditions exist within any given sector. This has arguably been the primary driver behind competing schemes—rather than large industries, it is producing communities and even developing country governments which have taken steps to establish standards that better reflect local circumstances. While industry codes are often perceived to be less credible than third-party certification, there are recent efforts in the aquaculture and coffee sectors which seem to have been more successful than third-party approaches in engaging producers. The Aquaculture Certification Council (ACC) was set up by an industry organization—ACC certifies process rather than product, and its provisions for community involvement are among the strongest within aquaculture (Vandergeest, 2007). The Common Code for the Coffee Community (4C) is another industry-driven effort, and one of its ‘breakthroughs’ has been to seek creative ways to get (and keep) producers at the bargaining table (Kuenkel et al., 2009).
Ideally, certification systems are oriented towards continual improvement. As market share increases, but more importantly as science advances, it will be crucial that this bar continues to rise, as it has in other areas, e.g., nutrition labeling. The ISO 14001 process for environmental management is an interesting case in that it does not require particular on-the-ground changes, which is different from many certification schemes which essentially set targets which firms rise to meet. Instead, ISO 14001 is tailored to individual firms and requires that they make a continual improvement from their own specified baseline. In effect, what it does is introduce a culture of better environmental management and stewardship, though critics will point out that this system allows firms to present insignificant changes as a major accomplishment by being labeled ISO 14001 compliant.
The Common Code for the Coffee Community (4C) is another example—its premise is that, in order to elevate the environmental and social performance of the coffee industry, all the actors in the supply
chain must be brought along. To evaluate these actors, 4C uses a “stoplight” method and additive scoring system, with the idea that over time, and with technical assistance from 4C’s capacity building efforts, these individual actors and firms will improve their performance (Kuenkel et al., 2009). The U.S. Green Building Council’s Leadership in Energy and Environmental Design (LEED) rating system for buildings also provides an interesting example. It uses an additive scoring system and offers multiple levels of compliance (platinum, gold, silver), as well as rewards innovations (additional points). It has also recently announced plans to raise certain standards for 2009 as the next evolution in the LEED system.
Competition among certification schemes has led to mixed results. Efforts to achieve legitimacy place pressure on both the FSC and its industry competitors to alter rules, upward and downward (Cashore et al., 2004). In the U.S. organic market, there has been a tension between ‘senior stakeholders’ who have been in the market for several years and advocate higher standards and more stringent regulation, and the recent entrants who have favored a more free market approach (Johnson, 2008). While there is anecdotal evidence that competitors to the FSC, for example, have also contributed improvements in forest management, this does not indicate that this competition will continue to drive improvement. Moreover, it does not appear to be an efficient way to improve performance, given the scarce resources that must be diverted to marketing against competitors.
Despite their growth, certified products continue to make up a small portion (<10 percent) of any market. This contributes to the argument that they are satisfying a niche market for “premium” green products (Esty and Winston, 2006). And while large-scale buyers and retailers have had and will continue to have an important influence on moving these products beyond niche markets, it is less clear that producers are poised to meet that growing demand. The existing markets in many cases may represent the low-hanging fruit—producers already oriented towards meeting the standards, supplying consumers willing to pay a price premium. Expanding this demand will require more attention to consumer behavior and leverage points (e.g., institutional buyers versus households). Meeting this demand will then require more attention to enabling noncompliant producers.
Governments and corporations play an important role in facilitating the market for certified products. In the case of certified wood, they help create markets through their own preferential purchasing, and the South African government has even begun ‘outsourcing’ its forest surveillance operations
to the FSC (Vogel, 2008). Some reviews have suggested that procurement and long-term supply contracts may prove more important than price premiums [which rely on consumers willing to pay the premium] (e.g., UNEP, 2005). Efforts to court other large-scale buyers, particularly retailers, are well documented and have arguably become the preferred approach to growing the market for certain schemes. Thus targeting procurement policies of governments and firms, not just households, will be crucial to the long-term sustainability of these kinds of programs—however, procurement policies and behaviors are not well understood (Lebel and Lorek, 2008).
Consumer behavior is key to the impact that a society has on the environment (Jackson et al, 2004). However, consumer behavior is still not well-understood, particularly as the marketplace grows and products with new attributes, e.g., ‘environmentally-friendly’ are introduced. Lebel and Lorek (2008) point out that issues of convenience, flexibility, and function matter a lot, and this may help explain why campaigns to promote ‘responsible buying’ have been limited in their success. They also note that routines are of great practical importance, because much daily behavior is habitual rather than a cognitive reasoning process. Ecolabels largely appeal to consumers who already have an interest in environmental issues (Rex and Baumann, 2007). This has alternately been referred to as ‘commodified activism’ (Fisher, 2007).
A study of the impacts of dolphin-safe tuna labeling indicated that consumers did in fact respond to the ecolabel and help grow the market for certified dolphin-safe tuna; however, this study also noted a lack of research into the behavioral effectiveness of these sorts of programs (Teisl et al, 2002). A review of Americans’ understanding of genetically modified (GM) food suggested that the public is generally unaware, unfamiliar with the science of GM food, and unsure in their opinions on the subject (Hallman et al, 2004). In-depth studies of consumer practices when making purchase decisions are rare, and experiences with ecolabels as communication instruments suggest that many can be better designed, especially by paying more attention to the context in which they are used (Rex and Baumann, 2007).
Conventional marketing techniques may have an impact as well—certification labels could be promotional tools rather than just conveying information. Promotion of green products has relied too strongly on ecolabels in isolation, and could make better use of the full range of marketing tools (Ibid). Fair Trade products have been marketed differently, and in particular campaigns have targeted household consumers (though they have more recently also targeted large-scale buyers). These consumers, in
turn, are often willing to pay a price premium. Both certifying organizations and advocacy groups have supported awareness programs and public outreach campaigns to this effect. However, several reviews of certification and ecolabels have concluded that household consumers are a narrow leverage point for influencing sustainable consumption (e.g., UNEP, 2005; Lebel and Lorek, 2008).
Trade Impacts and Unintended Consequences
The promise of a price premium is an important motivational tool, particularly for producers who expect to bear upfront costs associated with upgrading methods, paying for certification, and handling added administrative and documentation requirements—a failure to demonstrate access to proven consumer markets for these goods, or a failure to distribute any price premium equitably, will hinder the growth of certification (OECD, 2003). There has been a fair amount of criticism of existing standards as reinforcing global inequities of who defines and enforces standards (OECD, 2003; UNEP, 2005; Vandergeest, 2007). These standards are also criticized as reflecting the capacity of developed countries to meet them and leaving developing countries at a disadvantage. Interestingly, although government-enacted standards are regulated in international trade by the WTO, voluntary social and environmental labels do not currently fall under its jurisdiction.
Not only are developing countries less involved in shaping these standards, they are often required to meet them as a condition of doing business. This illustrates the need for analysis of the actual impact of certification on the environmental practices of firms in developing countries. The lack of data to understand these impacts is well known (e.g., UNEP, 2005), but recent research has suggested that the scope of coverage for certification programs is low in developed countries (Keane, 2008). For fair trade initiatives, there has also been a danger of producers being crowded out by other interests, or other producers, who form a club of privileged producers enjoying the price premium—this points to the need for meaningful representation of smaller-scale producers (Lebel and Lorek, 2008).
Environmental benefits of certification are even less certain and have not yet been demonstrated in any meaningful way in terms of outcomes. While there has been some consideration of a ‘rebound effect’1 undermining efforts to make consumption more sustainable, this argument does not hold up outside of the energy sector. Energy efficiency improvements have enabled households and industry alike to consume increasing amounts of energy and electricity services, e.g., refrigerators have become substantially
more efficient over the decades, but have also become considerably larger. There is a possibility that the green building movement2 could influence consumers towards new construction and away from retrofitting existing buildings. However, in most sectors, it does not appear likely that reducing adverse environmental and social impacts will correlate to increased consumption.
EMERGING AREAS AND FUTURE RESEARCH
Given the vast potential of carbon and renewable energy markets, it seems that certification may play a considerable role in facilitating this market. In recent years, renewable energy certificates (RECs) have been developed as a way for businesses and states within the United States to meet stated goals for utilizing green or renewable power—this of course relies on a credible third-party certifier and several have emerged to track and guard against double-counting. Carbon offsets, which can be anything from energy efficiency projects to afforestation projects, are another financial instrument which relies on certification. Given that these carbon offsets are likely to be an important component of greenhouse gas mitigation efforts (and that many of the opportunities will likely be in tropical forests in developing countries), one hopes that the experiences with certification to date can feed forward and lead to improved programs to certify these offsets—the existing Clean Development Mechanism does not appear to be an appropriate model (NRC, 2009a). The Greenhouse Gas Protocol (GHGP) is a program established in 2001, developed by the World Resources Institute and the World Business Council for Sustainable Development. Although it has become a sort of industry standard for calculating GHG emissions, the ISO announced in late 2008 that they intended to develop a common standard for measure carbon footprints, which would presumably be a competitor to the GHGP.
While certain ecosystem services are being valued in the marketplace (e.g., forest products), there are a host of other services which are not currently valued, biodiversity being a prime example. Certification is one of many tools being considered to eventually begin placing tangible value
on ecosystems, with the hope of generating revenue which could be used to protect and perhaps restore them. Experience from other sectors in certifying management and services instead of focusing on production practices may be useful in creating new standards to support ecosystem stewardship.
Areas for Further Research
Recent reviews of certification have identified issues requiring more research. Auld et al. (2008) describe certification efforts as ‘win-lose situations’ in that they require longer to realize economic benefits, but the authors also point out that such win-lose situations deserve more attention because if they emerge as purposeful features of the marketplace, they hold the greatest potential for moving consumption towards sustainability. The authors also note that organizations can change in response to external pressures—evolution may occur through competition or regulation, and this evolutionary framework is important to understand how win-lose situations might transform into win-win situations over time. David Vogel’s review (2008) of civil regulations takes an even broader perspective, and he suggests that there are too few studies that examine the global impact of civil regulations (including certification) and their effectiveness. He calls for more research into the relationship between civil regulation and state regulation, as well as research into the ‘black box’ of business thinking, to better understand how firms balance costs of acting responsibly with the business risks of not doing so.
While there are undoubtedly many additional lessons to be uncovered by mining the knowledge of practitioners, collective experience and analyses to date suggest several issues which have bearing on the effectiveness of certification:
Firms, not households, appear to be the important lever in building markets for certified products; consumer education is important, since they ultimately purchase the products, but retailers and other large-scale purchasers (e.g., governments) represent substantial portions of the market and can play a role in marketing certified products;
There is an important tension between adopting rigid evidence-based standards and flexible, custom-tailored standards; some degree of flexibility seems desirable, both to encourage innovation at the top and to make room at the bottom, though low-level compliance ought to be matched with a capacity-building component to bring about improvement;
The market share for certified products continues to be small, and to date, consumer demand has been limited—increasing awareness and preference for sustainable products has not yet translated to demonstrable changes in demand;
On balance, the competition among standards within a sector has raised the overall level of performance, albeit slowly and arguably at considerable cost to businesses. A more efficient and effective approach might be a single scheme within a sector, but with gradients to reflect different levels of compliance;
Impacts and unintended consequences of certification schemes deserve more careful attention and study. Even if a program is delivering on its stated goals, from a sustainability perspective it is important to consider the system in which it is operating. Benefits and positive impacts/outcomes also deserve more rigorous analysis—self-reporting, even from a multistakeholder partnership, is no substitute for objective evidence of a program’s impacts;
Certification schemes are not meant to be independent from governments. Governments often play a critical facilitative role, as a broker, partner, endorser, or large-scale purchaser.
There are also a number of critical issues deserving further inquiry, including:
To what extent might there be a learning curve for certification within a sector? Can learning be applied across sectors, so that implementation costs are reduced?
How has the growth of certification affected research and development (R&D) within firms? Are they devoting resources to exceeding standards, or simply meeting them? How has uncertainty about the direction of standards and labels affected decisions on where to make investments (e.g., marketing, improved processes, within the supply chain)?
What are the longer-term environmental outcomes of certification programs, and how might they be measured and demonstrated? Is this an issue of scale, or is it a problem of tracing program outputs through to long-term outcomes?
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