4.6.1: What is Eco-labelling?
Eco-labelling is a voluntary method of environmental (or social) performance certification that is practiced globally. It originates from business awareness of the growing market of environmentally aware consumers and the recognition that these environmental concerns could be translated into market advantage. An eco-label serves to identify and communicate the environmentally and/or socially-friendly characteristics and preference of a product or service within its category, to consumers.
At present, there are hundreds of different types of eco-labels within the global market, assessing everything from sustainable seafood to the energy efficiency of electrical products. The International Standards Organization recognizes that although the multitude of different labels and label types vary in strength and authority, they share a common goal –
“to communicate verifiable and accurate information that is not misleading on environmental aspect of products and services, to encourage the demand for and supply of these products and services that cause less stress on the environment, thereby promoting the potential for market driven continuous environmental improvement.”
ISO and Eco-labelling
As part of the ISO 14000 series of environmental standards, the International Standards Organization has devised a group of standards specifically governing environmental labeling. The ISO 14020 family addresses the principles, practices and key characteristics relating to three major voluntary environmental labelling types:
Type I – A voluntary, multiple criteria based, third party verified program that awards a license, that authorizes the use of recognized environmental labels on products to indicate the overall environmental performance preferably of a product within its product category based on its life cycle considerations (ie. Ecolabels).
Type II – A voluntary, single criteria self-assessment and declaration undertaken by the producer to provide informative environmental to its consumers on a select aspect of operations, without life cycle considerations of the product or service provided. (ie. Self-declaration claims).
Type III – Voluntary programs that provide quantified and verified environmental data of a product, under pre-set categories of established parameters set by a qualified third party. Categories and parameters are developed based on life cycle assessments that are verified by that or another qualified third party entity (ie. verified environmental declarations/report cards/ information labels).
The figure below highlights some further contrasting aspects of the three types of labels and declarations.
In short, these eco-labels are designed to inform consumers of the relative environmental impacts of the products they purchase. An eco-label makes a clear, trustworthy, and positive statement that identifies products less harmful to the environment than other, similar yet un-labelled products. Through this, eco-labelling attempts to encourage ethical and/or environmentally conscious purchasing behavior, and facilitate environmentally positive change that is mutually beneficially to both consumers and producers.
For eco-labelling to work, it is crucial that eco-labels only appear on products that meet the standards they advertise. It requires that product manufacturers first have to meet the requirements of the independent certifying authority, and then apply for the license to display the label if their product meet the necessary criteria based on life-cycle considerations. Often, manufacturers have to pay a fee to cover the cost of assessment and the permission to use the label under the terms of a legally binding contract.
Certified eco-labels are not the same as self-devised “green” symbols or unverified claim statements created by manufacturers to convince consumers of the environmental friendliness of their products. Such exaggerated or misleading claims may confuse consumers into thinking products are better than they really are. Therefore, instead of raising standards, the result is confusion among consumers and a systematic undermining of all eco-friendly products (including genuine ones).
Certified eco-labels were designed to avoid such confusion, and unfortunately unverified labels have muddied the waters. For eco-labels to work as intended, they have to be trustworthy, trusted, simple to understand, and easy-to-recognize.
4.6.2: Eco-label Success Factors
Eco-labels are widely used to feed the growing consumer demand for environmentally friendly goods. Many firms as such are using eco-labels to achieve economic goals by differentiating their products from their peers on greenness, mitigating regulatory scrutiny, and gaining access to profitable green procurement practices and markets.
With immense potential economic value dependent on them, choosing the eco-label can be a risky task for managers. A poorly designed label may confuse customers, increase scrutiny of operations, attract accusations of greenwashing, and may ultimately prove to be a wasteful investment. View the following view for a simplified summary on what makes a successful ecolabel.
There are three main factors that define a successful ecolabel. These factors individually contribute to the eco-label’s overall success and recognition within the market. They are: (i) consumer awareness and understanding, (ii) consumer acceptance, and (iii) consumer’s willingness to pay for an eco-labelled product.
Explore these sections to learn more about each of these factors:
Consumer awareness and understanding the eco-label
It is difficult for consumers to determine and assess the environmental and social impacts of the products they utilize or consume, if they are uninformed. Eco-labels serve to bridge this gap by functioning as a simple tool for conveying relevant information to consumers regarding the environmental and social impact of the product. For an eco-label to be successful, consumers need to be aware of the label, and understand what it signifies. Consumer awareness and understanding therefore relates to what extent they know of the program’s existence, the connection between a specific environmental issue and the label, the label’s meaning, as well as the actions undertaken to ensure the label is awarded to qualifying products.
Eco-labels are adopted based on the needs of the manufacturer. Some ecolabels (Type 1 and Type 3) are issued by independent organizations with transparent criteria and process, and are third party verified; others (Type 2) merely represent self-declared claims made by manufacturers to highlight environmental friendly aspects of their products. The existence of Type 2 eco-labels may cause some confusion amongst consumers over credibility. These unsubstantiated claims can result in the lowered eco-label confidence, especially if some producers provide false or misleading labelling about environmental attributes and underlying production processes just to boost their sales.
Ensuring credibility within the eco-labeling process is important to facilitate consumer confidence in ecolabels and their purchase of green products. In order to be credible, eco-label programs should be accepted by stakeholders, be transparent, non-deceptive, free from conflicts or interests and based on a reliable assessment.
Consumer willingness to pay
Eco-labeled products are often associated with a price premium because of the additional cost associated with the environmental and social improvements of the products. This price premium represents the cost of certification to the eco-label, and of the operational changes associated with the improved performance. Consumers need to be willing to pay for this additional social and/or environmental cost associated with an eco-labeled product in order for the eco-label to thrive.