The availability of clear product-related environmental information plays an important role in stimulating consumer trust. Consumers derive such information largely from ecolabels and certifications. However, the effectiveness of these ecolabels is diminishing. In the meantime, consumer demand for transparency is intensifying and data-driven technologies (e.g. blockchain) are creating opportunities for alternative systems that are not based on a specific label, but on hard evidence from data and on governments that take control in defining the boundary between responsible and irresponsible products and practices. In sum, the landscape of transparency and traceability is changing, which not only creates opportunities for new systems, but also for new actors to take control.
- As we have noted before, the concept of sustainability has been gaining traction with an ever-larger group of people and has begun to impact decision–making on all societal levels. Consumers are increasingly concerned about the negative environmental impacts of the goods they purchase, partially due to the lack of transparency regarding a product’s origin and production process.
- 72% of millennials are already willing to pay a price premium for a product that they trust or perceive to be sustainable and academics have found that the availability of product environmental information leads to higher trust and responsible purchasing behavior by consumers. In a similar vein, the Edelman Trust Barometer of 2017 revealed how activities linked to sustainability significantly help enhance trust.
- Recognizing the plethora of environmental challenges, numerous transnational rule-setting organizations (e.g. FSC, Global GAP, Fairtrade) emerged in the 1990s to foster sustainable practices across 25 industries worldwide, using mechanisms of certification and labelling. For instance, the Forest Stewardship Council (FSC) sets standards for responsible forest management and forest products by labelling them as ecofriendly with their FSC label, seen on many paper products. By December 2018, the FSC had issued 1,606 certificates in 85 countries,thereby protecting 200,963,183 Ha of forest worldwide.
- The number of ecolabels and certificates has increased from about 50 in the early 1990s to 463 today. Most of these labels are privately owned (non-governmental) and apply to the food industry (32%).
- According to the OECD, there is a trend of firms developing their own labelling schemes (e.g. Starbuck’s C.A.F.E. Practices) in order to streamline environmental communication and minimize the excess costs of managing multiple labels, while retaining control over the standard used.
- The growth of ecolabels has been plateauing slowly since 2010, due to the increasing complexityof certification and labelling programs. Specifically, consumers face difficulty differentiating between criteria and meanings behind the endless array of labels. Firms are confronted with the staggering costs of adopting multiple labels and managing the accompanied complexity across their supply chains, whilst small agricultural farmers are put out of business because they cannot finance the myriad of strict requirements of the global north.
- Several experts have been questioning the effectiveness of ecolabels and certifications, pointing out the lack of an apparent standard, the immense discrepancy in quality-levels between schemes, and the aforementioned negative externalities.
- The increasing availability of data is opening alternative routes to ensuring trust and transparency in products for consumers. For instance, companies such as IBM Food Trust and Circularise use blockchain technology to increase traceability or material supply chains, which could, in turn,tackle grey markets and trigger further innovations. Indeed, the blockchain and traceability market is experiencing significant growth – especially in the food sector – with many parties aiming to create an overarching data platform to make comparison easier.
Connecting the dots
Seeing as consumers are increasingly concerned about the environment, more and more companies have acknowledged that sustainability must become part of their business model. Yet, due to the enormous backlash to greenwashing, firms began integrating ecolabels in order to externally validate the responsibility of their products, which has also partially led to the enormous growth in ecolabels over the past decades. However, their plan to stimulate consumer trust might be backfiring due to the multiplicity of labels. Ecolabels and certifications have hitherto adhered to the dominant design of “governance of sustainability”, which refers to the purposeful and authoritative steering of societal processes by political actors towards sustainability. Now, the landscape is slowly changing, as indicated by the plateauing growth of ecolabels, the rise of data-oriented companies for traceability, the tendency of firms to develop their own labels, and society’s anticipation of government action for sustainability. These changes give rise to important questions about the future of the governance of sustainability, such as what system will successfully meet our global sustainability challenges and who will be leading such a system; three possible scenarios emerge.
First, the current system of privately-owned ecolabels and certificates will remain the dominant design, but in a much more consolidated form. Here, businesses or multi-stakeholder groups (without government involvement) set standards within an industry to address sustainability issues. In this context, the emergence of platforms with reputation systems (such ascurrent platforms that compare health insurances) could not only lead to the elimination of low-quality ecolabels, but could also generate sufficient data to strengthen the distinction between high- and low-quality labels by means of hard evidence. In contrast to governmental interventions (e.g. eco-taxation), these schemes are voluntary in nature and rely on market forces and public scrutiny to exert pressure, which means that which ecolabels are “good” and which are “bad” would be determined in a democratic manner.
Second, data-oriented companies such as IBM Food Trust will substitute the current dominant design.
Both the airtight image of blockchain and the heightened accuracy of using data for traceability and transparency purposes could significantly favor these contemporary companies over ecolabels and certificates. Yet, these technologies do not inform what distinguishes good products and practices from the harmful ones; they only unravel a product’s material supply chain by collecting and processing data. So, who determines what is good and bad? Possibly, governments could respond to society’s call for action by taking on this responsibility. Indeed, recent events such as climate marches and the Urgenda case show society’s dissatisfaction with governmental inaction. Governments are only slowly adopting a new system of governance of sustainability (e.g. eco-taxation). This could provide them with critical control over businesses and consumers to meet climate agreements. Nevertheless, private actors will most likely protect their current position, making it an interesting question who will control the future of governance of sustainability.
Third, with enough data available, companies (i.e. manufacturers or retailers) would be able to inform consumers about the environmental impact of their products. In this case, the system would eliminate the aforementioned data-oriented technological firms because manufacturers or retailers would make use of their own datasets directly. Specifically, product environmental information would be organized and matched to particular requirements articulated by governments or businesses themselves (if they have enough consumer trust). This would allow governments to reap similar benefits as with the previous avenue (i.e. government control).
No matter which scenario awaits us in the years to come, the challenges of our current ecolabel system in combination with the increasingly pivotal role of data-oriented technologies in providing transparency and traceability are definitely going to change the landscape. This creates interesting opportunities, not only for the role of data and technology, but also in terms of power shifts between private (i.e. businesses and multi-stakeholder groups) and public (governments) actors.
- With consumers demanding more and more transparency, the demise of our current ecolabel system is problematic on the one hand, but creates striking opportunities on the other hand. With the abundance of labels, drawing a clear line between good and bad ecolabels – or good and bad practices/products – will become critical.
- Influencing what distinguishes responsible from irresponsible products could significantly strengthen government control over industries and consumer purchasing behavior, which could help countries meet their climate goals. This can only happen if the current plethora of ecolabels fails to consolidate. A clearer standard set by the public would also push companies towards more aggressive innovation to meet such specific requirements. While it is equally possible that private actors will remain in control, it is likely that this would result in less aggressive innovation for sustainability and thus less sustainable achievements.
- The increasing collection and exploitation of data within companies and their supply chainsopens opportunities to speed up the consolidation process of all ecolabels, not only because it will be easier to compare the different labels, but also because it will strengthen the position of data-oriented companies such Circularise.