Green Markets, Trust and Regulation

Over the last decades, the use of words such as “eco-friendly”, “sustainability” and “circular economy” has literally skyrocketed. As a matter of fact, achieving a greener economy and taking action towards a more sustainable production and consumption are undoubtedly one of the most pressing goals of our times, and as more and more people become aware of this and want to see improvements regarding climate change and sustainability, the demand for “green goods” keeps growing. This is followed naturally by a growing willingness by firms of all kinds to supply those green goods, in which many are doing so already and serve as virtuous examples. However, phenomena such as greenwashing have also developed, as many companies have found it to be more profitable (and indeed have been), by investing time and money in order to appear environmentally friendly, instead of actually greening their businesses (if you want to know more about what greenwashing is and what it can cause to the “green markets”, check out this other article on TGO using this link)

Now, the reasons why the so-called brown enterprises choose to greenwash aren’t solely related to a firms’ short-term profits, but also a wide variety of drivers, whose identification truly is an interdisciplinary effort involving; economic, regulatory, managerial and cognitive factors. Among these, we can find all sorts of drivers, from the obvious market demand and pressures from activists and NGOs, to the much less obvious organizational and individual drivers such as firm inertia and managerial optimistic biases.

Underpinning all these important factors, there is still one recurrent feature: the lax regulation and the very imperfect information present nowadays in the sustainable goods market and industry.

Practices such as greenwashing indeed occur when the framework for determining which products and firms are actually green or sustainable is very weak. Many enterprises can label themselves as “eco-friendly” even though their actions and products are not necessarily so. In many cases even the “eco-friendly/green” concept has not been fully developed and explained, as it involves a wide variety of implications. This is detrimental as it generates confusion in both consumers and investors, undermining trust in the green sector and leading to the potential damage of the sustainable goods market itself.

Today it is in fact difficult for consumers and other market actors to make sense of the innumerable and often redundant eco-labels and certifications on the environmental performance of products and companies. There are more than 200 environmental labels active in the EU, and more than 450 active worldwide. Many of them, lacking the appropriate requirements of disclosure and clarity of information.

But then how can we as consumers, tell? How can we determine the boundaries of green behaviors or green products and services? In other words, how do we find that information needed to restore trust in such an imperfect yet needed market? Well this is exactly what this article is here to do, to answer these questions and to shed some light on the complex regulatory web that characterizes the green market and on the different ways we, environmentally-concerned consumers, can access and understand information to make better choices and thus strive for change.

One way to do so, the most direct one which responds to the aforementioned issue of green label redundancy, is to use services such as the Ecolabel Index; a directory, available online, that tracks over 450 different eco-labels in 197 countries; a very useful tool to detect green firms and products from those that aren’t. This way, claims on the environmental performance of companies and the resulting conundrum of ecolabels of all kinds are not only available for information but also verifiable and comparable.

Another way to tackle the issue at the institutional level is to push for harmonization of existing regulation, to be undertaken by global or regional regulators. For example, the European Union Green Deal states that “companies making ‘green claims’ should substantiate these against a standard methodology to assess their impact on the environment” and the methodology chosen by the EU for this task is, as stated in the 2020 Circular Economy action plan, the Product and Organisation Environmental Footprint (PEF and OEF respectively), two unique trademarks created by the European Commission itself.

The PEF and OEF methods are based on the Life Cycle Assessment (LCA), backed by a robust scientific basis, which allows the estimation of the environmental impact of similar products and firms. However, in order to really make sense of its insights, there is the need to translate the LCA results’ technicalities into something that also non-practitioners can easily understand. For instance, when it comes to water consumption expressed in terms of cubic meters, that doesn’t mean much to the average rational consumer. Yet, if we translate that same data into an equivalent number of showers or water bottles, voilà: it immediately acquires a universal meaning and, more importantly, a potential impact on the consumers’ choices. Clarity of information is always of paramount importance.

Following the thread of harmonization and standardization, some suggest pushing towards standardized eco-labeling, certifying products with an ISO 14024 as an important solution to avoid misleading ecological claims. This ISO provision, however, only regulates the so-called Type I ecolabels, the sole ones that require a third party certification, doing little to prevent misuse of Type II and III self-declared and single-issue related labels. Furthermore, critiques have been made as to whether the ISO provisions regarding Type II and III ecolabels (ISO 14021 and 14025) together with ISO 14024, can manage to include the variety of currently existing labels in the first place. As of now however, we can say that while Type I ecolabels can be considered to be sufficiently reliable, the other two categories still remain in need of constant checks and scrutiny.

As we can see, improvements in the field of environmental product and firm regulations and quality of information are still very much a work in progress and unfortunately far from where we, as consumers who are concerned with environmental issues, would like them to be. But then, what should we do, other than push for more institutional and regulatory improvements and wait impatiently?

Well, turns out that there is one last aspect that we shouldn’t underestimate, which is inherent in the very concept of market demand: the power of reputation.

Alan Moore once wrote in his masterpiece V for Vendetta “people shouldn’t be afraid of their government; governments should be afraid of their people”. Well, in our case, in a world where environmental concerns all over keep growing, consumers shouldn’t be afraid of corporations and their misleading green claims, while corporations should be afraid of consumers and their awareness. We should in fact never underestimate the power we all have not only in pushing for stricter regulations and reforms at the institutional level and not only in shaping the demand for green goods and services at the market level, but also in striving for a more open disclosure of information by firms on their environmental performances, calling them out and affecting their public reputation, positively or negatively and therefore indirectly also their market shares.

Is it worth it, you might ask, to spend time and effort into getting informed about this and paying attention to labels before buying our products everyday at the supermarket? Will it make a difference in spending time talking and exposing to our friends, families and networks those firms that we recognize to be greenwashers? Well, the choice is yours (ours) of course, but you’d probably agree that it would be quite naive to rely solely on regulatory improvements which are very likely to take place at a snail’s pace, instead of actively participating not only in the market, as a truly aware and informed customer, but also in the public debate, spreading information – as this article is meant to do, for instance – that could be useful for other people in order to make better decisions themselves, thus shifting the whole market demand in the right direction, towards actual green firms and products, hence disincentivizing brown firms from expressing environmental performances they cannot demonstrate, since doing so in the presence of informed consumers would represent a huge risk of reputation and market share losses.

Summing up, what this work tries to demonstrate is that pushing for and hence accelerating regulatory improvements against greenwashers, if complemented with a collective spreading of informations to which we all can and should contribute, can and will eventually allow market actors not only to take greener decisions for the sake of the planet and to give actual green firms the credit and the revenues they deserve, but most importantly, to achieve sufficient transparency and trust in the sustainable products market, for the sake of a much needed, quicker transition to a better, greener and more sustainable economy.

Simone Cimadomo

Photo credits: Elena De Novellis, The Global Observer; Markus Spiske, Pexels; Nattanan Kanchanaprat, Pixabay.

For more infos:

https://www.greeneconomycoalition.org/news-analysis/green-washing-and-the-economy

https://ec.europa.eu/environment/eussd/smgp/initiative_on_green_claims.htm

https://www0.gsb.columbia.edu/mygsb/faculty/research/pubfiles/14016/cmr5401_04_printversion_delmasburbano.pdf

https://www.elle.com/it/magazine/a35510333/greenwashing-come-riconoscerlo/

https://www.sciencedirect.com/topics/engineering/environmental-label

https://www.iso.org/news/ref2273.html

https://www.greenspec.co.uk/ecolabels/

https://ecosystemsunited.com/2019/11/15/the-different-types-of-ecolabels/

https://www.reteclima.it/product-environmental-footprint-pef-organisation-environmental-footprint-oef-analisi-dellimpronta-ambientale/

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