The number of eco-labels in the marketplace continues to grow. According to Ecolabelindex (http://www.ecolabelindex.com/, Oct 27), 426 labels circulate in 246 countries and 25 industries. Most commentators are quick to point out the negative consequences: consumer confusion, disinterest and mistrust. However, there is a growing wave of large companies that pursue product certification to appeal to and meet compliance demands from their B2B customers, including retailers. For these companies certification, and to a lesser extent eco-labeling, is a strategic move, and in some cases essential to bringing products to market. For retailers, who want to compete on green attributes, this is good news – as long as credibility is front and center.
From Deloitte’s perspective change is being driven by growing B2B demand for sustainable products, in large part by the entrance of such federal procurement officers as the U.S. General Services Administration who need to comply with an executive mandate to buy more green products, meet ambitious corporate sustainability targets, and ultimately the expectation of increased consumer demand.
Companies may pursue certification and eco-labeling to strengthen their competitive position, brand and supply chain management. For some companies it is necessary to maintain market share in U.S. states with mandated green purchasing guidelines, which include Pennsylvania, Massachusetts, Vermont, Maine and Connecticut. Others use the label to drive value by building relationships with their institutional buyers and winning large institutional contracts. The eco-label can help institutional purchasing agents who look for a simple signal of sustainability performance. Longer-term competitive advantage can be gained by using certification and eco-labeling to raise the visibility of sustainability initiatives, achieve ambitious sustainability targets, and strengthen the corporate reputation. Finally, some companies view this as a brand play, where the eco-label aligns with the brand strategy, adds a new dimension to the brand value proposition, improves the company’s image and market position.
However, many corporate executives make a distinction between certification and labeling. Eco-labeling is seen by some as a potential risk to the brand, especially when it is not clear how consumers will respond to an eco-message. In the B2B marketplace, where the action is, most companies prefer certification as a way to signal that their product(s) have achieved a certain standard. A growing number of companies prefer more rigorous certification standards because they offer more credibility, and while the short-term upfront costs to comply do exist, the long-term financial benefits are likely to deliver a strong return on investment. This is likely to be a prudent strategy, given that the Federal Trade Commission (FTC) is planning to issue its revised Green Guide this year.
Credibility is paramount in the area of eco-labeling and relies on the rigor of the underlying certification standard. A credible label should be designed by credible representatives from NGOs, industry and regulatory agencies, such as the U.S. Environmental Protection Agency. It should be objective, with scientific merit and justification, based upon a recognized scientific test that can be easily documented and yields clear results. In addition, it should be multi-attribute, based upon life-cycle assessment (LCA), and it must not overstate or misrepresent benefits on the label
For retailers, certification by their suppliers can be beneficial, notably in terms of cost savings, resource efficiency and improved supply chain management. Armed with more and better data on the material, water and energy use, and emissions in operations and the supply chain, we are finding that cost savings, operational efficiencies and more sustainable alternatives can be found. Certification and labeling can help drive this process into the supply chain and across business operations by providing a clear roadmap and goal. There are also long-term supply benefits where certification may help secure access to crucial commodities such as cocoa, sugar, and seafood that are showing signs of volatility. With the expectation that the pressures on food and agricultural supply will increase as the global middle class grows, preparing for these supply chain risks, by pursuing certification of commodities, can strengthen a company’s competitive position and help managers gain an insight into their supply chain that has the potential to avert future supply chain disruptions.
This preference for certification credibility, which makes sense for many consumer product companies, leaves the door open for retailers to craft the point-of-sale message usually conveyed by an eco-label. Several retailers provide additional point-of-sale information and ally their corporate brand with a particular eco-label. So what types of messages are consumers more likely to respond to? Ideally, the message should be personal and hands-on and will resonate with underlying perceptions of product performance. It should also match how consumers respond to the brand identity, especially for strong brands, and help consumers easily identify how the product improves their lives.
And what types of consumers are more responsive? An estimated quarter of U.S. adults, 41 million consumers buying $290 billion in goods and services, are defined as LOHAS (Lifestyles of Health and Sustainability) focused on health, the environment, social justice, personal development and sustainable living. Not only are they a younger demographic, especially mothers with small children, baby boomers are also interested. A Deloitte study found that another consumer segment tends to buy “green” products: older, female, with above average income, fewer people in their household, and above average education level. In other words they are baby boomers (born1946-1964), who by 2015 are expected to own almost 60% of the United States’ wealth and account for 40% of spending. Reaching that demographic will continue to be a challenge for consumer products companies and retailers that want to differentiate themselves not only in terms of price.
Chris Park is a principal with Deloitte Consulting LLP and national consulting leader for sustainability and climate change at Deloitte. This article is based in part on research by Dinah A. Koehler, sustainability and climate change leader, Deloitte Research.