Professor Thomas P. Lyon
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Transcript of Professor Thomas P. Lyon
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Professor Thomas P. Lyon
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• Named for Fred (BBA ’47) and Barbara Erb who have committed $20 million to the Institute to date.
• Established in 1994 as a joint MBA/MS program between the Ross School of Business and the School of Natural Resources & Environment. Class of 2011 is our 17th!
• Research Programs– Erb Conferences– Erb Colloquium– Erb Post-Doctoral Scholars– Erb Doctoral Fellowships– Erb Doctoral Student Small Grants– Erb Faculty Fellowships
Erb Institute Overview
Fred and Barbara Erb
Erb MBA/MS Student Enrollment
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Corporate Green Claims• Green advertising has doubled in recent years.• In addition, companies increasingly make specific
“green claims” about the firm or its products• Terrachoice Environmental Marketing (which
sponsors the Ecologo label), studied products in Big Box retailers, and found 2,219 products making 4,996 green claims.– This number was up 79% from previous year– 23.4% of the products have ecolabels
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Greenwash
• TerraChoice found that in 2008, 99% of the green claims were false or misleading.
• Fortunately, matters improved in 2009.• Only 98% were misleading!
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“The Six Sins of Greenwashing”
http://www.terrachoice.com/files/6_sins.pdf
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Much Current Activity on Ecolabeling• Ecolabels are seen as a way to provide more
objective information than corporate self-claims• However, the proliferation of ecolabels worries
some observers, who fear consumers will become confused and overwhelmed
• Federal Trade Commission is revising its Green Guidelines. DEFRA in UK recently issued its revised Draft Guidance on Green Claims.
• Multi-stakeholder groups have formed– The Sustainability Consortium (TSC)– Packard Foundation, Walton Foundation, MARS– Keystone Center Green Products Roundtable (GPR)
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• Conference organized by the Erb Institute June 17-19, 2010
• Mix of academics, industry, gov’t., NGOs• Representatives of TSC, Packard, GPR• Goal: To assess what we know and what we
don’t know about the impact (current and potential) of certification and labeling.
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Years Ecolabels Were Launched
Source: Global Ecolabel Monitor, 2010.
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Types of Organization Sponsoring Ecolabels
Source: Global Ecolabel Monitor, 2010.
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Design of Ecolabels
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Key Points1. Proliferation and competition among ecolabels has
both good and bad consequences.2. There is little hard evidence that ecolabels improve
environmental and social performance. 3. Small changes in label design can have big effects on
program impact.4. The B2B market, not consumers, is driving demand
for detailed information about the social and environmental attributes of products.
5. Limited transparency undermines credibility of many ecolabels.
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Is Label Competition Good or Bad?• Label competition can be good when it helps meet the
needs of different market segments or drives labels to enhance their credibility.
• When for-profit labels enter to compete with NGO labels, environmental results can worsen.– Lax for-profit labels draw off demand from stringent NGO labels.
• Especially problematic when most firms have similar costs of greening.
• When consumers are uncertain of the meaning of particular labels, label competition performs poorly.– Weak labels may come to dominate the market– Good firms may decide not to get labeled
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Little Hard Evidence on Ecolabel Impacts
• Blackman and Rivera (2010) find just 37 relevant studies of ecolabel impact in agriculture, tourism and fish and forest products.
• Only 14 of these use a reasonable counterfactual from which to measure impact. – 11 of the 14 examine Fair Trade and Organic certification, which means the impacts
of other ecolabels are especially under-studied. • Of these 14, only 6 find evidence that the ecolabel had positive
impacts. • Caveat: these studies did not test whether certified producers increased
their market shares.
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Label Design
• Exactly how labels are structured can have big impacts on their effectiveness.
• Over time, diffusion of best practices means that more and more products meet ecolabel standards. To encourage further innovation, labels much be upgraded
• Thus, labels should be designed to be compatible with dynamic upgrading.
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Dynamics of EU Appliance Labeling
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Dynamic Improvement
• In 2003, A+ and A++ were added.
• In 2009, European Parliament approved addition of A+++ too.
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Performance of Alternative Labels
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EPA Vehicle Label Revisions---What Does Each Option Communicate?
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Demand Drivers• Consumer surveys typically find a large share of people claim a
willingness to pay (WTP) for sustainable products.• Evidence in practice is scarce.
– Typical finding is about 3% of customers will pay a premium.• Details influence WTP
– Private benefits vs. public benefits– Positioning of sales display– Whether there is a sales representative present– Whether other consumers observe your choice
• However, retailers and institutional buyers show a real preference for green products– Walmart’s drive for sustainability metrics for its suppliers
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Information Processing• Consumers have limited capacity to process
label information– Little evidence that nutrition labels have
changed behavior• Large commercial customers can process
more complex information.– For example, architects responded more
positively to ads for home insulation if they included detailed life-cycle data
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Limited Transparency
• Big Room/WRI found that – "over half of the ecolabels surveyed, including
some prominent ecolabels, were unreachable, difficult to reach, or uncooperative when asked about core metrics."
– 13% of respondents do not make public their criteria for awarding the label!
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Burning Questions• How can researchers account for ecolabel impacts beyond changes
in participant behavior?• How does ecolabel design affect producer and consumer
behaviors?• Do ecolabels complement, substitute for or undermine government
regulation?• Why do producers participate in ecolabel programs and what are
the relative strengths of their motivations?• What – if anything -- should be done about ecolabel proliferation?• Do single-issue labels cause "burden shifting"?• How can ecolabels best encourage innovation?
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Ecolabels and Public Policy• If label competition reduces environmental gains,
government may have a role in regulating entry.• If label confusion is present, government may have a role
in rating the labels.• Voluntary labels may empower government policy in such
areas as purchasing, imports (e.g. Lacey Act), and minimum quality standards.
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Summary• Large retailers and institutional buyers are key demand drivers, and have the
capacity to process and act upon more detailed sustainability information than consumers.
• There is no assurance that competition between ecolabels will produce socially optimal results. – In some situations government involvement may be warranted
• Empirical evidence about the impact of ecolabels on the environmental and social performance of participants is limited. Need more work on:– What is the direct impact of ecolabels in particular industries? Why does their impact vary?– What is the indirect impact of ecolabels?– How do specific elements of an ecolabel affect its impact?
• More attention is needed to when labels replace the need for government regulation, and when they need to work together.