Product ecolabels: To certify or not to certify?

With 201 ecolabel certifications in the U.S. and 459 globally, it is no wonder that businesses are confused about their value. Putting aside the important question of choosing among the multiple overlapping eco-certifications, how should a business answer the threshold question of whether to seek eco-certification in the first place?

The answer depends on your business facts and point of view. Are you most interested in bolstering the credibility of your environmental claims? Or do you view eco-certification as a way to increase sales or enhance your business reputation?

Think about your primary motivation when you read the following list of key considerations:

1. Credibility

A big benefit of eco-certification is credibility. An independent third party verifies and guarantees that your products meet independent standards. Consumers do not need to trust you or your definition of “green” or ethical; they can trust a third party expert and its certification standards, such as the U.S. Environmental Protection Agency and its Energy Star program.

People trust independent ecolabels more often than they trust a brand’s own promises. As an example, the Marine Stewardship Council’s 2014 survey of 9,000 seafood buyers worldwide showed 57 percent trusting ecolabels, as compared to 37 percent trusting brand promises.

Therefore, relying on independent eco-certification goes a long way towards mitigating risks of criticism for selling non-sustainable products, on the one hand, and greenwashing (subject to potential Federal Trade Commission sanctions), on the other.

Nevertheless, some activists or consumers might question the credibility of any given certification program. Is it better to buy coffee that is organic, Fair Trade Certified, Bird Friendly, Rainforest Alliance Certified or UTZ Certified? The large number of ecolabels in and of itself leads to confusion and consumer skepticism. In the end, it is important to assess the brand value of a particular ecolabel before making a decision to seek certification.

2. Ease of implementation

Another benefit of eco-certification is the relative ease and low cost of using a set of pre-existing, defined standards, as compared to creating your own standards. By seeking to certify your products under existing standards, you avoid the time and resources needed to define the sustainability attributes of your products, but incur additional costs related to completing and submitting an application for certification.

 You do not, however, need to seek or obtain certification to use existing standards as a reference, or starting point, for your own standards and compliance program. You might prefer to create unique standards that are a blend of one or more sets of standards. Even so, there is no reason to reinvent the wheel completely.

3. Cost impacts

The process of obtaining eco-certification helps you learn best practices in environmental management and forces you to take a hard look at your business’ existing practices, including practices in your supply chain. The data gathering and analysis alone can help you identify opportunities to reduce resource use, reduce waste and implement additional efficiency measures, which should lead to operating cost reductions. Nevertheless, as noted above under “ease of implementation,” these cost savings are available, even if you do not seek or obtain certification, and need to be weighed against the additional costs of completing and submitting an application.

4. Revenue impacts

Eco-certification and the corresponding ecolabel on your products might or might not have a positive revenue impact. The labels are intended to signal that products are superior to non-labeled, non-certified products and, therefore, ideally, lead to increased demand and consumer purchases. However, the revenue upside requires a few intermediate steps and assumptions.

First, consumers must recognize and understand the meaning of the particular ecolabel on your products. With the exception of the Energy Star label, recognized by more than 80 percent of Americans, consumer recognition of ecolabels is generally very low. Recognition levels are steadily increasing though, at least for some ecolabels. The MSC ecolabel is one example of a label that consumers increasingly recognize, with a global average recognition of 33 percent in 2014, as compared to 25 percent in 2010.

Second, consumers must perceive a clear personal benefit from ecolabeled products. This is definitely true in the case of organic foods, which consumers buy primarily because they believe organic foods are healthier and also help them avoid unnecessary ingredients/chemicals and pesticides (according to 2014 market research by Lightspeed GMI and Mintel Group). Social peer pressure and protecting personal reputation also motivate some consumer purchases, such as fair trade labeled clothing. Identifying and aligning with a discernible personal benefit provides you with a better chance of affecting purchase decisions than if you rely only on consumers’ generalized concerns over sustainability issues.

Third, consumers actually must buy ecolabeled products, regardless of any related price premium. You need consumers to weigh the ecolabel information above other product information when making purchase decisions. This certainly has happened for organic foods, which now represent nearly 5 percent of the total food market, according to the Organic Trade Association. Sales of organic food and non-food products totaled $39.1 billion in 2014, representing an increase of 11.3 percent over 2013 sales numbers.

However, for most other products, at least in the food industry, the link is unclear or very weak. In fact, a broad European study of sustainability labels on food products (published in Food Policy in 2014) concluded that ecolabels had no meaningful impact on food choices across any product category.

5. Intangible impacts

Last but not least, do not underestimate the intangible benefits of eco-certification — the benefits associated with “doing the right thing,” contributing to growth of the eco-certified product marketplace and expanding support for your chosen certification program. You certainly will impress many employees/recruits and other stakeholders and might benefit from aligning with businesses that followed a similar path or decide to follow your lead.

Regardless, eco-certification will set your business on the path of operating with “purpose,” which could open up a cascade of business opportunities and related tangible and intangible benefits.

As you can see, there are many considerations here, none of which are clear-cut or wholly dispositive on whether to seek eco-certification for your products. What are your reasons for choosing, or not choosing, certification? Most important, what are the results?