Eco-labels: Do They Really Matter?

This blog is part of our Inspired Ethonomics series.

eco-labels

From lip balm to dish detergent, it's hard to find a product these days where at least one brand doesn't have an eco-label. But what do these labels really mean? Do consumers really change their buying habits because a cute bunny or a healthy-looking tree is pasted on the side of a bottle of shampoo or a roll of paper towels?

The short answer is yes. Research from the U.S. Environmental Protection Agency (EPA) and some NGOs seems to suggest that consumers who see labels like the dolphin-friendly image on Starkist tuna or the "Totally Chlorine Free" stamp on paper products, tend to prefer those products over others. Of course, price points and other variables come into play, but in general, a green label encourages people to shift their purchases toward environmentally-friendly products.

In recent years, these labels have proliferated. And they've started to compete for increasingly eco-minded consumers' attention. For example, both the Sustainable Forestry Initiative (SFI), an industry group, and the Forest Stewardship Council (FSC), formed by NGOs, have labels for "green" paper, pulp, and wood products. But environmentalists complain that SFI standards aren't high enough and even undermine the value of the FSC label.

Scholars at the Erb Institute and Resources for the Future found in markets where multiple eco-labels compete there was a wide range of labels of varying stringency. That way, every firm could get some type of label, even if it represented the weakest of environmental efforts. NGOs, on the other hand, preferred fewer labels that actually represented tough "stretch goals" for companies. The problem, then, when NGO and industry labels competed, the industry labels representing weaker standards tended to steal a lot of market share from the tougher NGO labels. Thus, there was a risk that more labels equaled worse environmental performance by companies.

The result is that consumers are getting confused. They don't always know which labels support what standards, so multiple labels on a product might seem like a good thing to shoppers who don't have perfect information about the pictures on the side of the box or the end of the canister. Does the average buyer even know that SFI and FSC are competing groups, or that one represents looser environmental standards? Worse, will the proliferation of labels cause consumers to throw up their hands in frustration and ignore them altogether?

Ultimately, what is at stake is the impact of consumer behavior on the environment—as the number of eco-labels increases, it's harder and harder to tell which ones matter, environmentally speaking. The labels become shorthand for going green, but they might not actually lead to greener purchasing decisions because the whole labeling system is so complex and opaque.

So how can we make eco-labels more meaningful? One option is for government to step in and create a common standard, as was done with the U.S. Organic Foods Production Act of 1990. Of course, government intervention means tax dollars, and it means some industry groups will balk at the oversight. (Some big retailers, however, welcome government leadership in this area.) Another option is for a respected third party (like Consumer Reports or Underwriters Laboratory) to step in and rate the labels themselves. Either way, clear standards should be agreed between NGO and industry players, and those standards should be represented by a few labels whose meaning is made clear through education programs initiated by NGOs and the EPA or other public agencies.


Thomas P. LyonThomas P. Lyon is a Director and the Dow Chemical Professor of Sustainable Science, Technology and Commerce at the Erb Institute of the University of Michigan.
Professor Lyon's primary research interest is the interplay between corporate strategy and public policy, which he has pursued in a number of application areas, including corporate environmentalism, electric utility investment practices, natural gas contracting, innovation in the health care sector, and the introduction of competition in regulated industries. His book Corporate Environmentalism and Public Policy was published by Cambridge University Press in November 2004. Professor Lyon's teaching experience includes managerial economics, business and government, game theory, business strategy, and the management of innovation.

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1 Comments

  • Jim Smith

    Of course it does, you have some who just look at price and nothing else so they are indifferent to it but anyone who examine for a specific kind of item or who is avoiding something particular whether it be because of allergies or beliefs they hold it will assist that shopper.

    Jim Smith