The saga of sustainability certificates — why we need it yet we don’t
To certify or not to certify?
According to the International Institute for Sustainable Development, there are more than 400 voluntary sustainability standards operating around the globe. Each certification body has different features and criteria. We have one for reducing deforestation, another one for sustainable fishing. There is a growing number of ecolabels and certifications, such as fair trade, which remain critical. BCorp recently (or not so recently) has been criticised for certifying certain companies as “good companies” amidst negative publicity.
This leads us to wonder: Can we truly trust certifications? Why do we require them in the first place? Can’t we simply do good without seeking certification?
Historical context
The trend began in the late 1980s and 1990s with the introduction of ecolabels and standards for organic food and other products. Most standards focus on the triple bottom line of environmental quality, social equity, and economic prosperity. However, it wasn’t until the late 20th century that sustainability certification gained widespread traction. This was driven by growing awareness of environmental degradation and social injustices associated with global supply chains.
The underlying principle on the need for sustainability certification can be summarised in two factors:
- Strong demand for action where regulatory frameworks are weak: Sustainability standards have arisen in regions where national and global legislation regarding environmental and social issues is lacking. In response to pressure from consumer and NGO movements worldwide, for instance, campaigns led by organisations such as Global Exchange have targeted corporations like Nike and Levi, urging them to address issues related to labor exploitation in sweatshop factories.
- Demonstration of environmental credentials: Many leading brands have sought to showcase the environmental qualities of their products. This has led to the proliferation of numerous eco-labels and other standards aimed at highlighting the environmental merits of various goods.
Why do we need one?
However, the need for sustainability certification begs the question: why do we need it if doing good should be a given? In an ideal world, perhaps. But in reality, trust is not given, it’s earned. If we were beings incapable of lies, entire industries such as audit, certification, or marketplace would disappear. We need third parties because we can’t trust each other, and economic theory, specifically the concept of asymmetric information, sheds light on this phenomenon.
In 2001, Joseph Stiglitz, George Akerlof, and Michael Spence were awarded the Nobel Prize in Economics for their study of asymmetric information in capital markets. Asymmetric information occurs when one party possesses more or better information than the other, leading to challenges in market transactions. A classic example is Akerlof’s 1970 essay, “The Market for Lemons,” where used car buyers fear purchasing low-quality vehicles due to sellers’ superior knowledge about their condition. This reluctance to pay higher prices for used cars of uncertain quality leads to a market failure where the used car market is dominated by lower-quality vehicles, as sellers of higher-quality cars are unwilling to accept lower prices.
In the context of sustainability certification, this concept is particularly relevant. Producers seeking certification may possess more information about their operations, supply chains, and environmental practices than consumers. This information asymmetry can create challenges in the marketplace, as consumers may struggle to make informed decisions about the sustainability claims of products. Sustainability certification aims to bridge this information gap by providing consumers with transparent and verifiable information about the environmental and social impacts of products. By adhering to rigorous standards and undergoing independent audits, certified products signal to consumers that they meet certain sustainability criteria.
In the world with asymmetric information, we rely on signalling. Spence’s signalling theory, proposed by economist Michael Spence in 1973, mentioned the issue of information asymmetry in labor markets. In this theory, individuals possess private information about their abilities or attributes, which is not directly observable by employers. To convey their true quality, individuals engage in costly signalling actions, such as acquiring education or obtaining certifications, that are difficult for those with lower ability to mimic. These signals serve as indicators of individuals’ quality to employers, who use them as a basis for hiring decisions.
Replace employers with consumers, and individuals with companies — you got the gist on why we need sustainability certification.
It is still not perfect
Though we try to fix the imperfection through certification, hey, nothing is perfect, right? Sustainability certifications around the world have homework to do.
First, the accessibility of information about certification and its criteria is essential. Consumers must be able to easily access and understand information about certification labels and what they signify. Not all labels carry the same standard; even the most stringent one might not be what we think it is. Take BCorp certification as a case in point. Those certified BCorp companies all have a commitment to use business as a force for good. Yes, but they differ in degree. Not all BCorp companies are the same. Companies need to achieve at least 80 out of 200 to be certified, and importantly, there is no minimum score per section. If a business fails in one section, they can make up for it in another. They can be amazing in social aspect but still improving in the environmental area.
Brewdog (which lost its certification within two years due to controversy over their workers’ treatment) scored 81.8 out of a potential 200. To put this in context, the outdoor clothing brand Patagonia which has impeccable corporate, environmental and social credentials, is one of the highest-scoring businesses globally with a score of 151.5.
Secondly, the proliferation of certification schemes and labels can lead to confusion and greenwashing, undermining the credibility and impact of certification initiatives. For instance, the plethora of eco-labels in the seafood industry has created consumer skepticism and made it challenging for companies to distinguish genuine sustainability efforts from mere marketing tactics. The lack of uniformity and consistency among certification schemes leads to variations in certification criteria, assessment methodologies, and credibility. This diversity can create confusion for consumers and undermine the effectiveness of certification initiatives.
Finally, while sustainability certification holds promise for driving positive change, it also raises important considerations regarding inequality and access. The certification process can be arduous and costly, disproportionately affecting small-scale producers and marginalised communities. For example, small coffee farmers in developing countries may struggle to meet the stringent requirements of Fair Trade certification, limiting their access to premium markets and perpetuating existing inequalities in the coffee supply chain.
The process of certification itself can exacerbate inequalities by favouring larger, wealthier organisations with the resources to navigate complex certification requirements. This phenomenon, known as certification bias, can reinforce existing power imbalances within supply chains and marginalise smaller players. The costly process deters participation from marginalised groups, perpetuating exclusion and widening inequality gaps.
It is not perfect, but it is better than nothing
I am a believer that progress is better than perfection. Sustainability certification serves as a beacon of progress. Consider the case of the Forest Stewardship Council (FSC) certification, which verifies that wood products come from responsibly managed forests. The FSC certification has been instrumental in promoting sustainable forest management practices and combating deforestation in regions like the Amazon rainforest. Based on a report by Mongabay, FSC-certified results in lower ground or soil disturbance due to the use of heavy machinery, allowing for greater forest regeneration in the future.
Similarly, Fair Trade certification has empowered farmers and labourers in developing nations by ensuring fair wages, safe working conditions, and environmental stewardship. Research indicates that Fair Trade-certified producers indeed receive higher prices for their goods compared to conventional farmers. However, the actual benefits for these farmers may be lower than perceived, considering the significant administrative expenses involved in obtaining and maintaining certification. This process entails numerous reports and audits, which add to the overall costs. This underscores another point about the inefficiencies in an imperfect certification process.
Sustainability certification represents a powerful signalling tool in an imperfect market. It has driven progress toward positive environmental and social outcomes, but it is not yet enough. Companies and brands should not stop at simply being certified, and consumers should not stop at just looking at the label. We require a more concerted and collaborative effort if we are to effectively tackle climate change and address inequality, thereby ensuring an inclusive world for all — both people and the planet alike.
