October 2009 Big Grower

Rated “G” By Visions Group

Wal-Mart recently announced it would develop a sustainable product index for consumer goods worldwide. It's an ambitious and bold effort to reduce energy consumption, cut waste and introduce sustainable products with a rating that can be easily understood by consumers. While we are not likely to see this labeling for years, it is imperative for any producer of consumer products to understand the process that is being put in place and the impact it will have on all steps of the supply chain.

Here's a look at a few facts about this index that may get overlooked in the excitement of Wal-Mart's initial announcement.

• The ratings system is not just for suppliers of Wal-Mart and products sold in Wal-Mart stores but can be adopted for all consumer products, manufacturers and retailers worldwide.
• Wal-Mart is not developing the rating system; it's supporting the Sustainability Consortium (sustainabilityconsortium.org), which is led by Arizona State University and the University of Arkansas, and supported by other large consumer product companies such as Procter & Gamble, Cargill, Monsanto, General Mills, Waste Management. They will develop the methods and strategies to implement this sustainability index.
• This new "sustainability index" does not indicate any certification or compliance with a particular standard — and should not be used in place of certification. The index will be a measure of eco-friendliness of the manufacture, use and disposal of a particular product. Sustainability certifications, along with the use of approved input materials, are additional positive measures that will favorably impact a product's ultimate rating.

So, why pioneer this consumer sustainability product index? Wal-Mart's leadership feels an obligation to promote environmental stewardship; because of the company's size, its leaders know they can have a worldwide impact.

Good sustainability practices lead to efficiencies in production and distribution. These efficiencies can lead to cost reductions that will allow Wal-Mart to continue as a low-price leader.

Taking action now during a tough economy — and before competitors formulate a sustainability position — can be viewed as an offensive action that puts their competitors at a disadvantage. And while sustainable initiatives are still voluntary in the United States, Wal-Mart's present actions may preempt potential future regulatory and labeling government actions, similar to those now appearing in the United Kingdom and Japan.

Although the index will easily allow Wal-Mart to rate individual products and vendor performance, individual merchants also can be rated on the eco-friendliness of the products they purchase on behalf of the company. Anyone involved in this distribution chain who is not successful in improving the eco-friendliness of products under their control will certainly be viewed differently by the "powers that be." Some vendors may be pessimistic or even intimidated by the prospect of such a far-reaching program, but aggressive, progressive vendors will see it as an opportunity to differentiate themselves and their products from their competitors.

The significant change and improvement in processes and outcome will happen long before a consumer ever sees a product's score. Is there an opportunity not only to lower cost but also to increase profitability for both manufacturers and retailers? Most retailers do not believe that consumers now are prepared to pay more for sustainably produced goods, but that may change as younger consumers gain greater purchasing power. Will environmentally superior products command higher or even premium prices? Only time will tell.

What Labels Measure

How a product affects the environment traditionally depends more on how it's used and disposed of than how it is manufactured. Therefore, most labels include a lot of assumptions about how the product will be used when reporting the product's environmental impact. Some common examples are: Fuel consumption by an automobile depends in large part on the location and habits of the driver. The carbon footprint of laundry detergent is greatly affected by using either hot or cold water.

What Existing Labels Say

If Wal-Mart's efforts to establish a universally recognized measure of sustainability are successful, the present confusion and impact of ecological-performance labels maybe eliminated once and for all. Until that happens, consumers will be faced with environmental labels that can raise more questions than they resolve. There are some existing labels and claims, but not as many as most people think.

The longest-standing and most-recognizable is the fuel-economy rating posted on new automobiles. Some individual products are showing up on shelves with a carbon-footprint rating, but differing methodologies makes comparing competing products suspect.

In the world of horticulture, firms that have attained certification under the VeriFlora standard can label their product "Certified Sustainably

Produced" with the VeriFlora logo or their own environmental logo. Those who have completed MPS certification can label with the MPS logo of their particular level of certification. Certification in the USDA's National Organic Program also allows use of that logo in marketing and packaging. Others labels sometimes seen are Certified Fair Trade and Florverde.

Other environmental labels include Eco Options (Home Depot), Energy Star, Rainforest Alliance, C.A.F.E. Practices (Starbucks), Fair Labor, FSC (Forest Stewardship Council), NutriClean, LEED and EPP (Environmentally Preferred Products).

Verifying Claims

At this point, all sustainable measures are voluntary. Any verification or conformation to requirements has been instituted by third-party standard developers or the agency developing the criteria, such as the USDA. The Federal Trade Commission has started to examine a few corporate environmental claims in an effort to ensure that consumers are not duped, but they haven't released any conclusions. A number of private institutions are working on voluntary standards. There is pending legislation in both Congress and the State of California to establish standards for assessing carbon footprint. For now, it is up to consumers to determine the validity and value of a label's claim.

How Labels Affect Consumer Behavior

Most experts agree that it is too early in the use of green labels to determine how consumers are affected by environmental claims. Fuel Economy labels have been around for decades, yet manufacturers indicate that unless fuel costs spike well above recent averages, most buying decisions are based on other criteria.

The term greenwashing refers to the act of misleading consumers regarding the environmental practices of a company or the environmental benefits of a product or service.

The worldwide scope of Wal-Mart's eco labeling efforts, coupled with the development and introduction of additional private and possibly governmental environmental standards and claims will certainly lead to a geometric increase in promotion and marketing efforts for the products affixed with these labels. All of these will be touted as being "impactful, superior, most effective, number one" and almost any other superlative you can think of. Truth in advertising will be crucial but extremely difficult to impart to the consumer. With the explosion of social networking (see "Food for Thought" on page 23) and its immediacy, second chances to correct promotional mistakes will be far and few between. Anyone so much as thought to be engaging in greenwashing will experience immediate, significant and probably negative consumer impact.

SIDEBAR

Expand Your Knowledge: Today's Eco Labels

Cradle to Cradle: www.c2ccertified.com
EcoLogo: www.ecologo.org
Electronic Product Environmental Assessment Tool: www.epeat.net
EPA Energy Star: www.energystar.gov
EPA Design for the Environment: www.epa.gov/dfe
EPA WaterSense: www.epa.gov/watersense
Forest Stewardship Council: www.fsc.org
Green Seal: www.greenseal.org
Greenguard: www.greenguard.org
OEKO-tex: www.oeko-tex.com
Scientific Certification Systems: www.scscertified.com
Transfair USA Fair Trade: www.transfairusa.org
USDA Organic: ams.usda.gov/nop

The Seven Sins of Greenwashing

In 2007, Terra Choice released its first study, "The Six Sins of Greenwashing." They released a new report in 2009 with seven sins that continues to educate consumers and marketers about "the pitfalls of greenwashing."

The Hidden Trade-Off: When an eco-friendly claim is based on a narrow set of attributes without taking into consideration other more important environmental issues that outweigh or negate them.

No Proof: This occurs when an environmental claim cannot be substantiated by a reliable third party or easily accessible information.

Vagueness: This happens when a claim is poorly defined or so broad that consumers could easily misunderstand it. For example, "all-natural." Many extremely harmful chemicals, including arsenic, mercury and formaldehyde, occur naturally but are still dangerous.

Worshipping False Labels: A product that, through either words or images, falsely implies third-party endorsement.

Irrelevance: An environmental claim that is actually true but is unimportant or unhelpful to consumers seeking eco-friendly products.

Lesser of Two Evils: A claim that is true within a product category but where the whole category has negative environmental impact. Think cigarettes from organically grown tobacco.

Fibbing: Environmental claims that are just plain false. Labeling a product with a third-party certification when it has not obtained the certification.