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Can Multiple Eco-Labels on a Product Harm the Environment?

5/18/2009 --

Scholars address this and other questions at the first Alliance for Research on Corporate Sustainability conference hosted by Ross and the Erb Institute.

ANN ARBOR, Mich. — Researchers representing the University of Michigan, the University of Virgina, Duke, Harvard, Cornell, and Stanford, among others, gathered at the Ross School of Business May 8-9 to engage in the first Alliance for Research on Corporate Sustainability (ARCS) conference. For two days, scholars analyzed, assessed, and critiqued one another's hypotheses, methodologies, and results in the growing field of sustainability.

The increasingly interdisciplinary nature of the field makes the need for an annual gathering of leading scholars more relevant today than ever, says Andy Hoffman, the Holcim (U.S.) Professor of Sustainable Enterprise at Ross. Hoffman also is the associate director of the Erb Institute for Global Sustainable Enterprise, which hosted ARCS.

"Researchers in economics, strategy, and public policy need to learn to speak each others' language," Hoffman says. He suggests scholars move beyond thinking about how their disciplines deal with the issue of sustainability and "turn the arrow the other way into how do issues of sustainability give us different ways of thinking about our disciplines?"

Hoffman cited one example of an Irish government policy that neatly ties together how different lenses can be useful in studying the policy and business effects of sustainability efforts. In 2002, the Irish government tacked a 15-cent fee on plastic grocery bags. Within a year, plastic grocery bag use dropped by 94 percent.

A straight economist's view could conclude that pricing works. But Hoffman says there are other things to consider. "A price is never socially inert," he says. "A social norm formed. One person said using a plastic grocery bag is on par with wearing a fur coat or not cleaning up after your dog. How does that norm form?"

A look at the culture of Ireland shows a relatively young population, which typically makes for a good innovation test bed. There were no domestic plastic bag manufacturers in Ireland, so there was little political risk of imposing the fee. Ireland also had recently shifted its currency to the Euro, so the population was already malleable to change. But unintended consequences arose. Some consumers started buying plastic trash bags to carry groceries. And so the research continues.

Scholars attending the first ARCS delivered research results on topics as widespread as their burgeoning field -- from the relationship between activism and corporate environmental performance to whether competition promotes environmental investments. One study looked at competitors as whistleblowers in enforcement of product standards.

Ross professor Tom Lyon, director of the Erb Institute, co-authored a study titled "Competing Environmental Labels." The research explores the conflicting incentives driving NGOs and industry players to label products "green." As a rule, NGOs seek to minimize environmental damage, while industry seeks to maximize profits. Not surprisingly, Lyon's initial research found that NGOs apply tougher standards than industry in certifying products. But regardless of whether a product bears a single label generated by industry or NGO, some environmental benefit does result. However, the research shows when NGOs and industry apply multiple labels to a product class at the same time, industry sets a lower standard than it would if it were acting alone. And when the two labels compete, the NGO loses participation in its label. This implies that environmental damage may well increase when multiple eco-labels are at play.

Lyon's results suggest there may be a role for government to play in limiting the proliferation of eco-labels in the marketplace. ARCS attendees suggested further research into consumers' reactions to and understanding of labels and their validity, and how certifiers' participation in profits from a product impact and possibly degrade the standards applied to an eco-label.

"We intend this to be the first of many annual gatherings of the ARCS consortium, because the field of sustainability research has reached a tipping point," Lyon says. In addition to his role at the Erb Institute, he is the Dow Professor of Sustainable Science, Technology, and Commerce at Ross and professor of business economics and natural resources. "The field of sustainability has moved from 'the fringe' to something central to the academic life of business schools." To his point: the Journal of Economics and Management Strategy recently produced a special issue focused on management strategy and the environment.

In addition to U-M, sponsors of the first ARCS included Dartmouth, Duke University, Harvard University, the University of Virginia, and the University of Western Ontario, all of which are members of the alliance. The annual conference will rotate among these schools in future years.

—Terry Kosdrosky and Deborah Holdship

For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847,