Jill J. McCluskey
Washington State University, USA
Thomas P. Lyon
Michigan Ross School of Business, USA
To achieve long term economic growth consistent with environmental and social needs, sustainable production and consumption need to be promoted. Labelling of products or processes including environmental and social dimensions can be seen as an instrument promoting sustainable production and consumption as it reduces information asymmetry. The seminar will then focus on both sources and effects of sustainable labelling. The signalling of sustainable characteristics is a major challenge not only for producers and consumers but also for policy makers and Non Governmental Organizations (NGOs). Sustainable labelling affects both the supply- and demand-side of the market with an impact on firms’ strategic behaviour and consumers’ purchasing decisions. Policy makers and NGOs may favour sustainable labelling as policy makers set up specific regulation laws and NGOs control compliance to the certified requirements. The liability, verifiability and clarity of the labelling are key factors to ensure a sustainable development.
At the start of the twenty-first century, the problem of global sustainability is widely recognized as a major question in many parts of the world. Sustainable Development is defined as development that meets the needs of present generations without compromising the ability of future generations to meet their own needs. It offers a vision of progress that integrates immediate and long term objectives, local and global action. More, it regards social, economic and environmental issues as inseparable, interdependent and mutually reinforcing pillars of human progress. Therefore, numerous issues are covered by the concept. Environmental protection (biodiversity, climate change, pollution, resources protection…) is the most significant topic, but also social development and economic efficiency (ethical and fair exchanges, health and nutrition…) are important and require more attention.
Public awareness of environmental and social issues in development is now well developed. Citizens in almost all countries know the issues and tend to feel that the quality of the environment and of the society is important both to their own well-being and to the common good. At the same time, based on public and private initiatives, numerous sustainability standards and certification systems have been established in recent years, in particular in the food industry, whether between producers and retailers or transformers (B2B) or through retail products (B2C). This profusion of standards and logos may lead to confusion and loss of credibility among consumers.
Economic investments into sustainability are imperfect information: the sellers are better informed about quality and sustainable attributes than consumers. Improving information through means such as labelling may solve or mitigate many consumer information problems. Labelling sustainability makes environmentally- and socially-friendly behaviours observable by transforming the ‘credence attribute’ into a ‘search attribute’. These behaviours refer to choices of qualities of products or production processes that are not only relevant from a private perspective (i.e., human health) but also from a public perspective (i.e., biodiversity or social justice).
An identification of sources and effects of the implementation of sustainable labels will contribute to the improvement of global welfare. Consequences are relevant for all economic agents such as consumers, producers, policy makers and NGOs. All play a central role in the development of sustainable labelling as they either generate or respond to this type of labelling.
Most consumers declare they are willing to pay more for a product which they perceive as environmentally or ethically superior. When making their purchasing decisions, consumers are unaware of these products' characteristics or must spend very strong information costs to learn about them. Labels are a means of lowering these information costs and guide purchasing decisions that lead to a better match of consumers' preferences and sustainable characteristics of the products they purchase.
Firms’ sustainability actions refer to the concept of Corporate Social Responsibility (CSR). Firms’ CSR initiatives depend on their ability to valorise such practices. Labels, as product differentiation strategy, confer some value to such practices. They influence the strategic behaviour of firms, the organization of the supply chain and the evolution of the labels itself.
The presence of imperfect information, transaction costs in acquiring information and externalities may make markets for sustainability work ineffectively. Policy makers can look for corrective instruments compatible with seller and consumer incentives. Government policies and regulations on sustainable practices but also on labelling influence how markets for food sustainability operate and develop.
Non Governmental Organizations (NGOs) appear as significant stakeholders as CSR certifiers because they are able to coordinate bodies which set and control compliance of the product to the certified requirements. Firms can then have proactive sustainable behaviour through alliance with NGOs. Conversely, firms may view NGOs’ actions, such as campaigns, activism, boycott appeal, as a risk, an attack on their reputation.