Hi, welcome back to week three of becoming a sustainable business change agent. We began this week by looking at green design. Suppose your company's making great green products and doing other wonderful things. Earlier we talked about how enhancing your company's reputation and attracting new customers were ways to make the business case for sustainability. How can you actually do that? Somehow, people have to know what your company is doing. Take this shirt. It's moderately priced from a big internet retailer. When we talked about life cycle impact I mentioned that traditional cotton production was very chemical intensive. Now, I'd like to support clothing companies that use organic cotton, or the new category sustainable cotton, which is low impact but not as low as organic cotton. On the retailer's website, I found a sustainability page with six or eight different initiatives about the company, and what it's pursuing including one called Blue Sign that had to do with safe textiles. But, nowhere can I figure out how the cotton was grown to make this shirt. Remember when we talked about market failures? I used GDP Gross Domestic Product as an example of an information failure. It was a measure that didn't give us the information we wanted or needed to make good decisions. Well, this is another information market failure. I can't figure out if a product satisfies my criteria for being green. So what do I do? For this shirt I hope that the sustainability initiatives that the company's pursuing spill over into the cotton it uses. But, if that were the case wouldnt the company be telling customers about it? And if the company did brag about using organic cotton or some other things that they've done. How would I know whether, I could believe them? A company has to tell people about what it's doing. It has to explain that its products are using less energy or that the material that it uses come from legitimate sources or that the product can be easily recycled. One approach is to just make all these claims and hope people believe you. Trust me, or you could put big bold letters on the package of product saying, low energy, recyclable, on natural, biodegradable, improved. Any company could do this because there's no penalty for using any of those words, none of them have a strict meaning that has to be adhered to before you can put that on the label. It costs companies nothing to use a bunch of these words to attract customers even if they've done nothing to change the product so it actually has some of these characteristics. But people are smart. So, they aren't tricked by these kinds of ads or labels. Therefore, to convey to people the good things that your company is doing, requires more than just talking about it. If it applies the word organic, that has a special meaning. The federal government's established a standard that has to be met before a product can be called organic. This is a meaningful label because US Department of Agriculture enforces the standards and it can fine farms up to $11,000. Or it can remove their organic certification if they cheat. This is crucial, there has to be a penalty for cheating. Some companies use third party certification and eco-labels. Here are two examples from Home Depot. One is for lumber, Forest Stewardship Council. The second is, Energy Star from the United States Environmental Protection Agency for energy efficiency. These are third parties, that examine the products or the production to make sure that they met whatever the appropriate criteria are. Here are some other labels you might have seen. As consumers, we like these labels because we assume that they mean the product has met some rigorous standard of quality. We also assume that experts have established the criteria that have to be satisfied, so these products really will result in a better world. What do you think is necessary for a label to be credible? Or for you to believe it really signifies a superior and greener product. Here's a short poll that you can take to answer that. Economics tells us that signals or labels work, if a couple of things are true. First of all, it's expensive for a bad product to get the label. Second, there's a penalty for cheating. To be labelled an organic farm, a farmer has to not use bad chemicals for three years. It has to pay someone to test the soil and so on. This is expensive because during those three years, the farmer may be getting a lower yield. But doesn't get the price premium for producing organic food. If the farmer claims his produce is organic but it isn't. He can be fined up to that $11,000 I mentioned earlier. Real organic farmers have an incentive to file complaints against cheaters. One of the pull options was that. Lots of producers use the label or the certification. Why is this important? If the certifying groups are letting in cheaters, that tarnishes the quality of all the other members using that equal label. The more products being certified, the more pressure there is to maintain the standards because the potential value loss across all of those participants is so large. Also, a large group is more likely to do effective policing to identify fakes so they maintain their investment in the label. Would you trust my Label? You shouldn't trust my label. Now, according to the Ecolabel Index, there are 377 ecolabels. Here's a video that shows them. It seems like there's a label here for everyone and every product. But a lot of them won't do your company any good because they aren't credible. To let consumers know the good things you're doing, you need to find a credible way to send a signal. One way is with a legitimate and well-known ecolabel. Let's change gears. What would would be a great, in fact, almost a perfect signal for the claim that your product can be recycled. How about if your company took the product back that would be a powerful affirmation that it could be recycled or reused. If it couldn't be then the company would be bearing unnecessary costs. To make the business case for becoming sustainable, you have to make sure that you can tell your story and that consumers will believe you. Ecolabeling is one way, product take-back is another. Next, we'll talk about greenwashing. What it is, and if it's a serious problem, thanks.
