Environmental Labeling and Advertising Claims: International Action and Policy Issues

ABSTRACT - Environmental labeling programs administered by private organizations and government agencies have developed or are being developed in countries around the world. Even in countries where such programs are not yet in place, sellers have increasingly been making environmental claims in their advertising of consumer products. Although the goal of both third-party labels and seller environmental claims is to provide consumer information, each approach has its own particular strengths and limitations. This paper briefly examines some of the issues in administering environmental labeling programs and regulating environmental claims. It compares environmental labels and claims in terms of their value to consumers. Survey results focusing on consumers' understanding of terminology dealing with recycling, a common theme in environmental claims and labeling programs, are reviewed. The paper concludes by discussing the role of public policy in governing environmental claims and labeling programs.

Citation:

Debra L. Scammon and Robert N. Mayer (1993) ,"Environmental Labeling and Advertising Claims: International Action and Policy Issues", in E - European Advances in Consumer Research Volume 1, eds. W. Fred Van Raaij and Gary J. Bamossy, Provo, UT : Association for Consumer Research, Pages: 338-344.

European Advances in Consumer Research Volume 1, 1993      Pages 338-344

ENVIRONMENTAL LABELING AND ADVERTISING CLAIMS: INTERNATIONAL ACTION AND POLICY ISSUES

Debra L. Scammon, University of Utah, Salt Lake City, U.S.A.

Robert N. Mayer, University of Utah, Salt Lake City, U.S.A.

ABSTRACT -

Environmental labeling programs administered by private organizations and government agencies have developed or are being developed in countries around the world. Even in countries where such programs are not yet in place, sellers have increasingly been making environmental claims in their advertising of consumer products. Although the goal of both third-party labels and seller environmental claims is to provide consumer information, each approach has its own particular strengths and limitations. This paper briefly examines some of the issues in administering environmental labeling programs and regulating environmental claims. It compares environmental labels and claims in terms of their value to consumers. Survey results focusing on consumers' understanding of terminology dealing with recycling, a common theme in environmental claims and labeling programs, are reviewed. The paper concludes by discussing the role of public policy in governing environmental claims and labeling programs.

BACKGROUND

The last few years have seen an explosion of interest on the part of consumers in adopting "environmentally friendly" or "green" lifestyles. This interest can be seen in the findings of public opinion polls (Wells and Stoeckle 1990; Mayer and Zick, 1992; Roper Organization 1990). Firms have responded to consumer interest in the environment by marketing products based on their environmental features ("Green Introductions Increase..." 1990).

Both consumers and sellers have an interest in the dissemination of brand-specific information about environmental attributes. One approach, most pervasive in the United States, is for firms to make green claims in their advertising and on their labels. Firms using this approach may describe their product in general terms (e.g., recyclable or ozone friendly) or in specific ones (e.g., made from 50% post-consumer recycled material).

A second approach, more common outside of the United States, is for third-parties to issue environmental seals of approval. The oldest of these labeling programs is West Germany's Blue Angel system. At the heart of these programs is an impartial body that selects product classes to be rated, determines criteria by which brands within those product classes are judged, and sets the conditions for use of the label by qualifying firms.

Whereas initiative in the area of environmental labeling has come from outside the United States and initiative in the area of environmental claims has come from within the United States, firms doing business in the international market place will have to master both means of delivering brand-specific environmental information to consumers. The creation of a single market within the European Community will likely spur the use of environmental claims as firms seek to differentiate their brands. Simultaneously, there are fledgling efforts to develop environmental labeling programs in the United States (e.g., Green Seal and Green Cross). Thus, consumers are likely soon to be using both sources of brand-specific environmental information.

The first section of this paper provides a brief overview of environmental labeling programs and the use (and regulation) of environmental claims. The second section compares these two avenues for disseminating consumer information in terms of their likely value to consumers. The third section focuses more narrowly on the ability of third-party environmental labels and seller environmental claims to provide consumers with information relevant to recycling issues. The paper concludes with some observations about the potential role of public policy in improving brand-specific environmental information for consumers.

ENVIRONMENTAL LABELING PROGRAMS

The underlying goal of environmental labeling programs is to minimize negative impacts on the natural environment by encouraging consumers to buy environmentally superior products and encouraging firms to offer them. In addition, the presence of environmental information might in itself stimulate public curiosity, awareness, and concern about the environment (Carswell, Langel and Borison, 1989, p. 3; Salzman, 1991a, p. 12-13).

A number of government and private organizations issue environmental labels as a means of providing information to concerned consumers about the environmental impact of consumer products. The OECD countries currently issuing or considering issuing environmental labels are listed in Table 1. West Germany's Blue Angel, the first environmental label, was introduced in 1978. By the end of 1991 the Blue Angel label had been awarded to over 3200 products in 60 product categories. In 1988, Canada introduced its Environmental Choice label which has been awarded to 58 products in 18 product categories. Japan followed the next year with its Eco-Mark label. Since the program's initiation in l989, 850 products in 31 product categories have received Japan's label. Groups of product categories covered by these three environmental labels are presented in Table 2.

Despite differences in product selection, testing criteria, governance, and funding sources, environmental labels have several features in common. They are voluntarily granted to brands in approved product categories that pass the scrutiny of inspection and evaluation by the granting organization. They attest to a positive environmental benefit connected with the product, rather than warn of an environmental danger posed by the product. Thus, these labels are neither mandatory nor negative. Manufacturers whose brands are superior to competing brands are granted the right to use the label as a means of informing consumers of the positive environmental aspects of their brands.

Environmental labeling programs also face the several basic dilemmas. Three of the thorniest are:

(1) How narrowly should product classes be defined? If definitions are narrow, then labels run the risk of ignoring environmentally superior but technologically dissimilar substitutes (e.g., roll-on versus spray deodorants). If definitions are broad, labels run the risk of being irrelevant to the consumer's choice set (e.g., consumers may want the environmentally superior brand among spray deodorants but would not consider a roll-on).

(2) Whereas rating criteria would ideally reflect the entire lifecycle of a product, how feasible are these "cradle-to-grave" analyses? How does a scientist, let alone an everyday consumer, combine a product's performance on disparate dimensions of environmental impact (e.g., energy consumption versus toxic residues)?

(3) How selective should an organization be in awarding its label? Should a fixed market share, say 20%, be targeted for eligible brands? As more and more firms qualify, should standards be raised to maintain the relative superiority of brands with labels? What would be the effect on the incentive of firms to seek the seal of approval if previously granted seals are revoked despite no decrementCand perhaps even an improvementCin a brand's environmental performance?

TABLE 1

ENVIRONMENTAL LABELING PROGRAMS AMONG OECD COUNTRIES

TABLE 2

PRODUCT GROUPS COVERED BY ENVIRONMENTAL LABELS IN WEST GERMANY, CANADA, AND JAPAN

These and other dilemmas make administration of an environmental labeling program difficult. Our main concern here, however, is how these dilemmas affect the quality of consumer information provided by labeling programs. We return to this issue after briefly introducing environmental claims.

ENVIRONMENTAL CLAIMS IN ADVERTISING AND ON PRODUCT LABELS

Public opinion polls indicating that consumers are concerned about the environmental impact of their purchasing decisionsCand willing to pay more for environmentally "friendly" productsChave motivated sellers to make environmental claims about their brands. Like environmental labels, the use of environmental claims in advertising is voluntary. However, since there are currently no organizations or agencies specifically charged with screening and approving environmental claims (as there are granting environmental labels), there is more concern about the accuracy of environmental information contained in claims and the impact of that information on consumers' perceptions of the desirability of the advertised brands.

Regulators (and competitors) want to be sure environmental claims are accurate and deal with important and relevant product/production features. The challenge for regulators is to weed out misleading or trivial claims without discouraging firms from making truthful and substantive ones.

Three types of environmental claims have received particular criticism. First are those which are extremely vague or broad. Terms such as "environmentally friendly" or "environmentally safe" provide little useful information to consumers unless they are accompanied by an explanation of exact environmental impact. To address such vague claims, the "Green Reports" (Attorneys General Task Force, 1991) of a task force of attorneys general advocate requiring the inclusion of information about the specific nature of the environmental impact of brands in ads. Thus, an advertiser could claim that "Brand X is environmentally friendly because it contains 50% recycled material."

Second, even factually true claims may be misleading without the inclusion of additional relevant information. For example, a brand may in fact be made from recyclable plastic. Making that claim in the absence of information about where recycling facilities exist for that type of plastic could mislead consumers into purchasing that brand, only later to find that they are unable to recycle that type of plastic in their community.

Third, an even more subtle claim with the potential to mislead consumers is one implying uniqueness with respect to the particular environmental impact when in fact it is not unique to that brand. For example, the claim that an aerosol deodorant does not contain any CFCs may in fact be an accurate claim. However, since the use of CFCs as a product propellent has been banned, no aerosol deodorants on the market today contain CFCs. A further complication is the fact that aerosol deodorants contain other propellants which may be pollutants.

These potential problems and others that relate to consumers' perceptions and understandings about the environmental properties of brands have led to several efforts in the United States to regulate the use of environmental claims in advertising and on product labels. In addition to the "Green Reports" (Attorneys General Task Force, 1991), the Federal Trade Commission (Federal Register 1991a) and the Environmental Protection Agency (Federal Register 1991b) have held public hearings, bills have been introduced in Congress (e.g., Senate Bill 615, sponsored by senators Lautenberg and Lieberman), and laws or regulations have been established in individual states (e.g., California, Rhode Island and New York). (For a detailed discussion of these regulatory efforts, see Greenberg, 1991 and Mayer, Scammon and Zick, 1992.)

Efforts to minimize the potential for consumer deception from environmental claims are on-going in other countries as well (Salzman 1991b). Some nations (e.g., England, New Zealand, and Norway) are simply relying on existing statutes and mechanisms against deceptive advertising. Canada, the Netherlands, and Ireland have established voluntary codes to help guide environmental advertising. For example, the Canadian guidelines supplement the Canadian Code of Advertising Standards. These "Guiding Principles for Environmental Labelling and Advertising" state that environmental claims must:

C be based on recognizable standards or prevailing scientific standards;

C avoid vague statements implying environmental benefit unless accompanied by specific explanation of the benefit; and

C not convey a message of overall environmental benefit due to removal or reduction of a substance unless it can be demonstrated that the product is less damaging overall to the environment (Consumer and Corporate Affairs Canada 1991, p. 8)

Switzerland represents a third approach. That country has passed a specific law regulating misleading environmental advertising, although it also relies on a more general federal law governing unfair competition (Salzman, 1991b).

In sum, there is substantial international variation in the extent to which environmental seals of approval appear on products and environmental claims are made by sellers. From the point of view of consumers, both third-party labels and sellers' claims are potential sources of consumer information. As such, they can be rated and compared.

ENVIRONMENTAL LABELS AND CLAIMS AS CONSUMER INFORMATION

For more than a decade, Maynes (1981, 1991) has been refining and applying a system for judging the quality of consumer information sources. Among the most important characteristics (or "desiderata") of information sources are their availability at the time and site of use and their credibility. Also important to the value sources of information hold for consumers is the information contained therein. According to Maynes, information should be accurate, comprehensive, flexible, easy to use, and comparative.

How do environmental claims and seals of approval stack up on these characteristics of information sources? When comparing labels and claims, each has its relative strengths and limitations. Although generalization always risks the exclusion of important exceptions, we summarize the relative strengths and limitations of third-party labels and seller claims in Table 3. We turn now to a discussion of some of the characteristics of each that weigh in such an evaluation.

The major strength of environmental claims, at least those used on product labels and packages, is their availability at the time and site of purchase. To the extent that environmental claims typically focus on a single environmental dimension, they can be readily processed (assuming that the terms used are understood by consumers.) Finally, while environmental claims are not highly flexible in the sense of allowing consumers to combine information according to different weighting schemes, a firm can modify claims to be most relevant to different segments of consumers (e.g., those most interested in energy efficiency or recycled content).

Environmental claims fall short on several of the characteristics of ideal information sources. Even if claims are accurate, they may not be highly credible, given their source. Several surveys show that roughly half of respondents are skeptical of environmental claims (Coddington, 1991; Mayer, Scammon, and Zick, 1992) Nor are environmental claims likely to be comprehensive in the sense of giving a cradle-to-grave profile of a brand. Like any seller-controlled information, environmental claims are likely to focus on those features which show a brand to best advantage.

There are at least two areas in which generalizations about current environmental claims are difficult C their comparability and accuracy. Claims have the potential to provide comparative information. As comparative ads become more accepted in European countries (Kaynak, 1989), environmental claims will have the option of containing comparative information (e.g., product A contains a higher percentage of post-consumer recycled paper than product B). Ensuring accuracy is the goal of several proposals for the regulation of environmental claims. One suggestion is to standardize definitions (e.g., the term "recycled material" must refer to post-consumer material). Another is to mandate the disclosure of environmental information under certain circumstances (e.g., if a firm claims its brand is "recyclable," it must include a statement about the availability of recycling facilities) (Federal Register 1991a). Thus environmental claims have the potential to be both comparable and accurate.

TABLE 3

RELATIVE STRENGTHS AND LIMITATIONS OF THIRD-PARTY ENVIRONMENTAL LABELS AND SELLER ENVIRONMENTAL CLAIMS AS SOURCES OF CONSUMER INFORMATION

Environmental seals of approval have a different constellation of strengths and limitations. Like environmental claims, third-party labels have the advantage of being readily available at the time and site of purchase. More so than claims, however, environmental labels are likely to be credible because of their third-party origin. (Of course, this credibility can be undermined if seals of approval are awarded too freely.) Third-party labels, especially as they work out the problems of using life-cycle analysis, are also more likely than environmental claims to provide comprehensive consumer information. Finally, by their very nature as a summary measure of a product's environmental attributes and their ease of recognition, environmental seals of approval require little in the way of information processing by consumers.

Despite these advantages, environmental labels have several shortcomings as a source of consumer information. Compared to environmental claims, they are less able to immediately reflect product improvements. Environmental claims can be changed by a seller far more quickly than approval can be gained for a third-party label. Experience in West Germany suggests it takes at least a year from application to granting of the right to use a label. Recently established programs, like those in the United States, take even longer.

Environmental labels are not very flexible in the sense that the consumer must accept the criteria and weighting system used by the label certifier. The consumer cannot decompose or experiment with alternative weightings of the information about a brand's environmental attributes. As consumers become more sophisticated in their understanding of environmental issues, additional information about a brand's environmental performance may have to be provided along with the seal of approval. As an alternative, consumer education programs may be useful in explaining the basis upon which labels are awarded.

Comparability is not a strength of labeling programs. Either a brand has a label or it does not. Labels do not allow consumers to differentiate among the brands that use the label or among those that do not. (Graded systems of environmental labeling have been proposed in which different labels would indicate levels of environmental performance, but no such graded system has been implemented to date.) And the absence of a label cannot automatically be interpreted as a sign of a brand's deficiencies; some firms, for a variety of reasons, may qualify for a label but not apply to use it.

Given the relative advantages and disadvantages of environmental labels and claims, consumers are best served by a combination of the two. The process of obtaining permission to use environmental labels is inherently slow because of the need to gain authorization from an independent testing organization. Seller claims, on the other hand, can be adapted quickly to respond to new brand information and/or changing consumer demand. Seller claims are relatively low in credibility, but that credibility could be enhanced by using a label awarded by an independent organization as a feature of advertising claims. Accuracy of advertising can be improved through appropriate regulation and self-regulation, and comparability can be enhanced by encouraging comparative claims and/or mandating disclosure of specific environmental impact information.

The utility of either source of consumer information depends, however, on the ways in which third-party labels and seller claims are perceived and interpreted. Regulatory and self-regulatory bodies have begunCbut only just begunCto gather data on consumer interpretations of environmental terminology. In the next section, we present some of this data to illustrate how it can contribute to the formation of public policy.

CONSUMER INTERPRETATION OF ENVIRONMENTAL TERMINOLOGY

Environmental claims touch on a variety of environmental attributes of a brand. One common reference is to a brand's impact on the solid waste stream. Such claims raise several questions about the ways consumers interpret statements about a brand's recyclability and/or its recycled content.

Regarding claims about a brand's recyclability, two aspects of accessibility seem to be important to public policy makers in determining the accuracy of the claim: the availability of recycling facilities in the consumer's own community and how widespread recycling facilities are in general. In testifying before government bodies like the Environmental Protection Agency, sellers have generally taken the position that a claim of recyclability should be permissible as long as recycling programs are not merely in the experimental phase. Sellers oppose the required disclosure of a national rate of recycling for a given material on the grounds that this information would discourage nascent recycling programs (Becker, 1991; Kamena, 1991; Kozak, 1991; Nolan, 1991; Wallace, 1991; Wojton, 1991). Other parties in the regulatory process (Conway, 1991; Denison, 1991; Humphrey, 1991; Nosenchuck, 1991) believe that consumers (and other competitors) are harmed when a product is described as "recyclable" or "recyclable where facilities exist" only to find that recycling is not possible in their local community or is extremely limited in geographic availability.

How do consumers perceive claims about a product's recyclability? According to one national survey (Environmental Research Associates, cited in Kamena, 1991), the vast majority of consumers do not expect a product labeled "recyclable" to be recyclable in their local community. The exact question posed was:

Some products or packages can be recycled in some communities but not in others. Should a product sold in your community be labeled "recyclable" only if it can be recycled in your community or should it be labeled recyclable even if it can't be recycled in your community, but can be recycled elsewhere.

Only 22% of the 1000 survey respondents stated that a product must be recyclable locally; 73% believed the label was acceptable as long as facilities existed elsewhere. (Five percent didn't know or had no opinion.) The results leave unanswered, however, the question of how extensively facilities must be available elsewhere. Is one pilot project in one location enough, or do facilities need be available to a substantial percentage of consumers?

Research conducted with a representative statewide sample in Utah (Mayer, Scammon, and Zick, 1992) addresses this question but at the same time suggests that consumers make strong local presumptions when they read the words "recyclable where facilities exist." Two questions were posed to respondents:

1. If you were shopping at your local store and saw a product or package labeled with the words "recyclable where facilities exist," would you assume that recycling facilities exist in your community? and

2. If you saw a product or package labeled with the world "recyclable where facilities exist," in what percentage of the communities where the product is sold would you assume that recycling facilities exist?

With regard to the availability of recycling facilities in their own community, the sample was almost evenly split with 51.5% saying they would assume facilities were available and 48.5% saying they would not assume facilities were available. With regard to their assumptions about the percentage of communities where recycling facilities would exist, the median response was 29% of the communities where the product is sold.

Why do the Utah respondents make stronger presumptions about the availability of recycling facilities in their local community than the national sample of respondents? Differences in question wording are always a possibility. Another possible explanation is that Utah respondents are relatively privileged in terms of access to recycling facilities. Utah, despite its small population and large size, has a large percentage of its populations living in urban areas. But Utah is not a progressive state in terms of its promotion of recycling efforts.

Regardless of the reason for the difference between the two surveys, it is interesting to note that the Utah respondents do not assume that the words "recyclable where facilities exist" mean that facilities exist in a majority of communities. Taken together, the two surveys suggest that consumers' expectations may not be unduly raised by sellers' claims of recyclability, implying that immediate and or strict regulatory control of these claims may not be needed.

A second major issue addressed by government and industry bodies in regulating environmental claims concerns the ways in which consumers interpret information about a brand's recycled content. In the study conducted by Environmental Research Associates (Kamena, 1991), respondents were asked:

When you see on a label that a product or package is made from recycled materials, do you think this means it is made 100 percent from recycled materials, at least half is made from recycled materials, at least 25 percent is made from recycled materials, or contains at least some recycled [sic], but you're not sure how much?

The largest percentage of respondents (49%) weren't sure of how much recycled material the claim implied or couldn't answer the questionCa telling fact in itself. The next most common answer (26%) was that "made from recycled materials" means 100% recycled material. Eighteen percent assumed that it would be at least half recycled material, and 8% assumed the items would have at least one quarter recycled material.

The answers to this question indicate a great deal of public uncertainty about the meaning of unqualified claims about recycled content. The Utah study referred to above examined a different aspect of consumer perception of recycled content claims. It examined whether consumer interpretations were dependent on the exact words used in a recycled content claim. To explore the possible sensitivity of consumers to wording differences, the study used a split sample. Half the sample was asked to estimate the percentage of recycled material in a package or product that claimed to "contain" recycled material while the other half of the sample was asked to estimate the percentage of recycled material in a product described as "made from" recycled material. One might expect that the wording "made from" implies a higher level of recycled content than the wording "contains."

Contrary to expectation, question wording did not make a difference. Respondents estimated that 67.5% of products "made from" and 63.1% of products that "contain" recycled materials were in fact recycled material. This small percentage difference is not statistically significant. Given the high degree of consumer uncertainty expressed in the Environmental Research Associates study, the absence of a difference depending on question wording may indicate that consumers have no firm basis for estimating recycled content claims. This, in turn, suggests the need for some type of specific disclosure requirement when recycled content claims are made.

Thus, in one case (recyclability claims), research on consumer perceptions suggests that government regulation may not be urgently needed; in another case (recycled content claims), the data point to the potential usefulness of disclosure requirements in alleviating consumer confusion. Perhaps the more important lesson, however, is that a great deal of further research on consumer perception and interpretation of environmental claims is needed. Consider the following finding. In the Utah study, respondents were asked the extent to which they agreed with this statement:

When people buy brands that are labeled recyclable but don't actually recycle them, they are still doing something good for the natural environment.

Among the respondents, 32.8% agreed or agreed strongly with this statement. While it is possible that some respondents answered in the affirmative thinking that buying recyclable goods without recycling them at least sends the right market signals to firms, this is a relatively sophisticated response. More likely is the fact that substantial numbers of consumers are confused about what the term "recyclability" means and the role recycling plays in solid waste management.

These sorts of "non-intuitive" reactions to environmental claims deserve further exploration as confusion with regard to the basic underlying framework within which environmental issues are viewed may ultimately be more influential on consumer behavior than minor differences in the wording of claims.

DISCUSSION AND CONCLUSIONS

Government policies to promote the availability of consumer information are often justified on the grounds that consumer information is a "public good" whose benefits go beyond the individual user and whose value is therefore greater than the amount that individuals are willing to pay for it in a market. If this is the case, then government action to stimulate brand-specific environmental information is doubly justified, for environmental quality is also a public good. What specific public policies would be most useful in promoting the availability, accuracy, and pertinence of brand-specific environmental information for consumers.

First, a critical issue facing third-party environmental labeling programs is how to conduct product lifecycle assessments of brands (Werner, 1991). Not only are there major technical barriers to be overcome (e.g., comparing BTUs of energy with kilograms of waste), but there are political considerations as well (e.g., geographical areas and countries differ with regard to their most pressing environmental problem(s) and thus their goals for environmental protection). Governments can play an important role in advancing the science of lifecycle assessments as well as serving as an open arena for the resolution of its political dilemmas.

A second priority for public policy is to stimulate research on consumer understanding of environmental issues and interpretation of environmental terminology. Ultimately, whether information available on the environmental impact of brands is useful to consumers in making decisions will depend upon consumers' knowledge of and attitudes toward environmental issues. Public policies to encourage the dissemination of brand-specific environmental information will be most effective if they are based upon accurate information about consumers' knowledge of environmental issues and claims.

In conducting research on consumer interpretations of environmental terminology, survey research involving large representative samples will ultimately be needed. But additional studies using qualitative methods, including depth interviews with individuals and focus group interviews with groups of consumers, may be needed first to truly understand how consumers think about environmental issues, how they make decisions incorporating environmental information, and even how small nuances in terminology are likely to impact their interpretation of environmental claims. As representatives of the American Marketing Association (1991) asserted in testimony before the EPA, identifying terms consumers can readily understand lies at the heart of the success of any approach to providing environmental information to consumers.

Third, against the backdrop of research on consumer knowledge of environmental issues and interpretation of environmental claims, public policy can advance the "language" used to communicate brand-specific environmental information. These policies can range from banning deceptive terms and standardizing terminology to requiring disclosure of specific information when claims are made. Eventually, governments may go so far as to require all products to carry environmental impact labels, just as they currently do for nutrition information or energy efficiency. Over time, public policy makers must experiment to find the mix of policies that will discourage misleading claims without discouraging truthful ones.

Finally, governments can promote and protect the credibility of both third-party environmental labels and seller environmental claims. Regarding environmental seals of approval, governments can help guard against the possibility that labeling organizations will lower their standards (or otherwise bias their procedures) to insure adequate revenues. To minimize the potential of labeling organizations "selling out," governments can provide short-term or even long-terms subsidies, as is currently being done in several countries (Salzman, 1991a). In the area of claims by sellers, credibility can be promoted by governments encouraging the establishment of self-regulatory guidelines, aggressively applying existing statutes against deceptive or misleading claims, and/or developing rules that reflect the unique aspects of environmental claims.

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