Global Governance Institute


In the Maelstrom of the Market: Pricing the Success of Sustainability

24 January 2015

Philippe Beck (MSc Global Governance and Ethics) on the GGI keynote lecture with Dr Axel Marx.

Green Transformations

The last couple of decades have seen Voluntary Sustainability Standards (VSS) rise to unprecedented prominence among consumers and producers alike. Sustainability standards and certifications have emerged as a genuinely innovative form of private market regulation which is still in the process of maturing. And yet, this promising and evolving object of study for global governance scholars appears to be beset by familiar forces that require further investigation. Dr Axel Marx from the Leuven Centre for Global Governance Studies shared his insightful research into an issue area whose relevance cannot be understated.

Whether you buy a new set of wooden shelves for your growing book collection, boxes of pralines for your best friend's birthday, or a new pair of jeans from your favourite brand, you might be - and if you read this certainly are - interested in the sustainability of the production chains of the commodities and goods you enjoy. How do you know there is no fallow wasteland where the wood for your shelf once sprouted? How can you make sure children did not harvest and process the cocoa beans used to make that chocolate? Who assures us that South Asian seamstresses can afford a living with the wage they are paid to make our clothes?

For now at least, the answer lies with standard-setters. Innumerable commodity-specific or standard-specific VSS - or labels - began appearing in the early 1990s, and while some subsequently disappeared, their overall number continues to rise, reaching a staggering 450 in 2014. Typically, a standard-setting organisation defines certain standards, then a company's conformity is assessed if it so wishes, and finally, a certificate is issued by the setter or by an accredited third party if all standards are satisfied. Operating at the different levels of principles (e.g. the Forest Stewardship Council), standards, and indicators, the actors involved in this process are thus able to assure the end-consumer that sustainability demands are met at the level of the 'entity' to be protected - such as a forest -, and potentially, by way of chain-of-custody certification, throughout the entire supply chain.

The individual mechanisms of monitoring that NGOs engineer and companies submit themselves to, are enormously diverse and can largely be categorised according to four variables: the openness of the standard-setting procedure, the identity of the auditor, the commitment to transparency, and the existence of dispute-settlement systems. While most companies have moved beyond unilateral and unmonitored Codes of Conduct and refrain from undertaking self-assessments, the majority of them have not yet enlisted third party auditors - the first two parties being the standard-setter and the complier -, let alone adopted full disclosure mechanisms or established internal procedures to settle disputes.

In 1924, Rudolf Steiner launched what was arguably the first label for organic farming, which has proved to be a lasting success. Nonetheless, the most momentous change was triggered by the adoption, in the 1990s, of direct action tactics by environmental and social movements. The shift in focus away from state regulation and towards the immediate pressuring of companies was "like discovering gunpowder for environmentalists" (Gereffi et al. 2001 Foreign Policy). Over the course of the following decades, this grassroots action has led to what could be qualified as a tacit alignment of interests between firms protective of their reputation and NGOs pursuing a normative agenda, an arrangement which, for the most part, has bypassed nation states. Even though most labels are adopted in high-income countries - except for Fair Trade and the FSC certification, which are more evenly spread across middle and low income countries -, the popularity of sustainability standards maintains its traction. This dynamic is illustrated, for instance, by the increasing inclusion of certification requirements in legislation, or by the public commitments made by multinationals, as well as exclusively national corporations, to guarantee workers a living wage.

That being said, the dynamic behind the spread of voluntary sustainability standards appears to come at a price which cannot yet fully be gauged. In fact, what I have described thus far as success can easily be relabelled as proliferation, which boils down to an increased offer in the market of labels. Consequently, a company confronted with a broader choice of labels may, hypothetically, prioritise relative leniency in standards over the reputation of that standard, conducing to competition and an eventually inevitable race to the bottom. Conversely, if the international renown of a label prevails, will we see the emergence of a monopoly in this market, and what would be the consequences of such a development? In a nutshell, labels are bound to turn into brands. The market forces sustainability standards are subject to leave us with the uncertain alternative of elaborately designed standard compliance systems versus mere 'greenwashing'.

It is true in the case of sustainable forest management, for instance, that the marginal increase in production and compliance cost of having a hectare certified varies hugely between €1 and €19.1. In a similar vein, it is equally true that the standards and assessment tools are still in development and dominated by institutional diversity. Nevertheless, increasing market problems seem to strongly suggest the intervention of an external agent: firstly to facilitate the mutual recognition between labels, and secondly to put in place some form of meta-regulation to reduce the confusion caused. On the latter point, the ISEAL Alliance could possibly be a case in point.

Therefore, the crucial question becomes who and where an overarching institution is required - if such an agent does not run counter to the very nature of the 'label industry'. Thus, one of the challenges for Global Governance scholars is to conceive a solution which concerts and preserves the grassroots forces at play, strengthens their say in corporate governance across borders and sectors, and ensures the innovation of sustainability is not abused and reduced to the narrowest, literal sense of the word 'label'.