Report on company feedback from the French national environmental labelling pilot

Transcription

1 I Report on company feedback from the French national environmental labelling pilot Summary of the report drawn up by Ernst & Young Please note : the original French version shall prevail Introduction: the pilot, successful momentum Late 2010, 230 companies responded to the call issued by the Ministry of Ecology, Sustainable Development and Energy for taking part in the national environmental labelling pilot for consumer goods. 168 companies were selected, including 56 individual and 112 collective projects, forming a varied panel in terms of business size (SME, medium and large businesses), sectors represented (see chart), geographic location in France and abroad and degree of familiarity with the environmental labelling approach. From July 2011 over a one-year period, these companies developed, for a selection of 10,000 references 1, an environmental information system intended for consumers enabling the former to test numerous different possibilities in terms of content (indicator titles, explanatory texts), format (absolute values, scales, indexes, etc.) and support media (packaging, shelf, internet, etc.). The pilot was successful with 90 % of the companies forming the initial panel having completed the action and with 74 % of these operations taking place as planned. 60 % of the companies taking part declared themselves to be satisfied with their participation in this operation. The lessons of this pilot now need to be drawn for determining the terms and conditions required for a future framework to meet both consumer and business needs. 1 8,500 of which carried by 3 stakeholders 1

2 Four sources of information were analysed in order to draw up the operating implementation report for the environmental labelling pilot, driven by the companies involved in the trial and produced by Ernst & Young: a shared online survey, optional self reports provided by the companies, additional telephone conversations with approximately twenty participants and contributions from associations and professional federations. This report presents a summary of the human, technical and marketing means that the companies declared to have mobilised and which have been compared to the learnings and results of the pilot for the companies and their stakeholders, from the supplier to the end consumer. It also specifies what is expected by companies and their associations to move on from the trial stage. The final section of this report presents the lessons drawn by Ernst & Young from the pilot in addition to their recommendations in view of national deployment. 1. Pilot s feedback summary from the point of view of the participating companies Taking part in the national pilot: an innovative project requiring internal and external human resources leading to economies of scale The implementation of an experimental product environmental information system resulted in the mobilisation of a variety of management levels within the company, as far as the CEO. In a similar manner to other projects, it highlighted the need to mobilise internal or even external expertise and make decisions involving numerous functions within the company (environment, procurement, R&D, marketing, communication, etc.). For SMEs and craftsmen having in this respect more limited internal resources, the pilot showed their desire to find support solutions specific to their needs. Environmental labelling, a concrete, federating project, was often perceived as an opportunity for productive communications between the different skills within the company and as a means for sustainable development departments to strengthen their position within their company. Environmental labelling often makes up part of a wider business strategy. The main areas generating costs were data collection, choice in calculation methodology and choice in display format. In the end, the labelling cost per unit calculated according to the declarations made by the participating companies varies from several hundred to several tens of thousands of Euros per reference. In reality, the means required were most often shared with other innovation or sustainable development projects: out of the 60 companies having responded to this question, half considered that only 25% of the costs generated could be exclusively attributed to the environmental labelling project. These cost figures must be considered with caution as the feedback is subject to imperfect reliability, not representative of the full business world and not covering certain areas of costs such as the time dedicated by the suppliers to providing information. Derived from an experimental context that has nothing in common with conditions for full deployment, this feedback is difficult to extrapolate for a generalised labelling system. Indeed, in the event of the provision of public databases and methodologies and in the event of setting official formats, a large part of these costs declared by the companies during this pilot would no longer be required, whereas other costs could appear according to the terms and conditions 2

3 chosen (frequency of information updating, computer tools, external verification, etc.). The figures available do however highlight the following: clear economies of scale, which are substantial within the same product category and moreover which are predicted by the companies: the latter estimate that doubling the number of references would have led to a 40% drop in costs; after significant initial investment associated with deployment for a large number of references, a potential trend towards several hundred euros per additional reference (marginal cost), which seems to confirm the "expert opinions" expressed orally by certain consulting firms specialised in life cycle analysis. The heterogeneity of the feedback and the inclusion of a new context would need more indepth statistical works, above all in the event of mandatory application. In any event, those taking part in the pilot mostly declared to expect an overall reduction in labelling costs per unit under large-scale deployment conditions. Technical difficulties calling for methodological support from the public authorities Although the companies taking part were generally able to overcome most of the technical difficulties encountered and obtain data that is mostly deemed reliable, they deplored the lack of any frame of reference and shared database. They were also often penalised by a certain wariness shown by their suppliers with regard to providing their data. Indeed, during the national pilot, only a few sector-specific frames of reference (product category rules) had been validated and just 15 % of companies could benefit from these. Some methodological difficulties in calculating impacts were not resolved, such as the allocation of environmental impacts. Some indicators, such as water consumption, aquatic eco-toxicity and biodiversity did not benefit from a methodological framework either. The absence of any public, sector-specific, exhaustive databases was a very timeconsuming stumbling block, in particular during the collection and traceability of data on the origin of the raw materials and transport, for which businesses often depend on their suppliers. Given the lack of common methodologies, data variability and result uncertainties sometimes led to difficulties in differentiating between products. The information systems and internal data collection procedures were at their experimental stage within the companies. This did not cripple the pilot, however larger companies handling a large number of references estimate that an internal automation is essential in the event of scaling up. Finally, drawing up the terms and conditions for communicating with the consumer in such a way as to present accessible information, was experienced as a complex step for most participants, who generally allocated a high amount of means thereto, thus leading to new internal and inter-company cooperations. The specifications for this pilot preferred to let the companies make this choice so as to identify the most satisfactory operations. Setting official formats and/or support media would considerably limit these marketing costs. Despite the investment and implementation difficulties, an overall participant satisfaction of 60 % was recorded, explained by the benefits that they estimated to draw from this approach: competitiveness, innovation, dialogue 3

4 The principle of testing prior to national implementation was unanimously welcomed. In the end, 60 % of all participants deemed this trial to be a positive experience for them. However, areas of dissatisfaction were expressed, such as client interest and the impact on sales or on brand image, which were judged below the expectations of some companies. Aside from the means mobilised, the feedback collected comes together to show that environmental labelling was a means for economic, social and environmental opportunities. By encouraging transversal collaboration within companies and communication with their upstream and downstream stakeholders (suppliers, subcontractors, customers, competitors, public services, etc.), environmental labelling led to a reassessment of each value chain and to an improved control of supply chains. Environmental labelling appears to act, both in the short and long-term, on many areas of business competitiveness (both cost and non-cost related): - This approach has led to the identification of concrete areas for improving products according to 65 % of those responding, and for improving processes according to 46 %. 78 % considered that environmental labelling enabled them to better understand supply chain performance and for 50 % enabled them to make effective improvements. - These improvements may reduce business costs and lower their exposure to volatile raw material and energy prices: money-saving opportunities were identified during the pilot, for example originating from lower energy bills, optimised distribution circuits or reduced packaging. - As a source of innovation that can be transformed with regard to the consumer, a mark of quality and proof of environmental commitment, the environmental labelling approach finally improves brand image and production positioning: for 55 % of those responding, the trial has already had a positive effect in terms of brand image and company reputation and for 78 %, environmental labelling will have a positive effect in this respect in the future. As a means of recognition and learning, environmental labelling proved itself to be, for most companies taking part, a starting point for strengthening their competitiveness by affecting production efficiency, risk control and innovation, brand image and the commercial value of products. 73 % of those responding, i.e. 88 of the 120 responding, thus declared that environmental labelling will be a future source of competitiveness. Evident consumer expectations and the need for suitable education From their point of view, consumers have shown expectations in terms of knowledge on the environmental impact of products: companies and federations recognise and predict this consumption trend which remains to be fully satisfied. However, most participating companies deemed that only a minority of their consumers really took the time to read the labels or look for this information (website, mobile application). This confirms the forecasts made at the very beginning of the pilot: the limited scope of the trial would not lead to a modification in consumer purchasing behaviour or have a measurable impact on sales. 4

5 The proposed environmental labels show a varied level of satisfaction: sometimes complicated reading, lack of understanding requiring more detailed explanations, sometimes incomprehensible criteria, various levels of credibility, etc. Therefore, a consumer learning phase is clearly needed 2, which will be made easier by the provision of a reliable, educational and standardised information system. The submission of the government report for the opinion of the National Consumer Council, a possibility mentioned by the Minister for sustainable development, would be an opportunity for specifying the issues at stake within environmental labelling and stakeholder expectations, in particular those of consumers. It should be reminded that environmental performance will probably not replace the other criteria taken into account in the purchasing act, however will add to the latter as an element that may be used to differentiate between otherwise equal products. Nonetheless, some of the consumers questioned declare themselves as being willing to pay for a more expensive product if it provides proof of its improved environmental quality (positive willingness to pay). According to the companies taking part, scaling up is feasible, however not under the pilot's conditions and can only be realistically considered under certain conditions. For the future, participants highlight the need for a strict, homogeneous framework providing both technical support and perspectives overcoming the large majority of the difficulties encountered during the trial. In the short term, under the trial's conditions, companies taking part are mostly sceptical about their capacity to deploy a generalised environmental labelling system on all of their products, both for technical and economic reasons. Indeed, the development works conducted at ADEME/AFNOR 3 with the mobilisation of nearly 1,200 participants, appear to be of high quality according to the federations contributing thereto. Nonetheless, some technical difficulties such as allocations between products and co-products or the biodiversity indicator have still not been resolved and the frames of reference and databases are mostly still under development. However, for the longer term, companies confirm that they are capable of grasping, in technical terms, a scaling up of labelling, with more than 67 % of those responding estimating that this generalisation is technically feasible. Although most of the companies having taken part in the pilot declare themselves as being in favour of a generalisation of product environmental information in the more or less long-term, a certain number of prerequisites have been identified to guarantee the relevance and interest of this approach: the provision of the technical base required for the product environmental information system, by the ADEME-AFNOR Platform, which would constitute a precise, solid, standardised methodological framework enabling the comparison of results and adapting to suit the specific features of small businesses:

6 o standardised, sector-specific frames of reference (product category rules) suitably compromising between a simplified approach and possible product discrimination based on their environmental performance; o comprehensive databases providing for the possibility of the integration of new data from companies or their consultants; o the provision of automated environmental impact calculation tools saving companies the costs of learning the methodologies; the definition of homogeneous labelling formats to ease consumer understanding and enable information comparisons; standardisation within Europe; consequently, the need of European or even global momentum in which French technical investments can be highlighted; a stable standardised framework providing economic stakeholders with long-term visibility so as to generate and extend the investments being and to be made by companies and their external consultants; procedures for verifying labels in order to increase process reliability, notably with regard to foreign actors, and guarantee quality consumer information, the possible cost of which must not constitute an economic stumbling block for companies; reasonable implementation deadlines permitting the mature development of technical tools and recognising the need for companies small businesses because they do not have significant internal means, large businesses because they handle a high number of references to be given enough preparation and adaptation time; support from the public authorities in the form of training, communication and awareness campaigns adapted to suit the technical nature of this approach. 6

7 2. Lessons drawn by Ernst & Young from the pilot and its recommendations for the public authorities Aside from the objective report on the environmental labelling trial that it endeavoured to produce using only the feedback provided by the companies taking part, Ernst & Young has attempted to answer the following question: given the objectives assigned to the labelling pilot by the public authorities, what might the outline and key points be of a future framework that is balanced in terms of efficiency, feasibility and cost? The opinion expressed herein only represents that of Ernst & Young; it is founded on a "intimate conviction" built during this analysis and during the many discussions held with those taking part in the pilot. A framework that has a rightful place within a quality consumption policy A pro-active environmental quality product information policy must be coherent with the general national consumption policies. Labelling, as designed in France, is perceived as a positive signal for the consumer. It is an addition to existing environmental or social quality signs, whether public or private (e.g.: Agriculture Biologique [organic], eco-labels, energy labels, FSC or PEFC wood, MSC fish, fair trade, etc.), provided that convergence and coherence are guaranteed for all of these different consumer information vectors. This also falls within the logics of information regulation policies, which have already been in place for companies for 10 years: article 116 of the French "NRE" law of 15 May 2011 on new economic regulations, recently reinforced by article 225 of the "Grenelle II" law of 12 July 2010, thus requires that large companies provide summarised, legible information to all stakeholders on the way in which they take into account the social and environmental consequences of their activities in addition to their social commitments in favour of sustainable development. The observation made by Ernst & Young, boasting 10 years of reporting activities on this topic, shows that once committed to a measurement and reporting action, the companies observe a virtuous circle encouraging them to work on improving results and in being better positioned on an international level with regard to the extrafinancial indexes of rating agencies. Energy labelling experience, which is even closer to our subject, shows how the information can potentially lead to a powerful emulation among competitors. Environmental labelling driving environmental initiatives in businesses The labelling approach often forms part of a previously committed business logic, for which it could represent a powerful driving force and contribute to improving other corporate social responsibility actions. 7

8 This pilot highlighted the opportunity offered by undertaking three additional actions within the company: - life cycle analyses (LCA) for measuring environmental performance, - eco-design for improving this performance and for standing out against other companies via innovations with added environmental value, - and labelling for adding value to these efforts and corporate image in the eyes of the consumer. When used as a starter for an environmental approach, labelling is a vector for improvement By being implemented together with a multi-criteria LCA approach, labelling encourages the production of precise, statistical diagnostics of the strengths and weaknesses of the company's "value chain" by integrating all stakeholders involved from the raw material to the end of life of the product. This prior environmental impact quantification action leads to better controlled links in the supply chain and to identifying concrete areas for improving processes and products (ecodesign), which will then have a positive effect on innovation, costs (via consumption savings) and exposure to volatile energy and raw material prices. Ultimately, business competitiveness is potentially improved. Labelling is all the more efficient in this respect when constituting a mobilising, federating driver within the company itself or within its supply chain, as shown by the pilot. When used as a deliverable of an environmental approach, labelling is a vector for added value Environmental labelling brings the results of eco-design and environmental improvement works before the consumer, thus providing added value and enabling the latter to differentiate between these products and run-of-the-mill products. From a consumer point of view, environmental labelling is also perceived as a positive effort towards transparency, which increases the trust placed in brands. A pilot that confirms the promises made by environmental labelling, but that remains incomplete in the event of mandatory application Given that environmental labelling contributes to other approaches, its cost and consequences are difficult to isolate from those of the other components forming part of a much larger environmental strategy, in which it takes place and to which it adds value in the eyes of the consumer. For a voluntary approach, the lessons drawn from the pilot, even if imperfect, are probably sufficient. Ernst & Young estimates that these convincingly support both the feasibility and interest of such an approach, and thus the overall soundness and legitimacy of an action by the public authorities, subject to the reserves stipulated below. 8

9 Nonetheless, for mandatory application, all companies will be required to commit to this highly structuring and eminently useful, yet potentially heavy and costly approach. In this event, the public authorities would benefit from performing cost/benefit studies to complement the evaluation of the pilot. Furthermore, the possible terms and conditions of the future product environmental information system are numerous. Each condition has its advantages and disadvantages, costs and specific opportunities, which must be weighed with the stakeholders so that the public regulator can reach the best possible balance with the latter. Right balances must be found with the stakeholders in view of deployment Deploying a product environmental information system raises legitimate questions that need to be anticipated in order to guarantee a serene climate for the scaling up. Therefore, in view of the results of the pilot and from the point of view of businesses and their federations, three fundamental and classic balances must be found to configure any public intervention. The search for areas of balance could be entrusted to the stakeholder arbitration. Firstly, the system must find a right level of supervision, between desire for standardisation and the need to limit the burdens. To avoid any possible distortion of competition, a national framework appears necessary and is in demand by all. It must limit the risks connected to: - the incomplete standardisation of the information provided to consumers (calculation or formats), - an erroneous information, in particular when this calls for data provided by foreign suppliers, with the issue of system control being in this regard particularly important, - the differences in means that can be provided by companies to produce specific data and thus escape possible conservative generic data. A good level of standardisation must be sought with other existing or future, French EU or foreign environmental information systems to avoid possible inconsistencies: - between the French environmental information system and current or developing foreign systems, - between environmental labelling and certain environmental claims, in particular official environmental labels used on products. Companies are however looking to retain their differentiation possibilities and not be subject to unjustified burdens, insofar as the restrictions are often synonymous of costs and rigidity for economic operators. Secondly, the device must find its own rhythm of progress. This raises the issue of finding a balance between the desire to quickly move forward, in particular for influencing European and international works, and to comply with the timeframe required to reach a sufficient level of technical maturity and context stabilisation. Some companies and federations go as far as requesting that the French government should in this respect expect a possible European or international regulation. The maturity of the technical works appears at the very least to be an unavoidable factor. 9

10 Thirdly, the system should find a right level of simplification, i.e. the right balance between a simplified, inexpensive approach and a more complex approach enabling real differentiation between products. In this respect, the following may prove useful: - more in-depth reflections on the requirements requested at each step in the value chain in order to understand how to optimise each step of the labelling system in terms of the cost/benefit ratio. Particular attention must be paid to correctly configuring the level of involvement requested from suppliers and the responsibility incumbent upon the latter; - the correct dose between simplification and exhaustiveness with regard to the labelling format that may be set by the public authorities. These works must be accompanied by awareness and educational actions aimed at companies and consumers so that the compromise between simplicity and accuracy is translated by good consumer adoption of this approach. Recommendations: three key factors for a successful, large-scale deployment The implementation of a product environmental information system by companies requires an investment that not all are spontaneously willing to make. With regard to a large-scale deployment, three key factors for success are provided below: - An official framework, a voluntary approach which in term becomes mandatory - Common methods, tools and data for companies - A well though-out instrument for reducing the financial impact of the system, in particular for SMEs and craftsmen. 1- An official framework, a voluntary approach which in term becomes mandatory Within the scope of a large-scale deployment, volunteer companies should initially be left to benefit from their pioneer commitment and investments: a short-term competitive advantage via the differentiation drawn from an innovative marketing system, and from the future advantages in terms of productivity and innovation. By initially maintaining a voluntary labelling system, the momentum produced via the pilot could thus be continued. This momentum will be reinforced with the announcement of a schedule for passing to mandatory application in the medium term (approximately 5 years) as this would inform companies of their need to prepare for this and would strongly encourage dialogue with all of their upstream and downstream stakeholders (suppliers, sub-contractors, customers, competitors, external consultants, public services, etc.). Companies would prepare for this by setting up an internal organisation system or by assessing their products and by working to improve the latter via eco-design. Their consulting cabinets would themselves prepare by refining their automated tools and corporate technical assistance and consulting services. This passage from a voluntary to a mandatory basis would send a clear message to French and foreign suppliers that this is not a confidential and isolated request but a generalised, long-term request, thus easing communications and the collection of information from the entire supply chain. 10

11 The labelling policy should be progressive in terms of providing an implementation schedule for businesses and in terms of the families of products concerned so as to ease acceptance and deployment of the label. Indeed, the following product families should be priority targets: - families of products for which a technical frame of reference (product category rules) exists designed to clearly differentiate between products, - families of products that are frequently purchased by consumers, - families of products that are mostly produced in France, - and families of products that generate significant environmental benefits. The products for which most of their environmental impact is connected to the energy consumed during use could wait insofar as an energy label is already in place or being planned. Given that each communication mean has its own interest, a certain level of flexibility could be provided in this area to companies, at least to begin with. This would also enable them to reduce the costs incurred in this respect while benefiting from the fast publication of dematerialised communication means. Finally, it should be noted that progressiveness would leave consumers the time needed to learn about this system, which could not take place with the limited scale of the pilot. 2- Common methods, tools and data for companies To overcome a lack of expertise and methodology available during the trial and to thus avoid a large part of the costs incurred by the companies, a technical and robust framework (sector-specific databases, frames of reference per product family or category, indicator calculation tools for environmental impacts, taking into account of the specific features of SMEs, homogeneity with Europe) set up by the public authorities is one of the key points for deploying a product environmental information system under favourable conditions. Free, unlimited access to data and calculation tools (or spreadsheets) is particularly advisable in the event of mandatory application so as to limit the human and financial means required to implement an environmental labelling system by companies and in particular by small businesses. This framework would reduce the level of uncertainty and prevent anti-competitive imbalance connected to heterogeneous calculation rules in the desire for fair treatment between companies and the provision of "sincere, objective and comprehensive environmental information" to consumers. Finally, educational actions (awareness and training) aimed at companies and consumers are required to help product environmental information become a driving force behind the transition towards consuming lower-impact products. These conditions correspond to the main lines of support identified as priorities by two thirds of the companies responding in view of leading to a generalised environmental information system for all of their company's products. 11

12 3- A well though-out instrument for reducing the financial impact of the labelling system, in particular for SMEs Although the progressive time and sector-specific implementation of the product environmental information system would enable companies to better plan their investments and ease a return on investments in terms of productivity and consumer differentiation, other measures would help limit the financial impact of such a labelling system. Three such measures have already been identified: - ensuring that the frequency of the mandatory product information updating process is as low as possible (every 3 to 5 years), leaving companies with the freedom to update this information on an earlier basis; - avoiding, at least to begin with, setting a mandatory third party audit, while enabling those companies volunteering for such an audit to benefit from improved brand image due to increased consumer trust; - providing specific support to SMEs and craftsmen to help them implement eco-design and labelling processes. 12