Strengthening Eco-Labeling Regulation

About one-third of Americans, and upwards of 50 percent of consumers worldwide, say that they are willing to “pay more for green or environmentally-friendly products.” Products labeled as “green” or “eco-friendly” can be found in almost any store, but what qualifies a company to market its products using these labels? According to one legal scholar, the answer to that question is too often unclear. James Nehf, a law professor at Indiana University, argues in a recent paper that environmentally friendly marketing, commonly referred to as “eco-labeling,” is often fraught with vague, confusing, and sometimes blatantly untrue claims. He claims that many businesses seek to capitalize on consumers’ preferences for environmentally friendly products through targeted marketing—commonly referred to as “greenwashing.” Nehf writes that eco-labeling and greenwashing fall squarely within the jurisdiction of the Federal Trade Commission (FTC), which regulates deceptive marketing practices. Using its legal authority to regulate these practices, the FTC issued its first “Green Guides” in 1992 which, although not legally binding, provide businesses with guidance on proper eco-labeling practices. The Green Guides highlight over a dozen types of environmental marketing claims that often mislead consumers. For example, the Guides say that “marketers should not make broad, unqualified, general environmental benefit claims like ‘green’ or ‘eco-friendly’” because such broad-sweeping claims can have various meanings but still convey no information about specific environmental benefits. The Guides also suggest that businesses should not make claims about a product being recyclable unless at least 60 percent of consumers can access facilities capable of recycling the product’s material composition. The FTC’s Guides do afford consumers some protection in that they provide information to businesses interested in avoiding misleading eco-labeling. But Nehf argues that the Guides are ineffective in practice because the FTC cannot rely on them when bringing an enforcement action to demonstrate that a marketer’s practices are deceptive. Although the FTC can point to the Guides to help make their case, courts ultimately must determine that a specific labeling or marketing practice is deceptive based on the general standard provided in the Federal Trade Commission Act alone. In addition, Nehf explains that the remedies available in FTC enforcement actions against deceptive eco-labeling practices are often ineffectual. When a court finds that a marketer has engaged in deceptive marketing, the most common result is the issuance of a consent order: The marketer must agree to stop marketing its product in that manner but need not admit guilt. Companies can therefore just switch to another marketing strategy that might also be deceptive, says Nehf. Although the Green Guides are currently the only eco-labeling standards issued by a U.S. agency, well-known international standards also exist. Nehf points to the International Organization for Standardization (ISO)—specifically the organization’s Standard ISO 14021— as providing a stronger, more detailed set of requirements for eco-labeling than the FTC’s Green Guides. But these standards have not been adopted in the United States. According to Nehf, another form of eco-labeling backed by private regulations could provide a potential solution to greenwashing. Specifically, he favors green certifications, or seals of approval that appear on products. If properly regulated, these certifications can “raise the saliency of environmental claims in a way that increases the accuracy of consumer decision making without increasing cognitive effort on the part of the consumer,” Nehf argues. Most privately regulated green certifications, however, currently lack in uniformity, and the organizations that create them do not regularly audit marketers to ensure that the required environmental standards are met. Nehf argues that incentives—either through market signals or government regulations—are needed to encourage sponsors to improve certification accuracy through stronger standards. Nehf argues, however, that states provide the most effective regulation of eco-labeling today. Although each state has its own consumer protection laws—and the degree to which each regulates green marketing claims varies—Nehf still sees state regulation as desirable for a number of reasons. First, states can serve as laboratories to experiment with differing degrees of consumer protection and regulation. Second, business practices in different states may produce different types of greenwashing that need addressing. Finally, state legislatures have historically been more responsive and quicker to act than the U.S. Congress, Nehf writes. California, for example, has led the way in regulating eco-labeling, says Nehf. He explains that California’s eco-labeling laws impose binding legal obligations on marketers, unlike the FTC’s Green Guides. In fact, just last year Walmart paid over $900,000 in civil penalties as part of a settlement with California state officials who alleged misleading labeling of certain products as “biodegradable.” State efforts and privately backed regulations potentially provide a promising outlook for the future of eco-labeling practices. According to Nehf, however, the current state of regulations concerning eco-labeling must improve drastically if environmentally conscious consumers hope to make more informed decisions about the products they purchase