Sustainability Labels in the Shadow of the Law

Sustainability sells. Sustainable food is gaining popularity and businesses are taking note. Many food products are now labelled with sustainability information through logos, symbols, and texts. Such business-to-consumer (B2C) sustainability labels may reduce information asymmetry if they adequately communicate sustainability attributes to consumers. Consumers require such adequate communication since producers of food products often have more or better information about specific sustainability attributes of products or production processes compared to consumers. Information asymmetry is especially apparent for sustainability attributes, as these can be considered credence attributes and Potemkin attributes. This is less so for search attributes that are known before purchase and experience attributes that are known costlessly only after purchase. Credence attributes, such as the use of pollutants in the production process, are expensive to determine even after purchase, while Potemkin attributes, such as fair trade and animal welfare, cannot be verified by the consumer or external institutions at the end-product level.

Accurate regulation of sustainability labels may increase their capacity to promote sustainable consumption. To determine if, when and where public or private institutions should intervene, an overview of the current regulatory structure underlying sustainability labels is needed. To provide such an overview the regulatory structure of 65 sustainability labels on food products in the Dutch market was examined. This study shows a plurality of sustainability labels with different types of certification schemes, i.e. first-, second- or third-party certification, and with multiple actors involved. The majority of these sustainability labels resemble a structure where NGOs are highly involved in standard-setting and certification is mainly conducted through private, third-party certification. While these structural characteristics may be considered reliable and credible by consumers, several sustainability labels do not reflect this structure. The present coexistence of sustainability labels with different underlying regulatory structures may negatively affect sustainable consumption.

The objective of this chapter is to examine whether and how the application of the normative EU “average consumer” benchmark could be informed by cognitive research and behavioural economics, in the doctrinal assessment under the Food Information Regulation (FIR) of possibly misleading, purely visual information, as used by sustainability labels, most notably green pictograms. To achieve the objective two pictograms that are used on food products in the Dutch market were studied. Both pictograms use visual properties that consumers may associate with organic production, with only one pictogram guaranteeing organic production. It was, first, examined doctrinally whether and to what extent the FIR could be interpreted and applied to the pictogram that does not guarantee organic production. Second, as the analysis under the FIR is based on the normative benchmark of the “average consumer”, the expectations of the ECJ of the normative “average consumer” were examined. Third, it was analysed whether judicial decisions under the FIR could be informed by insights from behavioural science. Subsequently, two experiments were conducted to assess the potential benefits of including behavioural research under the normative test of the “average consumer”. Finally, the results from the legal and experimental study were compared to assess the usefulness of the inclusion of insights from behavioural research in the legal analysis of the normative benchmark of the “average consumer” under the FIR. The doctrinal study showed that insights from behavioural science may provide further guidance to national courts in the doctrinal assessment of the normative EU “average consumer”. The experiments indicated that green pictograms could be considered misleading under the FIR.

The objective of this chapter was to explore to what extent the European Commission and the Member States could intervene with corporate communications on sustainability labels from the perspective of EU fundamental rights law, specifically the right to freedom of expression. A functional comparative method was used to analyse the objective. It was found that expression on sustainability labels should be considered primarily commercial in nature. In the USA some labelling regulations are considered inconsistent with the freedom of commercial expression. EU courts seem to uphold government restrictions to commercial expression in all cases, especially when restrictions are based on the protection of human health. It was concluded that food businesses should only be able to claim free speech rights on sustainability labels when it is of importance to the public or consumers.

Discussions at the European Commission, in academic journals as well as at conferences for academics and practitioners, indicate that there is a lack of clarity on how to coincide anti-competitive sustainability agreements with the so-called economic approach of the European Commission. The current interpretation of the economic approach, most notably the European Commission guidelines issued in 2004 on the application of Article 101(3) of the TFEU, has led to situations where agreements between undertakings to stop the sale of unsustainable products or production processes have been discouraged, thereby, potentially reducing sustainable consumption. These agreements have the potential to increase sustainable consumption as well as reduce greenwashing by stopping the sale of products that do not meet certain sustainability criteria. In this chapter, it is examined how the current European Commission guidelines could be improved to allow undertakings to assess their agreements in a way that is quantifiable but that goes beyond a neoclassical economic approach focusing solely on monetary well-being. Such an approach may reduce the inhibitive effect of EU competition law on sustainable consumption by allowing agreements that promote human well-being. This chapter gives an overview of Article 101 TFEU and the guidelines, followed by an exploration of welfare economics, cognitive science, behavioural economics, and moral philosophy to quantify agreements under Article 101(3) TFEU.

The presented chapters taken together show that the extent to which the interpretation and application of EU law to sustainability labels inhibits sustainable consumption depends on the specific normative assumptions underlying legal interpretation. Using critical legal analysis as a theoretical framework, it was found that most commonly, the interpretation and application of EU law uses normative assumptions derived from a noncritical application of neoclassical law and economics. In this book, I went through three legal frameworks and showed that when these normative assumptions on how consumers perceive sustainability attributes on food products in each of these frameworks changed, the inhibitive effect of the respective legal framework on sustainable consumption changed as well. Results show that the use of normative assumptions based on a noncritical application of neoclassical law and economics has an inhibiting effect on sustainability labels that promote best practices in sustainable development (e.g. sustainability labels that promote human well-being are prohibited as benefits are solely assessed in monetary terms), while it leaves more space to sustainability labels that do not promote such best practices (e.g. sustainability labels that greenwash products are not prohibited because the consumer is considered to easily distinguish greenwashed products from sustainable products).