WRI Stories Feed: ENVEST: Environmental Intelligence for Tomorrow's Markets

Aqueduct News Roundup: India, Trading on Water, Shareholder Challenges

Robert Kimball — Wed, 01 Feb 2012 09:50:10 -0500

If you are a regular reader of news related to water risk, you may have seen data and observations from Aqueduct in several venues during the month of January. This is the first of a series of updates on news related to Aqueduct and the subject…

Aqueduct Partnership to Map Water Risks in Africa's Orange-Senqu Basin

Paul Reig — Wed, 02 Nov 2011 12:21:36 -0400

Snaking across multiple international boundaries and supporting everything from villages and farms to industry and cities, the Orange-Senqu River is one of the most important natural resources in southern Africa. The complexity and significance…

The Coca-Cola Company Donates Extensive Water Risk Database to Aqueduct

Kirsty Jenkinson — Mon, 19 Sep 2011 11:06:12 -0400

This piece, co-authored by WRI’s Kirsty Jenkinson and Coca-Cola’s Joe Rozza, originally appeared on The Guardian…

Drought Poses Major Risks to Companies in China

Robert Kimball — Wed, 25 May 2011 08:39:57 -0400

Reduced power, blocked supply chains are reminder of water risks.

Watch an interview with Robert Kimball on Voice of America

For the last five months, a severe drought in central China has brought water levels in the Yangtze River to near-record lows. The drought’s impacts – from threatened drinking water supplies to disruptions in manufacturing – have rippled through the population and economy of China. They are a reminder of the diverse and complicated ways in which water, or the lack thereof, can pose risks for companies, investors and policy makers.

Although companies and investors are becoming increasingly aware of the importance of water in the 21st century economy, many still struggle to evaluate where and how their assets, suppliers or product markets can be impacted by water risks. Something as simple as a prolonged lack of precipitation and resulting low river flows has exposed businesses in China to a variety of tangible financial risks, including:

Loss of shipping capability, leaving supply chains high and dry: Reduced water levels in the Yangtze have left parts of the river impassible to the ships that transport over one billion tons of cargo along the river every year.
Electricity shortages threatening production: A lack of water to run hydroelectric dams, including the 18,000 megawatt Three Gorges dam, has cut hydroelectric power production in China by as much as 20%. As a result, some manufacturers have had to ration their power use, and China may be forced to burn 1 million more metric tons of coal per week to cover the gap.
Disruptions to agriculture affecting production and prices: The drought has forced farmers in China to delay planting spring crops such as grain and cotton. The potential loss of cotton output has already driven up the price on global commodities markets.

Companies and other water users seeking to measure and manage their exposure to water risks like the ones listed above must employ a nuanced approach. Simply looking at how much water is available, or measuring how many gallons you use (your “water footprint”) is only a start. A proper risk assessment requires data on the physical, regulatory, and socioeconomic factors that contribute to water risk. The information must also be high resolution – water problems are inherently local and vary widely from place to place, even within a country or region.

WRI’s Aqueduct project aims to provide the comprehensive, high-resolution data needed to measure and map the complexities of water risk. By combining advanced hydrological modeling on the physical availability of water with extensive data on other drivers of water risk (such as consumption, governance, and competing users) Aqueduct helps users identify, measure, aggregate and map the water risks they face in targeted river basins around the world. An initial prototype of Aqueduct’s risk mapping tool is already available for the Yellow River basin in China, and work is underway to expand the scope of the tool to basins worldwide, including the Yangtze and the Colorado.

Aqueduct’s interactive map of water risk in China’s Yellow River Basin

Aqueduct’s approach acknowledges the fact that different types of companies, investors, and water users are exposed to different water risks. The examples from China are a clear demonstration of this concept: for one company, a drought may mean interrupted shipping, while for another it may mean disruptions in power supply. Aqueduct’s applications are customizable, giving users the flexibility to study only the risks that they face directly.

With growing populations demanding more and more water, and climate change expected to increase the frequency and intensity of extreme weather events, companies, investors and governments around the world must prepare to come face to face with the economic and business risks associated with water. The vital first step is to understand what these risks are, and where they are the most pressing. The comprehensive, high resolution water risk maps produced by Aqueduct will help users understand the risks and opportunities of an increasingly water constrained world.

The Aqueduct project is supported by an alliance of partners that includes General Electric, Goldman Sachs, The Coca-Cola Company, Talisman Energy, Bloomberg, Dow Chemical, and United Technologies. To learn more, and to see a working prototype of the Aqueduct water risk mapping tool, visit www.wri.org/aqueduct

Watch Rob Kimball on Voice of America

How U.S. Federal Climate Policies Could Affect Chemical Companies’ Credit Risk

Robert Kimball — Tue, 22 Feb 2011 09:09:12 -0500

New analysis from WRI and rating agency Standard & Poor’s looks at impacts on businesses and credit quality.

Last week, analysts from WRI and Standard & Poor’s, the world’s foremost provider of credit rating, unveiled a new analysis examining how U.S. federal climate change policies could impact the credit ratings of companies in the U.S. chemicals industry. The report is a first of its kind by focusing on the credit (rather than equity) implications for companies.

In How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk, experts from WRI and S&P helped demystify the potential impacts of federal climate policy by providing analysts and investors with important information on how company creditworthiness could be affected.

The report finds that the impact of federal climate policy on credit risk will likely be modest for most of the chemical subsectors. Depending on the exact nature of the policy, actions taken by companies, and other variables (like gas and oil prices), many companies could see only minimal credit impacts from policy action.

Understanding Credit Ratings and Risk

This report analyzes how different climate change policies could impact a company’s credit rating. A credit rating is an assessment of a bond issuer’s willingness and ability to pay off the interest and principle associated with its borrowings in full and on time. While an investment grade credit rating is not a guarantee that a bond will be repaid (or vice versa), leading rating providers like Standard & Poor’s inform and guide investors. If climate policies were to positively or negatively impact a company’s credit rating, it could influence the cost of borrowing for the company and its ability to raise capital.

An Innovative New Approach

How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk represents a new approach to analyzing and understanding how environmental policies can impact businesses and investors. First, it focuses on credit quality and second, it relies on two detailed policy scenarios:

A market based, economy-wide, greenhouse gas reduction policy (such as “cap and trade” legislation)
Regulation of greenhouse gas emissions by the Environmental Protection Agency

WRI applied its policy and environmental expertise to the process, and turned to S&P to benefit from its world-renown experience in assessing credit risk. Bringing different perspectives of each organization allowed for an evaluation of the potential impacts of different climate change policies on factors that would influence creditworthiness.

Modest Credit Impacts

WRI and S&P’s analysis found that the impacts of the federal climate policy scenarios would be modest for most chemical manufacturing subsectors. The chemical sector as a whole produces approximately $724 billion in products (according to Bloomberg) and accounts for approximately 5% of US greenhouse gas emissions.

The report also found that within these subsectors some energy-intensive companies could see negative impacts—especially among the highest emitters. In WRI’s view, these findings highlight the potential advantages that companies could gain from acting quickly to improve their energy efficiency and reduce their emissions versus their less efficient peers. Although the report did not look at opportunities, there are also clearly benefits that some companies will gain by reducing their emissions, such as being “first movers” toward increased energy efficiency.

The report provides a clear indication to investors and companies trying to measure and manage their exposure to credit risk that environmental issues should be considered as part of their analysis.

Challenges and Opportunities for the Future

While How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk provides an exciting look at the potential impacts of climate policy on credit quality, it is only a first step.

The report analyzed an important sector of the economy – chemicals – and provided a clear analytical framework that can be applied beyond this industry. However, ultimately more work will have to be done to fully understand climate policy impacts on the credit for different industries. Among the unknowns, it is unclear what approach the United States will take to address climate change. Clearly, with federal legislation tabled for now, the EPA is moving toward regulations that would cut carbon pollution from the largest industrial emitters—but with each new policy choice comes with its own set of risks and opportunities for businesses.

While the issues are complex, this analysis shows how leaders in the financial and environmental communities can work together to find answers. The analysis conducted in How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk shows that it is possible to develop a more meaningful and objective understanding of the real risks and opportunities that companies face in light of future action.

Ultimately, in WRI’s view, much of the world is already moving toward a lower-carbon future, and analysis like this can help provide a smoother transition for businesses and investors alike.

Aqueduct: Understanding Water-Related Risks and Opportunities

Tien Shiao — Tue, 07 Dec 2010 17:32:05 -0500

A new mapping tool identifies and measures exposure to water risk.

Concerns about the world’s most precious resource - water – are growing, and businesses are increasingly taking note. A recent survey with responses from 150 large corporations conducted by CDP Water Disclosure revealed that 39% of companies have already experienced disruptions in operations, increasing expenses, and other detrimental impacts related to water. Although water risk is a significant concern, 62% of the responding companies also recognized that a water-constrained world could create opportunities to reduce operating costs with efficiency gains and generate new business in innovative water solutions.

Click here to start using Aqueduct.

As companies become more aware of the issues water presents to their business, they are quickly realizing these risks and opportunities are complicated and difficult to measure with the tools currently available. This complexity is driven primarily by two factors:

Water is local. Water risks vary from location to location. Physical attributes such as the abundance, quality, and variability of water change from place to place. Water regulations, competition over use, and other “non-physical” attributes are also different for every locale. Often these non-physical attributes are the ones that most impact people and companies.
One size does not fit all. Although all businesses need water to function, these needs can be very different for different companies. Certain industries, like semiconductor manufacturing, cannot operate without extremely pure water. Thermal power plants need large quantities of water to cool their boilers. The mining sector has to contain and treat the water it uses to avoid spreading pollutants. Companies in these and other sectors each face a unique set of water risks that call for a unique approach to risk management – an approach that works for one may be entirely inappropriate for the others.

Aqueduct: Addressing the Complexity of Water Risk

Aqueduct, under development by the World Resources Institute (WRI), is a suite of tools that provides the context needed to understand, manage, and mitigate water risk. WRI, in partnership with General Electric and Goldman Sachs, has released a prototype version of the tool at the core of Aqueduct: the Water Risk Atlas. The Water Risk Atlas creates maps that illustrate the variations in water risk from place to place, and can be tailored to reflect the particular water related risks that different companies and investors might be exposed to. The Atlas prototype generates these water risk maps for the Yellow River Basin in China. In the future, WRI will expand the tool to include other economically significant and water-stressed river basins, like the Colorado in the western United States and the Ganges in India.

The Water Risk Atlas’ interactive map of water risk in the Yellow River basin in China.

“Water is Local”, so Aqueduct Provides Geographic Context

The Water Risk Atlas prototype contains a database of over 70,000 geographically-specific data points that WRI identified as affecting water risk levels. This database contains everything from advanced hydrological data to innovative analyses of the socio-economic and regulatory drivers of water risk. To maximize the reliability and accuracy of the Atlas, WRI used data from governments and other trustworthy, publicly available sources. The information in the database measures risk drivers across three categories:

Access and Growth Constraints - risks from increasing water scarcity.
Cost Risk - risks from deteriorating water quality, more stringent regulations, or increasing water prices.
Disruption Risk - risks from poor water governance, increasing competition for water resources and social concern around water issues.

The Water Risk Atlas draws from this database to create a detailed map of overall water risk levels across the river basin. The risk maps generated by the Atlas are interactive – with a single click the tool will display detailed risk scores for any one of 133 distinct areas within the basin, illustrating risk levels relative to the average for the river basin.

“One Size Doesn’t Fit All”, so Aqueduct is Flexible

Because different sectors and companies are vulnerable to different types of water risks, the Water Risk Atlas has a simple interface that gives users the ability to sort and rank the various drivers of water risk according to their priorities, and generate the customized water risk maps that are most relevant to them. WRI is working with water and industry experts to create standardized risk profiles for a series of water-dependant sectors, including power generation and beverage production.

The flexibility of Aqueduct makes it valuable for key actors addressing the world’s water challenges:

Companies can use it to inform strategic decisions on siting and sourcing, on mergers and acquisitions, and to identify opportunities to reduce operational costs and exposure to potential disruptions.
Investors can use it to understand water risk within their portfolios and identify opportunities to invest in solutions for sustainable water use.
Government officials can use it to inform spatial planning and infrastructure investment programs, as well as policies aimed at sustainable economic growth.

Looking Ahead: Completing the Picture

The Water Risk Atlas prototype is a critical step in fulfilling Aqueduct’s goal of providing the context needed to understand water-related risks and opportunities. WRI is looking to collaborate with companies and experts to expand and constantly improve Aqueduct’s suite of tools, including the Water Risk Atlas.

Ultimately, Aqueduct will provide companies, investors, and other key audiences with the information needed to make water-related decisions that make economic and environmental sense.

To read more about Aqueduct, visit http://www.wri.org/aqueduct. To learn how you or your company can participate in expanding the Water Risk Atlas and the Aqueduct project contact Charles Iceland.

‘Red Sludge’ Wake-up Call for Investors and Financial Institutions

Amanda Sauer — Tue, 12 Oct 2010 12:59:21 -0400

Hungary’s toxic ‘red sludge’ is a stark reminder of why mining companies need to better disclose their water-related risks.

On October 4th, the wall of a wastewater reservoir for the Ajka alumina processing plant broke, sending 35 million cubic feet of corrosive ‘red sludge’ downhill into nearby villages and ultimately the Danube River. This ecological disaster has claimed eight lives and devastated many more by destroying homes, livestock, and crops. Meanwhile workers are rushing to build emergency dams to stem a second flood that is expected to occur should another wastewater reservoir wall collapse.

This ongoing situation is the latest reminder of the environmental risks associated with the thousands of hardrock metals and minerals operations around the world. The site in Hungary was listed as “risky” by an environmental non-governmental organization in 2006, yet this warning did not spur the type of response required by regulators and corporate executives to prevent the flood. Last summer the same type of disaster struck at a copper mine in southeastern China, where 2.4 million gallons of waste water laced with acidic copper spilled into the Ting River.

Toxic Spill near Ajka, Hungary. October 9, 2010. Photo credit: flickr/DigitalGlobe-Imagery

The impacts of mining and metals activities on water supplies can be catastrophic, yet as a recent paper from WRI concludes, companies may not be fully disclosing these risks.

Unreported Risks

“Mine the Gap” points out major shortcomings in current water risk reporting in the mining sector that contribute to an inadequate understanding of the water risks involved in mining. As a result, investors and financial institutions can pay the financial consequences when disaster strikes.

To address these shortcomings, Mine the Gap presents a preliminary framework that the financial community can use to assess water risk, including a series of questions for mining companies about their water use. The framework offers a way towards a more complete understanding of a mine’s exposure to water related risks, thereby helping investors and financial institutions make more informed investment decisions that can be better for their bottom lines and the environment.

A Role for the Financial Community

The next step in WRI’s ongoing effort to understand and quantify the complexities of water risk is the forthcoming release of a prototype Water Risk Index. The Water Risk Index pulls together various data series to generate maps that highlight where and how water issues can pose financial risks (and opportunities) for companies. This will provide an essential geographic-specific context to understand where water risks are greatest.

The mining industry will face increasing water risks in the future as water resources become scarcer in many mineral rich regions, competition for water supplies increases, and the industry itself requires greater water withdrawals because of declining ore quality.

The financial community has an important role to play in encouraging improved water disclosure in this sector. By engaging with mining companies about their practices and supporting broad-based initiatives to improve water disclosure, investors and financial institutions can work with the industry to fully understand and report water risk in the future.

More Information

Digging Beneath the Surface: Water Risks in Mining

Betting on Water

Water Risk Could Sink Investors

Digging Beneath the Surface: Water Risks in Mining

Amanda Sauer — Wed, 15 Sep 2010 09:54:28 -0400

For investors and financial institutions, water risks in the mining sector are difficult to track.

This summer, while Americans focused on the BP oil spill, disaster struck at a copper mine in southeastern China. The mine, owned by China’s largest gold producer, Zijin Mining Group, leaked 2.4 million gallons of waste water laced with acidic copper into the Ting River, killing 2,000 metric tons of fish – enough to feed 72,000 residents for a full year.

Just as the Deepwater Horizon disaster reminds us of the underlying risks of offshore oil drilling, the Zijin disaster demonstrates the environmental risks associated with the thousands of hardrock mineral mines in operation around the world. And, as a new paper from WRI concludes, current reporting practices mean that investors and financial institutions may not be fully aware of these risks, even though they may suffer the consequences.

The Water and Mining Connection

A hardrock mine (one that extracts minerals or metals from the earth) relies heavily on water to operate. These mines use water in all steps of the mining process: cooling equipment, separating waste from valuable minerals, controlling dust, and so on.

Workers drain away polluted water from the Zijin copper mine. Photo credit: PhysOrg

Working with such large volumes of water presents a variety of risks. Overconsumption of local water resources can threaten stressed water supplies. Mining waste can contaminate water supplies, threatening drinking water and aquatic ecosystems. For mining companies, the potential for accidents increases exposure to fines and lawsuits as well as new regulations and operational disruption. The Zijin Mining Group has already called off a project in Africa in the wake of the Ting River accident. According to a recent report from Bloomberg, “[Zijin Mining Group’s] plan to make at least two overseas acquisitions this year was hampered by regulatory probes and cleanup for the acid-laced waste leakage.”

Unreported Risks

For investors and financial institutions, these water risks are difficult to track. Traditional environmental impact assessments (EIAs) usually do not consider water quality problems. A study on the accuracy of water quality predictions at hardrock mines in the U.S. found that although none of the sites’ EIAs predicted water quality problems, 76 percent of sites exceeded water pollution standards. 93 percent of the sites with acid drainage problems had not anticipated this risk in their EIAs.

Many mining companies are ahead of the curve in reporting water data, but a WRI survey found that water disclosure varies widely – especially in emerging markets. South African and Latin American companies generally report the most water-related data, while most Chinese and Indian mining companies report little or no water-related information. This is particularly notable, since China and India are among the top three largest producers of most non-fuel minerals.

WRI’s Mine the Gap paper points out three major shortcomings in current water risk reporting in the mining sector:

Reporting the wrong things. While many mining companies are diligent about reporting how much water they consume, the risks their mining activities pose to water quality are either not reported or not reported with enough detail to be meaningful.
Not providing relevant context. A gallon of water is much more valuable in a desert than it is in a rainforest. A mine’s water use data is meaningless without an understanding of the unique characteristics of the watershed it inhabits.
Reporting inconsistently. Different mining companies employ different approaches when reporting their water use and water risk, making it difficult to compare performance across the sector.

These three factors contribute to a general lack of understanding of the water risks involved in mining, which in turn makes it difficult or impossible for the financial community to manage these risks. Without understanding risk, investors and financial institutions can be blindsided.

Disclosing the True Nature of Water Risk

Read the Paper

Mine the Gap presents a preliminary framework that the financial community can use to assess water risk, including a series of questions for mining companies about their water use:

What type of mining processes are employed?
What is the environment surrounding the mine?
How does the company measure and track its water use?
How does the company monitor and manage water quality concerns?

The framework offers a way to translate the answers to these questions into a more complete understanding of a mine’s exposure to water related risks, thereby helping investors and financial institutions to make wiser decisions.

Going forward, WRI will soon release a prototype Water Risk Index which pulls together various data series to generate maps that highlight where and how water issues can pose financial risks (and opportunities) for companies. This will provide an essential geographic-specific context to understand where water risks are greatest.

A Role for the Financial Community

The financial community, then, has an important role to play to encourage improved water disclosure in this sector. By engaging with mining companies about their practices and supporting broad-based initiatives to improve water disclosure, investors and financial institutions can work with the industry to fully understand and report water risk in the future.

Minding the Sustainability GAAP

Janet Ranganathan — Thu, 26 Aug 2010 11:38:22 -0400

Limited transparency around corporate sustainability risks can lead to investments that are bad for the environment, and investors’ bottom lines.

Yesterday BP abandoned its hope of bidding on a potentially lucrative exploration license in Greenland. The implication is that its tarnished reputation is undermining its ability to compete for projects. Across the Atlantic, the Tennessee Valley Authority has lost nearly $50 million in power generation during this summer’s heatwave, because the Tennessee river is too hot for the nuclear plants’ cooling towers to function.

What do these two stories have in common? They are both examples of how environmental degradation can hit home for companies. The global environmental crisis, including climate change, water scarcity and ecosystem degradation, isn’t just a problem for “greens.” It also creates significant financial risks for companies and their investors.

Environmental Risks Alter Balance Sheets

Such risks vary from sector to sector but include: potential liability for environmental accidents; the physical impacts of climate change on supply chains; and growing water scarcity in many parts of the world.

BP’s recent crisis generated by the mammoth Gulf of Mexico oil spill is an extreme example of environmental risk. It turned the company’s anticipated net income of $5.6 billion for the second quarter of 2010 into a record $17.1 billion loss.

But in a resource-constrained and warming world, there are many other risks that may significantly alter the balance sheet. For example, research suggests that consumer goods companies could face a loss of earnings if they do not respond to environmental pressures in their supply chains, including physical climate change impacts and public policy responses to them. Specifically, the World Resources Institute (WRI) report Rattling the Supply Chains indicates that such businesses could face a 13-31 percent reduction in earnings before interest and taxes as soon as 2013, rising to 19-47 percent in 2018.

Certain sectors will be heavily impacted by specific risks in vulnerable countries or regions. For example, 79% of planned new power plant capacity in India will be built in water scarce or stressed areas. Since thermal and hydroelectric power plants depend heavily on water for cooling and energy generation, uncertain water supply creates significant risks for domestic power companies.

A Gap in Financial Accounting Standards

Worldwide, current financial accounting standards and generally accepted accounting principles (known as GAAP) fail explicitly to address such risks, which often derive from unsustainable business strategies. They can also miss the opportunities that such challenges create. Superior environmental performance by corporations can translate into lower costs from improved energy and resource efficiency and higher revenues from product innovation and enhanced brand recognition. General Electric’s Ecomagination™ product line is one compelling case in point.

Current financial accounting standards and generally accepted accounting principles fail explicitly to address environmental risks, which often derive from unsustainable business strategies.

Corporate sustainability reports can help fill information gaps on some risks. But sustainability reporting standards, such as the Global Reporting Initiative, remain largely voluntary, and as a result, their uptake is limited. Another recent WRI report Undisclosed Risk, for example, found that developing markets have particularly lagged behind in producing corporate sustainability reports. What’s more, stand alone reports all but guarantee that sustainability remains at the periphery rather than the mainstream of financial and investment decisions. A 2008 KPMG International Survey of Corporate Social Responsibility, for example, found that only three percent of annual financial reports had corporate responsibility information fully integrated into them.

The failure to integrate sustainability as a strategic business issue in annual financial reports means that businesses and investors continue to make investments that are bad for the environment, society and ultimately their own bottom line. As a result, environmental trends continue on a downward trajectory, creating even greater risks for companies, especially those that have not embraced sustainable business strategies.

The Movement for Integrated Reporting

A solution may finally be on its way. A coalition of businesses, regulators, accountants, securities exchanges and not-for-profit groups recently launched an International Integrated Reporting Committee initiative to “create a globally accepted framework for accounting for sustainability.” Jointly convened by HRH Prince Charles’s UK-based Accounting for Sustainability Project and the Global Reporting Initiative, the committee includes participants from the International Accounting Standards Board, U.S. Financial Accounting Standards Board, International Organisation of Securities Commissions, the Big Four auditors - Price Waterhouse Coopers, Deloitte, Ernst & Young and KPMG - and NGOs including the World Resources Institute. The committee intends to present a framework, which brings together financial, environmental, social and governance information in a single “integrated” reporting format, at the G20 intergovernmental summit in France in 2011. The G20 already backs the formation of a single set of reporting standards, and G20 support for broader rules will be crucial to their introduction.

Moving sustainability from the periphery to mainstream investment is an essential next step in preparing the corporate sector to deal with environmental risks. The move won’t be easy. But given worsening environmental trends and the fact that today’s investment decisions will either sustain or degrade the earth’s environment, integrated reporting is both sorely needed and long overdue.

Linnea Laestadius is an intern with the Office of the Vice President for Science and Research at WRI. She is a PhD student in Health and Public Policy and a CLF Farming the Future Fellow at the Johns Hopkins Bloomberg School of Public Health.

New Website and Survey Look Behind-the-Scenes at Ecolabels’ Environmental Claims

Jeff Rodgers — Thu, 01 Jul 2010 16:59:32 -0400

Ecolabelindex.com allows consumers and companies to compare green certifications side-by-side.

As consumers and companies become increasingly aware of their environmental impact, a surge of ecolabels have flooded the marketplace. Today, hundreds of ecolabels worldwide compete to tell us which products are best for the planet. These colorful stamps on labels declare products to be “carbon neutral”, “forest safe”, “fairly traded”, or any number of standards of sustainability. But in the self-regulated ecocertification industry, how can consumers and institutional buyers really know what these stamps of approval mean?

The 2010 Global Ecolabel Monitor

Enter the 2010 Global Ecolabel Monitor – a collaboration between the World Resources Institute and ecolabelling.org founders Big Room Inc. that gives a behind-the-scenes look at how different ecolabels certify their products. We invited 340 ecolabels in 42 countries to participate in a survey of their performance, organizational structure, and verification systems. The results are housed at ecolabelindex.com, a web resource that gathers ecolabels onto a common platform to make it easier for consumers and institutional buyers alike to interpret and compare them.

Visit ecolabelindex.com

The survey covers questions such as how the ecolabels’ rules were created and how they are funded. It also asks how the ecolabel is enforced, for example via site visits, audits, and/or third party verification.

Increasing Transparency and Accountability in Green Certification

The Global Ecolabel Monitor illustrates that there is clearly scope for improvement in ecolabel transparency and accountability. Over half of the ecolabels we invited to participate were unreachable or unwilling to share information about the metrics underlying their certification. Additionally, less than 30% of the ecolabels surveyed recognized, or were recognized by, any of their fellow labeling organizations, making it impossible to know for certain if one ecolabel’s interpretation of “green” would pass muster with their peers.

More than a third of US consumers say they are willing to pay a premium for eco-friendly products. But ecolabels, like nutritional labels on food, are only helpful when they are clear, transparent, and consistent from product to product. Imagine if one cereal box only had calories listed and another had only protein content; and both measured their nutritional content in different ways. How would you make an informed decision about which box was healthier?

From environmentally-conscious individuals shopping for themselves and their families, to institutional buyers stocking the shelves of multi-billion dollar retailers, purchasers of all sizes need transparent, concise comparisons to decode the ecolabels on the products they are choosing between. Improving transparency in the ecolabel marketplace is an important first step to reduce consumer confusion and increase credibility. Ecolabelindex.com will continue updating and tracking the developments of ecolabels, making it easier for consumers and companies to identify and select the ecolabels that are credibly, transparent and effective.