Wednesday, May 26, 2010

Certification: a trendy but tricky practice

When Coastal EcoVentures first started thinking about how to positively impact tourism development practices in coastal Mexico, one obvious option was to develop a certification standard.

In a world of greenwashing, certifications can be powerful and important signals of quality to consumers, while providing a valuable point of differentiation and isolating mechanism to businesses in crowded markets in which every competitor seems to be making green claims.

But actually securing the intended environmental benefits via certification is harder than it may seem, as evidenced by a new study from RFF that finds only limited evidence of successful certification schemes.

The paper examines previous analyses of whether certification of agricultural commodities and tourism operations actually result in the desired environmental and social benefits. The authors conclude that the evidence of such benefits is limited, often because of the use of inadequate counterfactual scenarios with which to compare the performance of certified firms.

Examples of certification abound: the Marine Stewardship Council for fisheries, Forest Stewardship Council for wood products, and Rainforest Alliance certification for a variety of agricultural products. Even within tourism, there exists a crowded market of standards: Rainforest Alliance, Sustainable Travel, Green Globe, and many others.

In terms of tourism certifications, the evidence of benefit is relatively scant, but the primary credible study of tourism certification, which focused on Costa Rica’s Certification for Sustainable Tourism, showed that small certified hotels enjoy a price premium of about $20 per room per night over its uncertified competitors.

The main take-away is that there just hasn’t been a lot of credible research on the effectiveness of certification. But I think this analysis also points to the fact that certification is hard: it’s hard to pick the right set of requirements for certification, in a way that will encourage better behavior from firms that wouldn’t act responsibly anyway.

In contrast to certification, our EcoValuator is oriented to investors rather than consumers. Investors use the EcoValuator to factor the likely impact on financial returns of a project’s environmental performance. It’s essentially a risk management tool for responsible investors who happen to think that responsible business practices are critical to long-term financial sustainability.