Sustainable or green commodity products: are they real or a misnomer?
This paper looks at what a company may need to consider as part of its development of commodity products that benefit from certain attributes, whether environmental or impact-based and which are accordingly labelled as ‘sustainable’, ‘green’ or ‘carbon neutral’ etc.
We use a neutral term – ‘Impact Attributed Products’ to describe such a product. The development of an Impact Attributed Product is a multifaceted process. It requires a deep understanding of consumer/business dynamics (including supply and demand), operational and information/data limitations and the ever-shifting legal and regulatory landscape.
At a glance continued
For instance, even if a company is not selling directly to consumers, to the extent that its downstream customers use or are relying on the ‘Impact Attribute’ of the product, the downstream customer may place certain obligations on the company. This makes the development of such a product a challenging process. The awareness necessary to navigate the complex web of emerging policies, laws and governance issues that follow from developing Impact Attributed Products is key to avoiding damaging reputation and risking legal liability.
Introduction
In a world increasingly conscious of environmental impact, environmental adjectives or labels such as ‘sustainable’, ‘carbon-neutral’, ‘low-carbon’ or ‘green’ etc. have attracted a high degree of attention and critical discussion. There is also a growing recognition that it is imperative for the production of commodities and their supply chains (in particular those that are necessary for energy transition such as nickel and biomass1) to be ‘sustainable’ or otherwise produced in a manner that is consistent with social, economic and ecological best practices. Commodity products that benefit from such characteristics will often be given an environmental or impact-attributed adjective or label for marketing purposes to distinguish them from products that do not benefit from such attributes. In-house counsel and commercial teams who are considering the creation or marketing of Impact Attributed Products will need to navigate the legal and regulatory landscape and examine the reality behind this concept before attempting to sell or brand such products to the market.
This paper builds on our earlier paper (in which we discussed sustainable commodities and whether they can justify a ‘green premium’)2 and looks at practical issues and tips that parties should now consider when structuring an Impact Attributed Product so that it is more likely to be considered as being ‘real’ than a ‘misnomer’.
What is an ‘Impact Attributed Product’?
Before we proceed further, it is important to explain why we have adopted the neutral term ‘Impact Attributed’ instead of ‘sustainable’ or ‘green’ commodity. A particular commodity product may have one or more attendant attributes. Such an attribute may be environmental (e.g., carbon, water consumption, pollution or biodiversity-related) or social (e.g., livelihood-related). The attribute can arise in a number of contexts, including:
- Does having one element or attribute from the list above justify attaching a label to that product?
- If one is not enough, then how many would justify doing so?
Generic terms, used for marketing purposes, such as ‘green’ or ‘sustainable’ never used to be regulated because there has not been a universally accepted position that determines whether a particular product’s attributes must meet a common standard or minimum criteria (e.g., a minimum threshold of water remediation that has to be done before a producer can defend the product when it asserts that the product has the ‘water remediation’ attribute). However, that is now changing.
Element | Comment |
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Inputs |
The attributes of the inputs that go into the production of the product, e.g.:
|
Source |
Where the product is extracted or produced, e.g.:
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Production Process |
How the product is extracted or produced, e.g.:
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Post-Use Recoverability and Reusability |
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Why Develop an Impact Attributed Product?
In an age when environmental consciousness is high and there is an increasing push for sustainable practices, creating commodity products with environmental or impact attributes has become a growing imperative for businesses. For instance, academics and writers have asserted that incorporating sustainability practices improve a company’s brand image and business reputation.4 Further, businesses that dedicate themselves to the production or development of sustainable commodities may stand out favourably in a market which increasingly prioritises products that are environmentally and socially responsible.5 This, in turn, fosters customer loyalty and trust, creating a competitive advantage in an ever- evolving business landscape.6
In addition, the production or development of commodity products with impact attributes aligns with regulatory trends and evolving consumer expectations. Governments worldwide are enacting stricter environmental regulations, and consumers are demanding both ethical practices and transparency throughout the supply chain. By proactively adopting sustainable practices, companies are aiming to position themselves as responsible corporate citizens thereby aligning themselves with these trends and expectations. Further, sustainable commodity production may lead to operational efficiencies, cost savings, and resilience in the face of future regulatory changes. Companies that invest in sustainable practices today not only contribute to environmental and social well- being but may also future proof their businesses in a rapidly changing and environmentally conscious market.
How NOT to develop an impact attributed product
That said, creating an ‘Impact Attributed Product’ that is ‘real’ and not a ‘misnomer’ requires a person to potentially act consciously or with awareness, i.e. so as to be able to deflect any potential allegations of greenwashing, misrepresentation, misstatement or even fraud.
The producer or developer of an Impact Attributed Product must watch out for the potential litigant at the door. Companies are increasingly being accused of greenwashing (often associated with deceptive marketing practices or exaggerating or falsely claiming environmental benefits). The producer or developer of the Impact Attributed Product may face legal or regulatory challenges related to false advertising, breach of contract, or regulatory non-compliance.
A well-designed Impact Attributed Product would employ strategies, including risk assessments, contractual safeguards, and compliance audits, to mitigate against risks and safeguard the reputation and financial interests of the producer or developer of a product. The biggest challenge is often not knowing what you do not know. This is because, business are operating in an ever-evolving and ever-changing landscape where new terms like ‘greenwashing’, ‘CSRwashing’, ‘bluewashing’, ‘carewashing’ and ‘greenhushing’7 are invented every other day. It is difficult for companies (including their legal practitioners) to distinguish between the latest trend, a real threat or just a lot of noise!
How to develop an impact attributed product8
Bearing the above in mind, as a first step, the following should be considered when developing or designing an Impact Attributed Product:
Concept | Comment |
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Impact Attribute |
|
Additionality |
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Quantification and Verification |
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Target Audience |
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Representations (Including Marketing, Publicity and Advertising) |
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Needs of Audience |
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Internal and External Restraints (Including Legal and Regulatory Issues) |
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Cost |
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Competitor Analysis |
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Supply |
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Demand and Pricing |
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Risk Mitigants |
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In essence, the design phase is a comprehensive risk analysis comprising commercial, operational, credit, legal and regulatory considerations.
Case Study
How would one apply this in ‘real-life’? Assuming a company wishes to develop ‘green steel’11 or is considering selling ‘carbon neutral’ LNG,12 what should they consider as part of this process? We apply selected elements of the framework discussed above as an illustration of this multifaceted process:
Concept | Green Steel | Carbon Neutral LNG |
---|---|---|
Impact Attribute |
|
|
Needs of audience |
|
|
Internal and External Restraints (Including Legal and Regulatory Issues) |
|
What happens after developing an ‘Impact Attributed Product’?
Once a producer/developer has undertaken the process and designs a product that is satisfactory to it,20 the next stage is marketing the product, operationalising the production plan and selling the product.
- As we note in the questions above, marketing the product (including any claims associated with it) may be subject to restrictions, including legal and regulatory prohibitions or limitations.
- There will be ongoing monitoring, reporting and verification obligations – whether as a result of external certification processes or due to contractual obligations with downstream purchasers. The producer needs to consider whether its existing infrastructure or data is able to support this. For instance, if an ‘Impact Attributed’ Product focuses on GHG metrics, it would then require the producer/ developer to have existing GHG information and reporting/ monitoring infrastructure. This may need to occur many months ahead of the launch of an ‘Impact Attributed’ Product.
Conclusion
The development of an Impact Attributed Product is a multifaceted process – it requires a deep understanding of consumer/ business dynamics (including supply and demand, and operational requirements) but also the legal and regulatory landscape. This makes the development of such a product a challenging process. However, once a product has been developed to consciously address and mitigate the potential risks (commercial and legal), it may enhance a company’s credentials and give it a competitive advantage in a rapidly changing and increasingly environmentally conscious market.
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Footnotes
- For the purposes of biomass or activities such as BECCS.
- https://www.hfw.com/In-the-era-of-sustainability-can-commodities-justify-a-Green-Premium
- For the purposes of biomass or activities such as BECCS.
- See e.g., Lucia Sujanska & Margareta Nadanyiova, “Sustainable Marketing and its Impact on the Image of the Company” (2023) 2 Marketing and Management of Innovations 51: https://mmi.sumdu.edu.ua/wp-content/uploads/2023/07/A689-2023_06_Sujanska-et-al-3.pdf
- See e.g., Mia Pei “Apac consumers willing to pay more for sustainable products, but large-scale solutions still lacking: Deloitte” (11 September 2023) The Business Times: https://www.businesstimes.com.sg/esg/apac-consumers-willing-pay-more-sustainable-products-large-scale-solutions-still-lacking
- See e.g., Katharina Biely & Steven van Passel “Market power and sustainability: a new research agenda” (2022) 3 Discover Sustainability 5 at 4.1: https://doi.org/10.1007/ s43621-022-00073-y; in the context of the electric vehicle sector in China, see Yanping Gong, Jun Xiao, Xiuyuan Tang & Jinglu Li “How sustainable marketing influences the customer engagement and sustainable purchase intention? The moderating role of corporate social responsibility” (2023) 14 Frontiers in Psychology 1128686. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC10053499/
- See e.g., Joe Williams “Greenwashing: Appearance, illusion and the future of ‘green’ capitalism” (2024) Geography Compass e12736 at 1.1: https://compass.onlinelibrary. wiley.com/doi/pdf/10.1111/gec3.12736, “‘Washing’ refers to exteriority, appearance and superficiality. It is about covering or obscuring the true character of a thing, to hide it behind a mirage or veneer of acceptability… The synonyms of washing include to condone, discount, excuse, disregard, forgive, gloss-over, ignore and overlook. In addition to whitewashing (in its original sense) and greenwashing, a host of other prefixes have emerged to describe similar or analogous processes”
- The principles here will generally be applicable even for services in other contexts.
- Being the UN’s Sustainable Development Goals (SDG).
- See e.g., Pasaribu, S.M., Shofiyati, R., Hestina, J., Estiningtyas, W., “Climate Policies for Climate-Smart Approach” in Kumar, P., Aishwarya (eds) (2024) Technological Approaches for Climate Smart Agriculture: https://doi.org/10.1007/978-3-031-52708-1_16; Report by the UNCTAD secretariat “The role of smallholder farmers in sustainable commodities production and trade” (30 July 2015): https://unctad.org/system/files/ official-document/tdb62d9_en.pdf
- For our example, we will consider the ResponsibleSteel International Standard. There are other green steel products, e.g., the XCarb green steel certificate programme developed by ArcelorMittal but this is an in-house product created by ArcelorMittal. Such certificates can be purchased as part of a steel purchase and are intended to allow the customer to make a Scope 3 claim.
- Bearing in mind, however, the criticisms levelled at such products as we discuss below. For our example, we will consider GIIGNL’s view on such matters though bearing in mind that the SGE Methodology considers the possibility of parties using offsets in LNG transactions and reporting these separately from the Statement of Greenhouse Gas Emissions.
- Other factors include: Corporate leadership, ESG management systems, Responsible sourcing of input materials, Decommissioning and closure, Occupational health and safety, Stakeholder engagement and communication, Climate change and GHG emissions, Noise, emissions, effluents and waste, Local communities and Biodiversity.
- Using the GIIGNL Framework (2021) concept of a “GIIGNL Framework Aligned GHG Offset LNG Cargo”. See also ISO 14068-1:2023(E) (2023) which was published after the GIIGNL Framework was published, where carbon neutrality in the context of products refers to the “condition in which, during a specified period of time [(for a product, its full or partial life cycle)], the carbon footprint has been reduced as a result of greenhouse gas (GHG) emission reductions or GHG removal enhancements and, if greater than zero, is then counterbalanced by offsetting.”
- LNG bulletin July 2024 – HFW.
- See e.g., https://www.hartenergy.com/exclusives/how-carbon-neutral-lng-descended-shadow-market-206537.
- See e.g., https://www.csis.org/analysis/credibility-gap-carbon-neutral-lng.
- See e.g., https://www.scmp.com/business/companies/article/3242907/greenpeace-accuses-chinese-oil-and-gas-firms-petrochina-and- cnooc-greenwashing-lng-purchases
- See e.g., https://www.qcintel.com/carbon/article/tokyo-gas-vertree-partner-on-nature-based-projects-in-asia-22614.html and https:// globallnghub.com/report-presentation/carbon-neutral-lng-in-japan-drivers-and-perspectives
- Based on the risk assessment above and understands the risks that it is taking.