BASF: devising a strategy for a corporate eco-label

The world's biggest chemical manufacturer, BASF, claims to be the first company to launch a corporate labelling scheme for "eco-efficient" products. A key aim is to open up new markets or bolster existing ones for BASF products, while allowing customers to claim that they are using "green" raw materials. But environmental groups and government-backed eco-labelling schemes are sceptical - and warn that BASF's plans to extend the scheme to consumer products will be met with suspicion by the public.

With sales of €33 billion and 87,000 staff, German chemical firm BASF is a true industrial giant. Its businesses include commodity chemicals, plastics, agricultural chemicals and oil and gas exploration. It produces some 8,000 products.

BASF's biggest customers are the agriculture, automotive, chemical and energy sectors - but it also supplies the construction, carpets, cosmetics, detergents, electronics, furniture, health, leather, packaging, paper, printing and textile industries.

Earlier this year BASF announced that it was launching a corporate labelling scheme for "eco-efficient products". The label appears to be the first to be based on the concept of eco-efficiency.

BASF's scheme is the first time that a manufacturer of upstream chemicals and materials, rather than a supplier of consumer products, has launched a labelling scheme. As such, it has the potential to open up a whole new arena for supply chain management and environmental engagement between businesses.

Official eco-labelling schemes
Official eco-label schemes have made little headway in the UK. The Government has shown no interest in developing a national scheme - while the EU "flower" eco-label, launched 11 years ago, has struggled to attract interest from product manufacturers.

The picture is very different elsewhere in Europe. In Germany, between a third and half of all consumers are influenced by the Government's Blue Angel scheme. This was set up almost 25 years ago - and is now used by 710 companies on 3,800 products.

The White Swan eco-label is also well recognised in northern Europe. Established by the Nordic Council of Ministers in 1989, it is available for some 60 products from washing-up liquid to furniture and hotels.

These successful schemes base their product criteria on the concept of life-cycle assessment, a tool to quantify resource and energy consumption and releases to the environment during the life cycles of products.

Such assessments can never be fully objective, because they rely on giving different values or "weightings" to differing environmental impacts, such as ecotoxicity or potential contribution to global warming. But provided the methodology used, and the assumptions behind it, are available for all to see and the study's sponsors are open about their motives, LCAs can achieve widespread acceptance.

Industry claims of "elitism"
In contrast to official eco-labels, industry's interest in environmental labelling has focused on environmental product declarations (EPDs).

EPDs offer environmental product information - usually on the manufacturer's website - to business customers. Using a common format for a product type, such as personal computers, they provide absolute data on several key impacts and allow some comparison between products.

Manufacturers like EPDs because they are not "elitist" - unlike government-backed labels which can only be won by the "greener" end of the market. But environmentalists regard them with suspicion, because they are produced without wider stakeholder consultation and are unchecked by any independent third party.

Industry groups have also shown interest in "issue-specific" labels. Traditionally, these have been set up by environmental groups - a good example being the successful Forest Stewardship Council scheme created by WWF. However, the forestry industry has now launched a competing logo and certification scheme for forests and timber products. And in 1997, retailer B&Q launched a label for the solvent content of paints which was swiftly adopted by all the UK's producers.

LCA and eco-efficiency
Although industry has been reluctant to participate in third-party labelling schemes, it has been quick to see the potential of LCA. Since the mid-1990s, LCA has been widely used to stave off legislation or address criticisms, which threatened to damage a product's image with consumers. The findings of a study often had an uncanny tendency to favour the products of its sponsor.

Major companies, notably in the electronics and automotive sectors, have used LCA to optimise process efficiency and product design. However, producers of commodities such as metals and chemicals have tended to focus on producing life-cycle inventory data rather than using LCA to stimulate innovation (ENDS Report 264, pp 20-24 ).

One offshoot of life-cycle thinking is the concept of eco-efficiency. This term - often described as "producing more with less" - commonly refers to the efficient use of resources.

The eco-efficiency concept was refined in the early 1990s by the World Business Council on Sustainable Development, which defined it as the production of "competitively priced goods and services...while progressively reducing ecological impacts and resource intensity throughout the life cycle, to a level at least in line with the earth's estimated carrying capacity."

One of the first companies to integrate eco-efficiency into its strategic planning was chemical manufacturer Dow Europe. The company found that examining its products' life cycles drove it into closer relationships with its customers - with potential benefits for both (ENDS Report 252, pp 16-20 ).

One example was the development of structural panels containing polystyrene for use in house building. The panels were less resource intensive than competing products, enabled houses to be built more economically and offered a new market for polystyrene, a major Dow product.

Dow's interest in LCA and eco-efficiency led to it acquiring the world's largest LCA consultancy, Ecobilan, in 1995. However, the consultancy was sold a few years later.

BASF's eco-efficiency tool
Like Dow, BASF started using LCA almost a decade ago. In 1996, it developed an "eco-efficiency analysis" tool in collaboration with the German consultancy Roland Berger and Partners. Since then it has conducted more than 220 analyses.

BASF claims that eco-efficiency analysis "can show customers which products and processes are superior for their specific applications from both economic and environmental viewpoints". It says that the tool is "increasingly valued by our customers".

The tool evaluates the economic costs and environmental burdens of a product - giving equal weight to both - across its complete life cycle. It allows a product to be easily compared with its competitors.

Controversially, BASF defines eco-efficient products as those that outshine "at least one rival product". This definition means that the label could in theory be awarded to a product that is far from being the best on the market.

The methodology describes the environmental impact of a product or process in six categories - raw materials consumption, energy consumption, land use, waste and emissions, potential toxicity and potential risks. These are given weighting factors, which vary from study to study.

The resulting "ecological footprint" can be illustrated using a "spiderweb" diagram - very similar to that devised by Dow - and the weightings are used to calculate a total environmental impact score. Similarly, the various costs incurred in manufacturing, using and disposing of a product in relation to a particular function or process are added up.

The two halves of the eco-efficiency analysis - environmental impact and economic cost - are then plotted on a graph which BASF terms an "eco-efficiency portfolio" (see figure).

According to BASF, eco-efficient products are those which either have superior environmental performance at no additional cost, or are cheaper but with an environmental impact no greater than other products.

Together the spiderweb diagram and eco-efficiency portfolio allow comparison between products in a way that is easy to grasp and understand. Issues that were previously discussed in vague terms can be presented visually and used in discussions with senior executives and other decision makers.

All of BASF's environmental analyses undergo third party evaluation or "critical review", as required under international standards for life-cycle assessment. The reviews have mostly been conducted by well-known authorities such as the Wuppertal Institute.

Eco-efficiency analysis has a wide range of applications. It has been used within the company to make strategic decisions about BASF's product portfolios or investment in new or existing plants, or to optimise product or process design. BASF is also using the tool externally to illustrate the benefits of its products to the marketplace, or to influence political debates and the development of legislation (see box ).

These uses of LCA and eco-efficiency analysis are enough on their own to make BASF a leader in the field. But what really sets it apart are its plans to create a corporate eco-label based on a programme of carefully selected eco-efficiency analyses.

Moving into product labels
The first product to be awarded the label is propylene carbonate, a solvent used for coating copper wiring with enamel for use in electrical motors, transformers and other devices. BASF has sold the chemical since the 1980s - but wire coating is a potentially significant new application in a market currently dominated by the solvent cresol.

BASF has awarded itself the label on the basis of an eco-efficiency analysis carried out last year. The study concluded that propylene carbonate had significantly less environmental impact than cresol at the same total cost. The main difference was that cresol had a much greater toxicity and hazard potential for factory workers.

BASF's label says that the product achieved "first place in an environmental and economic evaluation according to the BASF method." However, the company did not compare its product with other alternatives to cresol that are being explored by the wire coating industry. BASF says such alternatives were not included because it is "very hard to find other substitutes for cresol with a similar performance at a reasonable price."

The label is licensed by BASF's eco-efficiency centre. In this case the fee was paid by the company's propylene carbonate business - but if a wire coating company wants to use the label for its own products, it will also have to pay the fee.

The label will be included on product labels on drums and bulk containers used to transport the solvent. It will also appear on marketing materials such as brochures and websites.

BASF has awarded a second label to its dye astaxanthin, used to give farmed salmon the same pink colour as the wild variety. Its eco-efficiency analysis concluded that the chemical was more eco-efficient than the fermentation of micro-organisms or the cultivation of algae which have similar costs, but use more energy across their life cycle.

Strategic thinking
All this is novel enough - but BASF is also planning to extend the labelling system to retail consumer products.

Remarkably for such a large company, only two of its products - a styrene insulation material and a car cooling agent - are sold to end consumers. However, BASF may be seeking to extend its influence further down the supply chain by awarding its label to products made by its customers' customers.

Theoretically, the company could open up its labelling scheme to any product. However, this could permit the labelling of products made using materials or chemicals that compete with BASF's.

BASF declined to discuss its plans to extend the label to consumer products, or to outline the strategic thinking behind the label, until its new business strategy for the whole company is completed in July.

However, the company appears to hope that the label will give it an edge in new or expanding markets, and to see off competitors in established markets. It is also seeking to strengthen ties with its customers by allowing their products to be associated with a "green" kitemark.

BASF may also be hoping that the scheme could bolster its green credentials and forward-looking image. Examples of the company's eco-efficient products and analyses have featured along with other "future-oriented" ideas such as hydrogen fuel cell cars in recent advertising campaigns in national press and business magazines.

BASF denies that eco-efficiency analysis is simply a PR tool, and argues that the cost of developing it shows that the company is serious about its sustainable development principles. The company also points out that the technique was widely used as an internal decision aid long before it was made public.

Credibility gap?
However, the decision to extend the eco-efficiency analysis to product labelling, and the way in which labels are awarded, may open the company up to criticism.

Firstly, BASF's track record of using the analysis tool to promote its own products, or products that are important markets for its chemicals and materials, is bound to raise suspicion (see box ).

Some question marks also hang over the transparency of the methodology. In the absence of an international or European standard for eco-efficiency analysis, BASF's methodology has been certified by the German certification and standards setting company TUV - against a standard developed by TUV itself.

The methodology allows different weighting factors to be set for the various environmental impacts. Summaries of eco-efficiency analyses for labelled products are placed on BASF's website - but these do not make clear what weighting factors were used or the assumptions behind them.

Moreover, award of a label requires the underlying eco-efficiency analysis to be corroborated by an "independent expert" from an academic institution. Environmental groups have often questioned the financial links between large corporations and academia. The propylene carbonate analysis, for example, was corroborated by Michigan State University - which a few years ago received a gift of $175,000 from BASF.

Suspicion from stakeholders
"It is very significant that large multinationals are continuing to invest in product self-declarations when there is increasing evidence that such schemes are not credible with the public or local authorities," argues Melissa Shinn of the European Environmental Bureau. "The programme is not transparent. All the verifier is doing is verifying that the company has followed its own methodology - something that has built-in elasticity. The process needs wider stakeholder involvement."

Such sentiments are echoed by the German Environmental Protection Agency, which runs the Blue Angel eco-label. "The most reliable labels are those that are independent as defined by ISO14024 [the international standard for third-party labels]," says Christiane Boettcher-Tiedemann, head of product assessment and eco-labelling. "The Blue Angel, for example, uses juries composed of people that have no connection with the industry or with public authorities to agree on product criteria."

The Blue Angel, White Swan and EU eco-label are designed to recognise only the "greenest" products on the market - typically the top 20%. However, the eco-efficiency label could be awarded to a product because it performs better than just one alternative - arguably a flimsy basis to justify a switch in consumer behaviour.

BASF's claims that products which perform well in its analyses are "environmentally friendly" or "environmentally friendlier" are also questionable given that half of the analysis is concerned with cost.

"So-called eco-efficiency analysis does not seem to be entirely transparent," says Ms Boettcher-Tiedemann. "Mixing ecological and economic aspects does not fully comply with the international standard for LCA, ISO14040."

Environmentalists warn that consumers and businesses are already confused by the proliferation of logos and environmental claims - and fear that unilateral measures by BASF and, potentially, other companies may add to the problem.

Moreover, environmental groups lack the resources to police such self-declarations. "If this scheme takes off and other companies decide to follow suit and establish their own labels, how will anyone be able to keep tabs on them?" asks Ms Shinn.

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