Governments around the world are trying to determine how to effectively promote corporate social responsibility (CSR). It has proven to be hard to regulate for CSR, so the focus has been on other policy initiatives. On the supply side, in response to calls from governments, corporations have adopted codes of conduct and related programs to promote CSR. In the eyes of CSR activists, these efforts have produced limited progress.
Attention is also being paid to the demand side of the equation. If consumers prefer socially produced goods, corporations will have incentives to adopt strong CSR programs. Behavioural sciences have suggested less interventionist ways to steer consumer choice towards socially responsible choices, in particular through various forms of nudging and social norms.
This blog post reviews these devices and their effect on the advance of CSR. Although nudging shows promise in some cases, it is no panacea for the problem of CSR in market-based economies. The limits of nudging for CSR merely confirm the tensions and contradictions inherent in CSR.
1. The Socially Responsible Choice
The issue of sustainable consumption arises because consumers tend to make what are seen as “unsustainable purchasing decisions” based on considerations such as perceived product performance, brand image, and price. They tend to buy the cheapest products that meet their needs, irrespective of the social and environmental impacts of the supply chains that resulted in the supply of those products. This is true despite their stated preferences for sustainable products. The discrepancy between stated preference and actual purchasing decision is also known as the “attitude – behaviour gap”.
As behavioural scientists have emphasized, however, people are not necessarily intentionally lying about their attitude; rather, they do not behave rationally or face other barriers. In some cases, people behave altruistically, both in markets and in non-market situations. For instance, people give some of their money to charitable organizations for the public good, and, in some situations, they are willing to risk their lives to help others. Thus, the proposition that “consumers buy the cheapest products that meet their needs” – which would be what ‘rational choice theory’ would predict – is not an immutable law of human behaviour.
In the area of socially responsible consumption, there is empirical evidence that consumers are willing to pay a premium for some products in some cases. A Eurobarometer survey found that 40% of Europeans were willing to pay more for products if their production preserves the environment, respects social conditions, or helps developing countries. Labelling with information on certified fair labour standards increased consumers’ willingness to pay for polo shirts by more than 40%. Willingness to pay, however, does not equal actual purchasing, but merely the stated intention to pay the price premium; this results in the “attitude – behaviour gap” referenced above.
Building on research regarding charitable giving, it has also been demonstrated that consumers are willing to pay a higher premium for socially responsible products if they endorse ‘paternalistic altruism’, as opposed to ‘strong altruism’. Paternalistic altruists strongly prefer in-kind transfers (such as improved health care or education) over cash transfers. If this result can be generalized, socially responsible consumption might be more effective in improving social conditions than charitable giving, which involves a cash transfer. Whether, in fact, socially responsible consumption is more effective, depends on other variables, such as the relative effectiveness of the ‘in kind’-transfer mechanism versus the ‘charitable giving’ mechanism.
2. The Promise of Nudging
What could nudging hope to achieve in this area? In some areas, nudging has been used successfully to steer choice in desirable directions. For instance, where the default options were changed, organ donations and retirement savings increased. At first impression, the experience with nudging in these areas is promising for its potential in relation to motivating socially responsible choice.
Nudging, in a broad sense, may involve the use of:
(1) smart disclosure, i.e. “the timely release of complex information and data in standardized, machine readable formats in ways that enable consumers to make informed decisions”,
(2) changes in default rules, which exploit human inertia and procrastination,
(3) simplification, and
(4) social norms.
Not all categories of nudges are equally relevant to socially responsible consumption of typical consumer goods, such as clothing and electronics. Changes in physical environment and in the default options have been used successfully for ‘green purchasing’ – for instance, changing plate size in restaurants to reduce food waste, and making ‘green power’, rather than ‘grey power’, the default option for electricity consumers. These tools do not appear to be used widely to promote socially responsible consumer choice, however (with the exception of retailers that cater specifically to socially responsible consumers; they may not even offer non-responsible choices). A possible explanation is that these approaches likely have limited applicability and effectiveness in this area; offering, by default or by priority placement, the same, but responsibly produced, product at a higher price, for instance, may not sway consumers, except, maybe, if it is combined with other nudges, such as information on the effects of the incremental amount included in the price. Given that the current default option in consumer buying is ‘no purchase’, and consumer choice is king, changing the default option would not appear to be a viable strategy in this area. The focus therefore is on other nudges, specifically, the use of product- and supply chain-related information, including labelling, and social norms to steer consumers towards buying responsibly produced products.
3. Informational nudging: CSR information and simplification
As EU consumer policy recognizes, information is critical to consumer choice. Much of the EU’s policies is aimed at ensuring consumers receive information about the products they may wish to purchase (Alemanno & Sibony 2017). Behavioural research, however, has highlighted a problem with the EU’s approach – it is intended to help the non-existent ‘rational consumer’, but overloads and confuses the actual consumer. Nudging responds to this problem by ‘smart disclosure’. Smart disclosure is disclosure informed by behavioural science. Simplification, e.g. the labelling approach discussed above, is a form of smart disclosure. Another method is ‘smart information nudging,’ the supply of data in a relational way including comparisons and unspoken assessments to orientate behaviour by leveraging the emotional spheres of target groups (Di Porto & Rangone 2017, 38). This is also known as the “tell people what others are doing” strategy, also known as the use of ‘social norms’ (see further below).
In the area of socially responsible consumption, simplification is easier said than done. A significant problem is the complexity of the issues and the trade-offs inherent in social responsibility. Given the scarcity of resources, not all needs can be met, and prioritization is unavoidable. This implies subjective value judgments, which may work to undermine trust in nudges (expert advice cannot help to resolve this problem). One way out of this conundrum is breaking down and differentiating social responsibility into its constituent parts (environmental impacts, occupational conditions, salaries, benefits, child labour, etc.), which, to some extent, avoids the problem of trade-offs, but flies in the face of simplicity, since information on many aspects has to be provided.
Thus, at one end of the scale, there is an integrated system of simple information on socially responsible production, and at the other end, there is a system of multiple pieces of information on each aspect of socially responsible production. An integrated type of system, for instance, could assign a score to each aspect of each of the main pillars of socially responsible production, i.e. environmental protection and human rights protection. A differentiated type of system could assign a score to each aspect, without adding them up. For instance, it could assign a green, smiling face or a red, frowning face to a company’s child labour practices (similar to the green and red emoticons used in connection with electricity consumption to signal consumption below or above average).
Simplification
Simplification is a form of smart disclosure intended to provide a simple, clear message to target groups about what they should do. It often means reducing and standardizing information (Di Porto & Rangone 2017, 43). Key questions are ‘how simple is simple enough’ and ‘when does simple become simplistic (and potentially (mis)leading)’. As has been observed in other contexts, “everything should be made as simple as possible, but not simpler.”
As noted above, the use of colours (red, orange and green) and pictograms or emoticons could describe a company’s child labour practices. Unavoidably, this would require the setting of a simple standard to measure company performance. For instance, a green smiley face could mean “no children below the age of 16 are employed,” and an orange face could mean “no more than 15% of the work force are children below the age of 16.” The problem with these cut-off values is that they could produce counter-productive effects, also known as the ‘boomerang’ effect (Zamir & Teichman 2018, 184). This risk becomes stronger with the nudge becoming simpler, if the cut-offs between red, orange and green are set at realistic, effective levels to drive up underperformance.
Another simple nudge could involve listing socially responsible products or producers (a positive list), or listing socially irresponsible products or producers (a negative list, also known as “naming and shaming”). To a limited extent, such lists are being used.
Other Forms of Smart Disclosure
Another type of smart disclosure would involve focusing on the effects of choosing one option over another option. This kind of disclosure could replace an elaborate explanation of all differences between the available options, and ‘frames’ the choice to be made in terms of its negative or positive consequences (Zamir & Teichman 2018, 47-48). Some research has found that negative frames are more effective than positive ones. Other studies, however, found no framing effects in the real world.
– Disclosure of the Positive Effects of Socially Responsible Purchasing
Disclosure of the positive effects of socially responsible consumption on children could lead to higher purchasing intention and actual purchasing of products free from child labour. These positive effects include better health and education instead of work – assuming that instead of going to a factory a child will go to school, which, as discussed below, is by no means a given. “Child Labor Free” has established an accreditation scheme for manufacturers that do not employ children in their plants and/or supply chains, and respect the human right to a childhood. The objective is “to work with brands to create a positive movement of consumer led demand,” rather than engage in “naming and blaming.” The scheme exploits consumer demand for child labour free products – “The power to change lies with consumers.” Transparency is viewed as the driver of the shift to ‘child labour free’ consumption and production. Some of the revenues generated through the program are used to provide financial support to communities that are committed to transitioning away from child labour. To give participating brands a competitive edge, the program authorizes them to print a trademarked logo (a red heart) on the label attached to their products.
This label is simple, which is good from the behavioural perspective, but does not of itself convey a message about the positive effects. So, additional information will have to be supplied to explain these effects. This message could be “Child Labour Free means children are in better health, receive more education, and have a brighter future.” Rather than placing this message on each individual item of a product, it could be conveyed via means such as the manufacturer’s website or social media.
– Disclosure of the Negative Effects of Socially Irresponsible Purchasing
Rather than disclose the positive effects, the negative effects of socially irresponsible purchasing could be emphasized. In the case of child labour, these negative effects include poor health, little education, and a dim future. Disclosure of negative effects could be used instead of, or alongside, disclosure of positive effects; which approach works better is an empirical issue.
A simple way to convey information on the negative effects is a listing approach. In the United States, pursuant to the 2005 Trafficking Victims Protection Reauthorization Act, the Department of Labour’s Bureau of International Labour Affairs (ILAB) keeps a list of products manufactured by “child labour or forced labour in violation of international standards.” Listed products include agricultural goods such as sugarcane, cotton, coffee, and tobacco, mined goods such as gold and diamonds, and industrial products such as garments, textiles, footwear and carpets. The list, however, only covers raw materials and components, but not finished products made in part with such materials or components, because ILAB does not have “public information that would permit the comprehensive tracking of raw materials and component parts in the global supply chain.”
The list is intended as a catalyst for change, “to raise public awareness about forced labour and child labour around the world and to promote efforts to combat them.” The list attracts the attention of foreign governments and results in dialogues with ILAB about child labour. Companies can use the list in their supply chain assessments.
– Use of Social Norms
Social norms build on the ‘conformity effect’. Their deployment is intended to trigger people’s inclination to conform to the perceived norm. Social norms include factual, descriptive (often statistical) statements about actual behaviour, and normative statements about desirable behaviour (Zamir & Teichman 2018, 183-184). A well-known example involves the use of social norms to get hotel guests to reuse their towels. Telling people how many other guests are reusing their towels (e.g., “most guests reuse their towels 3 times”) is more effective than telling them that reuse is good for the environment (e.g. “please consider the environment”). Social norms are also being promoted in the area of ‘climate-friendly’ consumption. For instance, traveling by train, rather than by airplane, is an evolving social norm intended to encourage people to choose the train more often so as to reduce the emissions associated with transportation.
In the context of child labour, the use of social norms would appear to be a promising approach. If negative framings are more effective than positive ones, it would be more effective to focus on the expected costs that can be avoided (negative framing), rather than the expected benefits of the preferred choice (positive framing).
This would build on the prohibition of child labour imposed by international human right treaties, and would frame socially irresponsible purchasing as ‘harmful’ and causing ‘negative externalities’ (Zamir & Teichman 2018, 189). Socially irresponsible purchasing then becomes a matter of ‘harmful consumption’, ‘child abuse,’ or ‘human rights violation,’ which fits in well with the existing frames.
4. Ethical Issues
Nudging is not a value-neutral policy option. Although it is intended to not limit choice, it does steer choice and be used for good causes or less honourable causes, including political or commercial manipulation. Even where nudging is used in a responsible manner, however, it raises ethical issues.
Ethical issues associated with the use of nudging to promote socially responsible consumption include the subjective value judgments inherent in assessing socially responsible consumption, the tension between simplism and truthfulness, the ethical dimensions of nudging to protect consumers against overload and socially irresponsible consumption, and of ‘shopping for sustainability’ (Quigley & Stokes 2017, 68).
Assessment of Socially Responsible Purchasing
The precise delineation of the scope of human rights requires value judgments. Value judgments become more involved as various human rights and the environment need to be weighed against each other and trade-offs are to be made. Further complications arise if such weighing and trading-off has to be conducted in an international context. This is the situation any assessor of socially responsible production would face.
First, the assessor (whether or not a government official) would have to bring value to bear to assess the relative weight of the various aspects of socially responsible production, including environmental protection, occupational health and safety, child labour practices, social benefits, technology transfer, relations with the surrounding communities, etc. There is no objective way to assess these aspects, and nudging based on value judgments defeats the point of nudging. The only way out would be to merely require that companies assess and report on some or all of these aspects, resulting in a huge amount of data. This is the current situation with sustainability reporting.
Second, the assessor would have to decide whether to apply the frames of reference of the consumers in the West or of the people in the countries where the manufacturing takes place. There are huge differences in priorities, needs, and perceptions among the world’s populations. An argument could be made that the priorities and needs of the affected population should count, but that requires a value judgment that Western people may not endorse; they may prefer a more paternalistic approach (Sibony & Helleringer 2017, 211).
Third, should the assessor pay attention to second order effects, and the risk of counter productivity, or should they ignore such effects? Expert bias can have a significant influence, for instance, through ‘anchoring’ (i.e. “the tendency to fixate on specific features of a problem too early in the reasoning process, and to base the likelihood of a particular event on information available at the outset.”) For instance, with respect to the prohibition on child labour, if children are pushed out of relatively safe and clean factories making products for consumers in the West, they may end up in unsafe and unclean factories, or worse (e.g., prostitution), rather than in schools. The total amount of child labour may increase due to a product boycott or drop in sales, because the price of child labour will drop as a result so families need more of it to reach subsistence levels. If the ban is effective and children are not employed, the income of the affected of families may drop below subsistence levels, resulting in severe poverty with all of its consequences. If the assessor takes these possible effects into account, his attitude towards child labour may change.
Socially responsible consumption can be viewed as a ‘wicked problem’ arising at a ‘whole earth level’ involving the interactions of multiple systems and large numbers of actors applying different norms and values. Therefore, nudging cannot solve such complex policy problems “reliably and without controversy”.
Nudging to Protect Consumers Against ‘Overload’ and Unsustainable Consumption
Nudging for socially responsible consumption could be justified as a way to protect consumers against ‘overload’ and unsustainable consumption. As the European Commission’s Joint Research Center (JRC) has pointed out, the assumption of neo-classical economic theory that consumers benefit from the widest possible choice, is questionable given the proliferation of product offerings in some markets. According to the JRC, this kind of ‘choice overload’ may harm, rather than benefit, consumers; it poses the rhetorical question “where consumers are constantly faced with an extraordinary number of choices, can it really be argued that “consumers know best”?
Regulators might be tempted to try to address the problem of consumer overload and promote socially responsible consumption at the same time. They could do so by attempting to eliminate ‘socially irresponsible choices’ from the market, so that the number of choices will decrease and the remaining options meet requirements of social responsibility. This approach, however, would run afoul of the idea of nudging, which is to structure choice, not to reduce it.
Simplistic Nudges to Attain a ‘Noble Cause’
Simplification is good, but over-simplification may be (mis)leading. Socially responsible consumption is a highly complex issue (or, rather, set of issues) involving trade-offs, which do not lend themselves well to simplification. Nudging for socially responsible consumption may present an intractable conundrum; accurate, truthful information will be ineffective, while simplistic, effective information will be inaccurate or (mis)leading.
This is not hypothetical; indeed, the most effective nudge may well be simplistic and (mis)leading. Because, as discussed above, socially responsible production involves the weighing of many environmental and social interests, involving the allocation of scarce resources, trade-offs and subjective preferences are unavoidable. The amount of information that would need to be made available to consumers to enable them to do their own balancing and trade-offs, is substantial, and would probably not be processed by most consumers. Providing consumers with all of the data they need for ‘rational’ decision-making would be consistent with “the information paradigm” (Sibony & Helleringer 2017, 214), but it would be inconsistent with behavioural insights. To make it simple, however, a series of assumptions need to be made about what consumers want, or don’t want, and what they need to know, or don’t need to know. An objective or scientific basis for making these decisions does not exist, which means that simplification will be inherently subjective or ideological, and defeat the idea of nudging, which is to facilitate individual choice.
It might be possible to develop an argument to the effect that untrue nudges are not necessarily unethical if they serve a ‘noble cause.’ The argument would be that the lying inherent in untrue nudges does not do any harm, but pursues a good cause. In a utilitarian, as opposed to Kantian, ethical framework, such an argument could refer to the idea that “the end justifies the means.”
Empowerment
As nudging works best when it is simple, the question is how nudging can be used in a manner that respects the consumer’s autonomy. If a nudge is focused on steering consumer choice towards socially responsible consumption, it could easily (mis)lead some consumers, and undermine ‘their capacity for conscious choice.’ Active choosing in this area requires the availability of a substantial amount of information. To address informational needs, in lieu of or in addition to nudging, an approach based on ‘empowerment’ could be considered. To a degree, socially responsible consumption is comparable to voting in elections; the government can nudge citizens to vote, but not to cast a vote for a specific party. Unlike nudging, empowerment does not exploit people’s emotional responses, but attempts to enhance their capability to recognize and control such responses in order to make “deliberately conscious decisions” (Di Porto & Rangone 2017, 36).
In the area of socially responsible consumption, a shopping comparison tool could enable consumers to compare those aspects of social responsibility that they care about. These kinds of tools are ‘pro-choice,’ respectful of autonomy, and well suited to facilitate choices that are particularly complex. From the behavioural perspective, like nudges, these tools may help consumers to overcome inertia, procrastination, and status quo bias. To empower consumers, rather than lead them, the information provided should be useful, adequate, relevant and comprehensible, but it should also be simplified where possible, and framed appropriately based on cognitive insights (Di Porto & Rangone 2017, 47-48).
5. Conclusion
Nudging for socially responsible consumption is highly complicated, both in terms of effectiveness and morality. In theory, such nudging could protect the consumer against ‘choice overload’ and promote sustainability, both of which are recognized policy objectives of government around the world.
In the real world, however, a conundrum arises, since effective nudges may be untrue and consequently unethical, and ethical (true) nudges may be ineffective. Before nudging for socially responsible consumption is called a ‘false promise’, however, further research is required to identify nudging’s proper place in the mix of policy instruments to promote sustainability and socially responsible production and consumption.
Relative to nudging for socially responsible consumption, empowerment would appear to be a more promising approach. Targeted, well-structured information could aid consumers to put socially responsible consumption on their radar screens. If simple, relevant and truthful information can encourage consumers to make informed purchasing decisions, the world will benefit.
Penelope Bergkamp
Corporate Finance Lab 