Business Models in Sustainability Certification: Towards a More Substantive Understanding of Rule Intermediaries in Transnational Governance for Sustainable Commodity Chains

This empirical research deals with interorganizational arrangements for the enforcement of sustainability standards in commodity supply chains. With respect to vulnerable ecosystems and local communities, sustainability standards provide rules for where and how commodities can be produced, i.e. they attempt to govern towards sustainability management of agricultural production. As a ”geographically unrestricted means of governance matched to the supply-chain-centered organization of global markets” (Auld 2014, 126), standards transcend nation state boundaries and directly affect sustainability management at points of production. This study focuses on implemen­tation of sustainability standards through third-party certification, i.e. the process in which the compliance with these standards is assessed, eval­uated and certified by third parties. These third parties are referred to as certification bodies or audit firms (Hatanaka & Bush 2008, 73). Independence of certification bodies – from the assessed entity, its suppliers, or the standard-setting organization that owns the standard – is a central characteristic of the third-party certification mechanism (ibid.). Certifiers’ impartiality, as well as eligibility and quality of work is typically overseen, on behalf of standard bodies, by accreditation bodies. While organizationally, these three groups of actors typically are (and need to be) independent, the “tripartite standards regime” (ibid.) clearly functions in operational interdependence.

From the perspective of standard organizations this means that for their sustainability standards to become operational (i.e. to be taken up by economic operators) they need to be accommo­dated into contractual arrangements between standard, certification and accre­ditation organizations. The establishment and management of these trilateral relationships are thus critical for the functioning, including the success (here: uptake) of standards - especially in sectors with high proliferation of and competition among different standard systems. The question arises: what drives interactions between standard, certification, and accreditation organizations, and how do they influence the functioning of a standard?   

By addressing this question, this study contributes to an emergent field of research. Few studies deal with the implementation of standards, and even less on an empirical basis. Thus, the various processes through which actors (especially certification bodies) accommo­date, operationalize and translate standards in their own work are understudied. As a result, concrete (inter-)actions within the inter-organizational arrangements that enforce certi­fication standards, their premises and effects remain poorly understood. Levi-Faur and Starobin (2014) in particular point to the role of “regulatory intermediaries”, i.e. “actors with the capacity to affect, control, and monitor relations between rule-makers and rule-takers via their interpretations of standards and their role in the increasingly institutionalized processes of monitoring, verification, testing, auditing, and certification” (ibid., 22). Given the consistent and systematic role that these actors play for standards and transnational governance of corporate sustainability, they argue, it is nece­ssary to place these actors, their roles, interests and interactions at the center of theoretical, analytical and empirical research.

Against this background, we comparatively study the roles, interests, and interactions in interorganizational arrangements between standard, certification and accre­ditation orga­nizations that have formed to enforce sustainable production of biofuels. We define arrange­ments of such interdependent organizations that are involved in the implemen­tation of a stan­dard, and the rules that govern their interactions as certification systems.

The generic question formulated above can be divided in three research questions (RQs):

1. What is the role and what the interest of each actor group in a certification system?
2. What interactions between the different groups of actors can be identified?
3. How are standard setters and their standards influenced by interactions within certification systems?

The empirical research takes the form of an embedded multiple-case study. We will draw on institutional theory and transaction cost economics to frame the research. Complementary, a business models concept will be used to conceptualize each type of actor in a certification sys­tem. Unlike other business models literatures that are centered on a firm, the concept by Zott and Amit (2010) empha­sizes cross-organizational boundaries by treating a business model as a system of interdependent activities. Its advantage regarding our research object lies in the potential to account for interlinked activities performed in actor networks by shedding light on an organization’s linkages to other (external) organizations, and on value-creating interactions.

Collecting qualitative data from diverse sources enables triangulation of results. The “cases” are concrete certification systems that have configured to enforce particular standards for sustain­able biofuel production in the context of the EU’s Renewable Energy Directive. The units of analysis in each case are the three types of organizations involved in certification systems – standard, accreditation, and certification organizations. Their business models will be recon­structed and analyzed in light of their institutionally constituted roles (RQ 1). Furthermore, interactions in concrete certification systems will be mapped (RQ 2), and assessed in order to better understand how standard organizations and standard systems are affected by these interactions (RQ 3).

Comparative analysis of multiple cases will allow for more robust results. Embedding all of the cases in the EU biofuel regulation is particularly instructive, because the EU has made certification mandatory for biofuel producers, thereby creating a captive market for certification of “sustainable” biofuels. The regulation, which is so far unprecented in agro-food and forestry, allows for ruling out confounding factors of first-mover advantage and the restraints of a small market size typical of many other certified products.

Auld, G. (2014): Confronting trade-offs and interactive effects in the choice of policy focus: Specialized versus comprehensive private governance. Regulation & Governance, Vol. 8, Nr. 1, p.126–148.

Hatanaka, M. & Busch, L. (2008): Third-Party Certification in the Global Agrifood System: An Objective or Socially Mediated Governance Mechanism? Sociologia Ruralis, Vol.48, No.1, p.73-91.

Levi-Faur, D.  & Starobin, S.M. (2014): Transnational Politics and Policy: From Two-Way to Three-Way Interactions. Jerusalem Papers in Regulation & Governance, Working Paper No. 62.

Zott, C. & Amit, R. (2010): Business model design - an activity system perspective. Long Range Planning, Vol. 43, Nr. 2, p.216-226.