Time’s up for ‘Forever’ Chemicals

Sonja Haider, Senior Business and Investor Adviser at ChemSec, says climate and biodiversity concerns are driving investor action against chemical pollution.

The world is outside of the safe planetary boundaries for chemical pollution, putting its ability to sustain life at risk, yet the production of chemicals is expected to triple by 2050.

Environmental charity Fidra accused governments attending this year’s COP27 summit in Egypt of “missing opportunities” to manage the impact of petrochemicals on the planet.

According to research published in Environmental Science & Technology, a peer-reviewed journal, there are an estimated 350,000 different types of manufactured chemicals on the global market.

These include plastics, pesticides, industrial chemicals, chemicals in consumer products, antibiotics and other pharmaceuticals, known as ‘novel entities’.

The latter are “created by human activities with largely unknown effects on the earth system [and] significant volumes of these novel entities enter the environment each year”.

Bethanie Carney Almroth, Associate Professor from the University of Gothenburg and co-author of the research, says: “The rate at which these pollutants are appearing in the environment far exceeds the capacity of governments to assess global and regional risks, let alone control any potential problems.”

Toxic to humans and wildlife

Among these novel entities are Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) – also known as persistent or ‘forever’ chemicals for their longevity and pervasiveness.

According to environmental charity ChemTrust,  they are found in hundreds of products from food packaging to clothing – and can be toxic to both humans and wildlife.

Harmful effects include interferences with hormonal and reproductive systems, and the promotion of certain cancers.

Yet despite such serious potential harm, the chemical industry is “doing little to halt an emerging global crisis”.

Sonja Haider, Senior Business and Investor Adviser at ChemSec, an independent non-profit that scores chemical companies on their on their environmental impact and treatment of hazardous chemicals, says: “The global chemical industry is turning a blind eye to the unfolding chemical pollution crisis. Most companies are taking little or no action to phase out hazardous chemicals despite the risks to public health, the environment and shareholder value.”

The organisation gives 54 of the world’s biggest chemical companies by revenue a ‘ChemScore’ and ranks their performance in four different categories: the toxicity of their product portfolio, research and development of non-toxic chemicals, management and transparency, and the number and scope of controversies and scandals that the company has been involved in.

Companies are then graded A+ to D- with unmarkable companies receiving an F.

In this year’s report, the average score across all 54 companies is unchanged at 13.3 out of 48 which Haider says reveals “just how inadequate most companies’ strategies are”.

The story is worse for companies in North America where average ChemScores have fallen. The average for Asian firms is also down, while scores for Europe have improved slightly.

Haider says investors are “constantly asking why chemical companies are failing to improve their scores”.

“The answer is that companies make profits from these chemicals. For example, they are able to make items water resistant which is incredibly useful, and you don’t get the same results from moving to a non-polluting formulation. It is cumbersome to change processes and no one down the supply chain is putting their hands up to say, ‘we don’t want you to use them’,” Haider says.

Investor pressure

Chemical companies’ reluctance to reduce their environmental impact has forced a coalition of 47 fund managers with US$8 trillion in assets under management to call on manufacturers to “phase out and substitute persistent chemicals, disclose the volume of all hazardous chemicals they produce, and demonstrate action to improve their chemicals management by raising their ChemScore rankings”.

In a letter to the CEOs of the biggest chemical companies – coordinated by Aviva Investors and Storebrand Asset Management – the asset managers wrote: “We encourage you to lead, not be led, by phasing out and substituting these chemicals. In addition to the financial risks associated with litigation, producers of persistent chemicals face the risk of increased costs associated with reformulating products and modifying processes, which can have significant implications for company performance.”

Liudmila Strakodonskaya, ESG Analyst at AXA Investment Managers, a signatory to the letter, says: “The importance of the chemical industry for protection of biodiversity and natural capital is crucial. Sound management of chemicals throughout their life cycle at each point of the related value-chains will help the industry to minimise adverse impacts on the environment and human health.”

Strakodonskaya adds that her firm is “ready to work with companies to further promote chemical safety, increase awareness and disclosure as well as accompany transition towards more sustainable solutions”.

This engagement will follow that from other investors which have attempted to affect change in the chemical industry.

There has been a spate of shareholder resolutions demanding companies improve reporting on forever chemicals and take steps to reduce their use.

This October, shareholders in the US requested that Dow Chemical – which received a D+ ChemScore – issue an audited report addressing whether and how a significant reduction in virgin plastic demand would affect the company’s financial position and assumptions underlying its financial statements.

A similar resolution was filed at Phillips this November.

Meanwhile in March, Restaurant Brands International – owner of Burger King – agreed to eliminate PFAS from its food packaging by 2025 in all stores worldwide, following engagement with shareholder advocate As You Sow.

Haider says investors increasingly appreciate the importance of eradicating harmful chemicals to the overall success of their ESG investment strategies, and are willing to put pressure on investee companies.

“I have been trying to motivate investors for years, and this year has been an incredible breakthrough. Harmful chemicals is a topic that has really gained traction and people appreciate that without removing chemicals from the system we will never achieve climate change goals or protect biodiversity.”

Litigious environment

Haider says investors are also alive to the risks to chemical companies from litigation.

Notably in the US, where PFAS have been found in drinking water, groundwater and soil, companies have faced a raft of claims relating from personal injury to environmental damage.

US chemical company DuPont, which receives an F grade from ChemScore placing it bottom of the league table, has faced litigation for decades and has been named in more than 6,100 PFAS lawsuits since 2005.

The firm has now removed all details of its portfolio from public view, making it, as Haider says, “impossible to rate”.

DuPont was in part responsible for bringing down US chemical companies’ overall ChemScore, but the region’s firms were also marked down for exploiting a loophole in the Environmental Protection Agency (EPA) reporting requirements introduced by the Trump administration.

Under ‘de minimis’ exemptions introduced in 2020, companies do not need to report chemical discharges if the amounts are ‘negligible’; defined as less than 1% of a total mixture.

According to the Environment Working Group, at least seven facilities around the US operated by Dow Chemical, 3M and other companies are “likely using [the] regulatory loophole to avoid reporting their releases of PFAS into the environment”.

The EPA is currently consulting on whether to remove the loophole.

Meanwhile, the Biden Administration appears to be willing to limit PFAS and other harmful chemicals. A number of states have adopted drinking water guidelines or limits for one or more PFAS compounds, while other states are also considering or have proposed standards.

In Europe, this October, the European Council announced a regulation to address the problem of forever chemicals by reducing “limit values for the presence of persistent organic pollutants in waste”, which it argues will benefit moves to a circular economy.

The regulation revises the annexes to the regulation on Persistent Organic Pollutants, introducing new chemicals and restricting their presence in waste by strengthening the concentration limit values.

Haider welcomes the additional regulation which she says supports reinforces the EU’s “tough” position on chemical pollution, which is already regulated through the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) legislation.

REACH demands companies identify and manage the risks linked to the substances they manufacture and market in the EU, and they must demonstrate to how the chemicals can be safely used.

“There is always more regulators can do – and they can do it faster – but it is positive to see the EU moving ahead and implementing new legislation,” Haider says.

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