Chemical Footprinting: The Next Frontier in Responsible Investing
Harmful chemicals are an increasing problem in today’s marketplace, leading not only to environmental pollution and human health impacts, but also to an abundance of hidden business liabilities. Managed incorrectly, the costs can be steep in terms of fines, lost market share and tarnished brand reputation.
Consider these examples:
– From February to May of 2015, the stock price of Lumber Liquidators plummeted 70 percent — and its CEO resigned — amid concerns that the company’s laminate flooring products contained unacceptably high levels of formaldehyde.
– Over a three year period (2011-2013), Walmart, Target, Walgreen Co., CVS Pharmacy and Costco Warehouse collectively paid $138 million in fines levied by regulators in the U.S. for failure to appropriately manage products that became hazardous waste when they broke or were returned by customers.
– In 2007, Mattel’s recall of more than 9 million toys (many due to lead paint) cost the company $110 million in expenses and lowered its stock price by 18%. RC2 Corporation’s recall of its toy trains in the same year (again, due to lead contamination) cost the company $48 million in expenses and legal fees, and its stock price dropped 50%.
These stories and statistics highlight a challenging question for investors: How can you better understand the chemical risks of the companies in which you invest? And how can you encourage companies to take leadership in lowering these risks?
The answer: Chemical Footprinting. It’s the next frontier in responsible investing and corporate sustainability that will enable investors to evaluate chemical risks just as they evaluate water and climate risks.
The Chemical Footprint Project (CFP) provides the first-ever common metric for benchmarking companies’ management and use of chemicals, and evaluating how they are responding to the increasing market demand for safer products. This independent, third party tool creates a credible system that will publicly recognize corporations that show leadership in chemicals management and reducing the use of chemicals of high concern to human health or the environment.
By providing a common set of questions and evaluation criteria, the CFP establishes a standardized system of measurement critical to facilitating legitimate comparisons. The results provide a barometer of how well companies manage chemical risks – identifying best in class performers– making it easier for investors to identify leading companies.
The Assessment Tool documents a company’s current state of performance and will assess improvement over time. Specifically, it assesses companies on their overall performance in managing chemicals beyond regulatory compliance in four areas: management strategy, chemical inventory, footprint measurement, and public disclosure and verification.
Like carbon footprinting, chemical footprinting can apply to any business sector. What does this mean for socially responsible investors? Simply put, more data = better investment decisions. Here’s how:
– As highlighted above, harmful chemicals in products and supply chains can pose a hidden liability. The CFP can help to identify the potential chemical risks (and associated health and reputational risks) of companies.
– Environmental, social and governance factors are fundamental for responsible investors. The CFP supplies a vital piece of missing information by providing data on chemical risk. The issue of safer chemicals encompasses both environmental sustainability goals (reducing pollution, spills, end-of-life management concerns, etc.) and social responsibility goals (i.e., worker safety and consumer health).
– If you can quantify something, you can identify its value. The CFP publicly recognizes, and thereby values, companies with highest scores.
To ensure its credibility, the CFP engages a wide range of stakeholders. The founders of the CFP are the environmental non-profit organization Clean Production Action, research institute the Lowell Center for Sustainable Production at the University of Massachusetts Lowell and sustainability consultancy Pure Strategies. Guiding the work of the CFP is a steering committee made up of representatives of the following businesses and organizations: Staples, Inc.; Target Corporation; Boston Common Asset Management; Kaiser Permanente; Trillium Asset Management, LLC; Partners HealthCare; ChemSec; Dignity Health; Environmental Defense Fund; Investor Environmental Health Network; and the U.S. Green Building Council.
Signatories to the CFP are beginning to ask their stakeholders and suppliers to report on their chemical footprint. Aviva Investors, BNP Paribas Investment Partners, Boston Common Asset Management, Trillium Asset Management, Dignity Health, Kaiser Permanente and Staples are among the signatories that will ask the companies they invest in or purchase from to participate in the Chemical Footprint Project. These investors represent over $1.1 trillion in assets under management. Individual investors will benefit from these efforts by socially responsible investment firms.
As the marketplace shifts ever faster to demand safer chemicals, the smartest investments will be in companies that recognize safer chemicals as a key business opportunity. For existing investments, the wisest course of action will be to demand chemical footprinting to get ahead of any potential liabilities. To learn more about how to integrate this information into your investment process in order to identify industry leaders and to reduce risks in your portfolio, go to ChemicalFootprint.org
Q & A with Ethiquette: how and when to use the chemical footprint?
Ethiquette: Have you already identified some industry leaders or when can we expect to be able to access that information?
Dr. Sally Edwards: Not yet. The first CFP report will be released in the first quarter of 2016.
Ethiquette: Will it be available to the general public?
Dr. Sally Edwards: The report will be available to the general public
Ethiquette: Are any Canadian fund companies signatories?
Dr. Sally Edwards: No.
Ethiquette: Should I be asking my fund company or my investment adviser if they use it?
Dr. Sally Edwards: You could let them know about it, but data will not be available until next year.
Ethiquette: How much does it cost to access as a do-it-yourself investor or as a fund company or investment adviser?
Dr. Sally Edwards: There is no charge to access the report.
Ethiquette: Should I also be writing a letter to my public pension plan about this? Do you have a template letter?
Dr. Sally Edwards: We can create a template letter for you.
Dr. Sally Edwards is a senior research associate at the Lowell Center for Sustainable Production at the University of Massachusetts Lowell. She directs the Sustainable Products Initiative, which promotes the development of safer and greener products through engaging stakeholders, conducting research, and providing information that can spark innovative solutions. Sally facilitates the Green Chemistry and Commerce Council’s Retailer Leadership Council, whose mission is to promote safer chemicals, materials and products across retail supply chains. She is a founder of the Chemical Footprint Project, which is designed to transform global chemical use by measuring and disclosing data on business progress to safer chemicals. Sally has over 25 years of experience in environmental health, including 14 years at the US EPA in Massachusetts and Alaska. She is an adjunct professor at the University of Massachusetts Lowell and provides consulting services to businesses and organizations. Sally holds a MS in Environmental Health Science from Harvard University and a BA in Human Biology from Stanford University. She completed her doctorate in Work Environment at the University of Massachusetts Lowell. Her book, Beyond Child’s Play: Sustainable Product Design in the Global Doll‐Making Industry was published in 2009.