In a world where chemical regulations and market demands for safer chemicals are on the rise, how can investors know which firms are most at risk from these emerging trends and which are best positioned to capture new markets with safer products? This post sets out to help you to assess the chemical risks in your investment portfolio.
How can institutional purchasers know which suppliers are taking the systematic steps necessary to identify and reduce chemicals of high concern in products and supply chains? And how can companies demonstrate to purchasers and investors their leadership in chemicals management when they lack an objective, third-party metric that recognizes their efforts?
The inaugural Chemical Footprint Project report released in May 2016 highlights the financial risks that companies face due to chemicals of high concern (CoHCs) to human health and the environment in their products and supply chains. The Chemical Footprint Project (CFP) was launched in 2014 with the support of investors representing $2.3 trillion in assets under management and institutional purchasers with over $70 billion in purchasing power. Similar to carbon footprinting, the project applies clear and consistent metrics to help purchasers select suppliers based on how they manage their chemical footprint. These metrics also enable investors to integrate chemical risk into their sustainability analyses and investments.
The new report features key findings from the 2015 survey, including an assessment of how companies manage the potential liabilities posed by hazardous chemicals and opportunities for improvement.
These financial liabilities include “the three Rs” of: regulatory risks (costs of current and future regulations); reputation risks (costs of being exposed publicly with hazardous chemicals in products or supply chains); and redesign risks (costs related to not redesigning or reformulating products before regulations change or markets shift, measured in annual revenue).
Last year, a select group of 24 leading-edge businesses both small (millions in annual revenue) and large (tens of billions in annual revenue) stepped forward to participate in the Chemical Footprint Project and to receive a score on their corporate chemicals management practices. Respondents included both privately and publicly held companies from seven sectors: consumer durables and apparel; household and personal products; health care equipment and services; capital goods; technology hardware and equipment; consumer services; and food, beverage and tobacco. Of the 24 participating companies, 22 agreed to be named publicly. Participants include: Levi Strauss & Co., Seagate Technology, PLC, Johnson & Johnson, GOJO Industries, Becton, Dickinson and Company, Beautycounter and California Baby, among others.
Participation in the survey reflects each company’s leadership in chemicals management and its openness to opportunities for improvement. Results of the report are based on participants’ responses to a 20-question survey on performance related to managing chemicals in four categories: management strategy; chemical inventory; footprint measurement; and disclosure and verification.
The findings provide the first ever evaluation of the current landscape of chemicals management among a diverse set of companies selling formulated products and articles, based on a common set of questions and scoring developed by an independent third party. Company scores ranged from 12 points to 89 points, with an average score of 41 points (see Figure ES-1). Across the four key performance categories, average scores were highest for Chemical Inventory and lowest for Disclosure & Verification. The wide range in scores reflects the new reporting standard set by the Chemical Footprint Project, the diversity of corporate chemical management programs, along with the variety of participating companies in terms of size, sector, and business strategy.
- 1. Senior leadership matters -The 29 percent of firms with board-level oversight or senior management incentives performed better overall than firms with no such accountability.
- Companies need comprehensive policies -Without policies that address chemical hazards in manufacturing, supply chains and packaging — in addition to products — companies face hidden liabilities and chemical risks.
- Disclosure lags practice– Across every indicator category — management, inventory, footprint and disclosure — companies have more chemicals management practices in place than they share publicly. For example, 83 percent have a legally restricted substances list, but only 17 percent of those companies make that list public.
- “Design for Health” sets leading edge – “Design for Health” companies, whose entire product portfolios are based on minimizing or eliminating chemicals of high concern, performed well above the average company.
- Chemical footprinting is still new and challenging– Before they can reduce their chemical footprints, companies need to know the chemical ingredients in their products and identify chemicals of high concern, so it’s no surprise that in this first year, companies scored low for measuring baseline chemical footprint.
The report concludes that reducing chemical risk is challenging and requires leadership, training and incentives for employees and suppliers, and investment in data management systems. While these changes initially may be resource-intensive, they can result in great increases in customer trust and loyalty and open up many new business opportunities, especially for companies that sell directly to consumers.