What’s Your Company’s Chemical Risk?

Have you ever had a customer ask about chemicals in products or request that you don’t use specific ones? Have you ever paid fines or worker’s compensation for mishandling chemicals or products? How much time does your company spend reviewing chemical regulations to maintain compliance?

The marketplace is undergoing a tidal shift in chemical use and management. In 2012, 86 percent of global consumers said in a survey that businesses, at a minimum, should weigh societal and business interests equally, and that includes being more attentive to the environment and human health. In just the past few years, states have adopted 168 policies to ban toxic chemicals, and 120 new bills were introduced in 2014 alone. Regulatory requirements, customer demands, media attention, NGO advocacy, product recalls and market opportunities are driving companies to know more about the chemicals in their products and supply chains.

The passive strategy

Current business strategies for managing chemicals in products and supply chains vary widely, especially for downstream companies and purchasers that use chemicals by virtue of the products they purchase. Still, all strategies fall into two basic camps: the passive strategy and the active strategy.

The dominant chemical management strategy for downstream users is the passive strategy, which is to be — or believe to be — compliant with government regulations. Companies employing the passive strategy do not employ robust oversight measures. They also don't preemptively look for chemical risks in their products and lower costs in the short-term because they aren't investing in systems, staff or third parties to manage chemicals beyond meeting regulatory requirements.

The passive strategy, however, has serious flaws. It leaves companies vulnerable to the hidden liabilities of chemicals of concern in products and supply chains, and unprepared for swiftly changing market demands and regulations. Moreover, the passive strategy leaves companies at risk to chemical crises that incur significant costs, including monetarily and to brand reputation and stock value, by failing to invest in due diligence chemicals management.

Consider the following examples:

• Over a three-year period, Walmart, Target, Walgreens, CVS Pharmacy and Costco paid $138 million in fines for mishandling products that become hazardous waste when they break or are returned by customers.
• Sony recalled its PlayStation in 2001 due to toxic cadmium at levels more than 20 times what’s deemed safe, which generated $150 million in lost sales and product reformulation costs.
• RC2 Corp.’s recall of its toy trains in 2007, due to potential lead poisoning risks, cost the company $48 million in recall expenses and legal fees, while its stock price dropped 50 percent.
• Sigg USA declared bankruptcy in 2011 due to liabilities related to its failure to disclose Bisphenol A (BPA) in its water bottles.

These losses demonstrate the need for retailers and brands to know the chemicals of concern in their products and which chemicals trigger regulations.

The active strategy

An alternative approach for companies is the active strategy, which proactively manages chemicals in products and supply chains to stay ahead of regulatory and market demands. Companies employing the active strategy integrate chemicals management into product design, material selection and supplier engagement. Chemicals become yet another element to be considered in products, along with costs, performance and other sustainability attributes. Companies using the active strategy make upfront investments ahead of regulatory and market demands and invest in systems for knowing chemicals in products and supply chains.

The new report, “The Business Case for Knowing Chemicals in Products and Supply Chains” (PDF), released by the United Nations Environment Program, highlights the benefits to companies when they invest in an active strategy for chemicals management.

The examples are striking:

• Coastwide Laboratories invested in a new product line called the Sustainable Earth brand, based on safer chemicals. It became the primary driver of the company’s growth in the early 2000s, with sales that rose 8 percent, market share that grew to 16 percent of the regional market and a 35 percent increase of new customers.
• Shaw Industries’ investment in safe chemicals for carpet backings netted the company substantial benefits. Shaw replaced its polyvinyl chloride (PVC) carpet backing with a safer alternative, reducing weight by 40 percent and quickly capturing market attention. Production capacity tripled by 2000, and by the end of 2002, sales of its EcoWorx products exceeded those of its PVC-backed carpets.
• Seagate Technology, a manufacturer of data storage devices, put in place a chemicals information management database to track the chemicals that go into its products. Each time a new chemical of concern is noted, staff can search the company’s database to see if it is present in its products. This enables the company to respond to new substance restrictions with existing resources, avoid the “saw-tooth effect,” where the costs of data collection spike as the company responds to unpredictable new data requests, and gives Seagate a better understanding of the chemistry of its products and its suppliers’ performance.

Transforming corporate culture to the active strategy is a significant challenge. The demands from consumers, as well as the continual increase in regulatory requirements, help foster that interest but creating the organizational willpower to absorb upfront costs for uncertain future risks is often a difficult case to make.

From consumers to retailers and brands, awareness of hazardous chemicals in products and supply chains is driving companies to disclose their chemical ingredients and select inherently safer chemicals. How fast or slow each business responds remains to be seen, but those that leave behind crisis-driven change create long-term value for themselves, their shareholders, the public and the planet.

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