New Third-Party Tool Measures Corporate Progress Towards Safer Chemicals
Public Data will Empower Responsible Investors to Recognize Leaders
Chemicals of concern are an increasing problem in today’s marketplace leading not only to environmental pollution and human health issues, but also a slew of hidden business liabilities and risks. Managed incorrectly, the costs can be quite high in terms of fines, lost market share and tarnished brand reputation. Consider these two examples:
- Over a three-year period, Wal-Mart Stores, Target, Walgreen Co., CVS Health and Costco Wholesale paid a total of $138 million in fines levied by regulators in the U.S. for failure to appropriately manage products that become hazardous waste when they break or are returned by customers.
- Similarly, product recalls lead to significant costs for non-compliance, legal counsel, supply chain communication, product takeback, and/or product reformulation. Sony’s recall of its PlayStation in 2001 due to toxic cadmium at levels over 20 times what’s deemed safe cost the company over $150 million in lost sales and product reformulation costs. Mattel’s recall of more than 9 million toys (many due to toxic lead paint) in 2007 cost the company $110 million in recall expenses and pushed its stock price down 18%. And RC2 Corporation’s recall of its toy trains in 2007 (again, due to potential lead poisoning risks) cost the company $48 million in recall expenses and legal fees, and its stock price dropped 50%.
Businesses from across sectors are beginning to pay more attention to this issue including major players such as Target and Wal-Mart Stores that both recently created programs to address chemicals of concern. Still, progress is slow and stymied by a variety of factors, making it difficult for investors to identify the real leaders. Fundamentally, companies cannot manage what they don’t measure and we lack a common sustainability metric for chemicals management. Without this information, socially responsible investors cannot adequately assess the full sustainability commitment and potential of a company
In response to this problem, a group of corporate, NGO and investment firm leaders recently released a new program to identify corporate leadership in chemicals management. The Chemical Footprint Project (CFP) provides the first-ever common metric of its kind for benchmarking companies’ use of chemicals of high concern, and how they are responding to the increasing market demand for safer products. This independent, non-profit, third party and open source assessment tool will create a credible system of public recognition for commitment to addressing issues of chemical-related health and environmental impacts.
Not only does CFP establish a standardized system of measurement so critical to facilitating legitimate comparisons, the Assessment Tool also provides a common set of questions for investors to ask of companies. The Assessment Results provide a barometer of how well companies manage chemical risk – identifying best in class performers – making it easier to identify and reward companies that systematically improve their chemical safety. Additionally, when fully operational, CFP will provide Chemical Footprint data to investors at their fingertips.
Similar to Carbon Footprinting, Chemical Footprinting can apply to any business sector. What does this mean for responsible investors? Simply put, more data = better investment decisions. Here’s how:
- Identifies the potential chemical risks and associated health and reputational risks of companies. Chemicals in products and supply chains are a hidden liability (as highlighted above).
- Creates clear, common logic: CFP will provide investors with data that readily enables comparisons of companies on their Chemical Footprint.
- Fills a missing gap in sustainability data. Environmental, Social and Governance factors are fundamental for the SRI community and the CFP helps to fill in the investor mosaic. The issue of safer chemicals spans the categories of main concern touching both environmental goals (pollution, spills, and product stewardship) and social responsibility goals (worker health and safety, and consumer exposures).
- Highlights corporate investment needs: the CFP data will inform investors’ knowledge of the types of investment decisions companies will need to make to be ahead of regulations and trending consumer interests.
- Empowers investors to demand Chemical Footprints and enhances the value of companies with better scores.
The CFP will take responsible investing to the next level. It’s the right thing to do because it protects human health and the environment, and creates shared value for consumers, communities, and companies.
Susan Baker and Jeremy Cote are with Trillium Asset Management; Constantina Bichta is with Boston Common Asset Management; and Richard Liroff is with the Investor Environmental Health Network