Hazards of chemicals

The report identifies the triple planetary crisis status of humanity facing climate change, biodiversity loss and chemical pollution. Concerning the interrelation between these crises, only a part of investors’ attention has been paid towards hazardous chemicals. The report states that approximately 95% of manufactured goods rely on industrial chemical processes. The report presents evidence that shows how the production and use of hazardous chemicals can have negative impacts, such as increased material and reputational risks on companies and the environment.

Chemscore fills an important ESG data gap

The report notes a lack of consideration of the risks associated with the production of hazardous chemicals relating to ESG rankings. It presents the ChemScore online ranking tool as a solution to filling prior gaps in ESG data. The ranking takes four categories into account: Product portfolio, Development of Safer Chemicals, Management & transparency and Lack of Controversies. In 2021, the ChemScore ranking assessed the largest publicly traded chemical companies in the world; the chemicals management and efforts to reduce their chemical footprint score them. This feature called for greater consideration from investors when engaging with chemical companies.

Three financial risks investors need to be aware of

The report highlights three material financial risks associated with the production and use of hazardous chemicals concerning the lack of transparency in the industry, future harsher regulations and harmful substances leading to great reputation damage. The report identifies the difficulty in obtaining insights into the portfolios of chemical companies. It highlights recent regulatory changes such as the European Union’s Chemical Strategy for Sustainability, which works to ban the most harmful substances in consumer products, and discusses how these changes can put revenue at risk. The report also identifies the vast potential for negative impacts on a company’s reputation if dangerous chemicals are involved in their operations.

The Investor Initiative on Hazardous Chemicals (IIHC)

The report covers the Investor Initiative on Hazardous Chemicals (IIHC) which works to reduce the impacts of hazardous materials on human health and the environment. The initiative aims to reduce financial risks from litigation and regulation affecting investors. Earlier this year, Aviva Investors and Storebrand Asset Management sent a letter to the companies ranked in ChemScore, requesting better chemicals management. As of 2021, 23 investors have assembled in the initiative with a combined $4.4 trillion of assets under management; this number has increased to 47 with $8 trillion under management or advice. The report sees the initiative as a constructive way to engage with companies in the chemical sector.

Four industry arguments and how to reply to them

The report examines four commonly used arguments by companies when engaging with investors regarding hazardous chemicals. The report presents methods of response for each argument. The arguments range from companies believing their processes are made confidential by the law to companies considering hazardous chemicals as benign as table salt. The report presents various counterarguments to these excuses.

Some questions to ask chemical companies

The report shares inquiries investors should make when engaging with companies in the chemical sector. The suggested questions include topics such as the company’s ChemScore rating, their general strategy reduction/elimination of hazardous chemicals, and their production of safer and sustainable alternatives. The inquiries seek to cover several categories presented in the ChemScore rating tool.