Investor pressure to encourage corporate action on forever chemicals

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PFAS are everywhere.

Since its development in the 1940s, the use of Perfluoroalkyl and Polyfluoroalkyl Substances (PFAS) are present in many of the products we use day to day, from food packaging to toiletries, non-stick cookware and clothing.

But despite the prominent role they play in creating these products, the true impact of PFAS on the environment has flown under the radar.

PFAS are 10,000 synthetic chemicals made up of strong carbon-fluorine bonds, meaning they have a very high persistence, or a natural resistance to degradation, giving them the name – ‘Forever Chemicals’.

Billions of tonnes of PFAS are produced each year, and as a result, masses of small synthetic chemicals leak into the environment causing harm to wildlife, humans, and the planet. Once they have entered the environment, there is virtually no way to remove them.

The dangers of single-use plastic and their effects on nature and the environment is clear for us all to see. Unfortunately, the damaging impact of PFAS, while not visually obvious, is potentially even more pervasive.

PFAS are associated with increased risks of some cancers, reduced immune systems and developmental delays in children, and impacting nervous systems, organ damage and disrupted metabolism in both humans and animals alike. 

 

Beyond the physical impact of PFAS in the world, there is a financial materiality to this issue.

Key impacts on industries

PFAS Producers:

  • Increased Costs: Producers face higher costs due to new reporting requirements in the US under the Toxic Substances Control Act (TSCA) and tightening wastewater standards.
  • Regulatory Compliance: The EU's PFAS restriction proposal includes derogations for limited periods of up to 12 years, necessitating investment in research and development (R&D) for alternatives.
  • Litigation Risks: Companies are incurring significant litigation and enforcement action costs, including fines, penalties, and remediation actions driven by class action lawsuits and property damage claims.

Product Manufacturers:

  • R&D Investments: New costs related to R&D, particularly in the EU, are driven by the need to develop PFAS alternatives.
  • Operational Changes: Future potential capital expenditure requirements include investing in new manufacturing technologies and production line changes.
  • Consumer Sentiment: Consumer-facing companies could be at risk due to changing consumer preferences, but leaders in phasing out PFAS could benefit from an enhanced reputation and market differentiation through PFAS-free products.

Waste Management and Environmental Testing Providers:

  • Market Opportunities: There is a significant opportunity for new revenues and profits from expanding markets in wastewater treatment upgrades, new technologies, remediation services, and expanded analytical testing capabilities and capacity.
  • Acquisitions: Companies are likely to pursue acquisitions to capture market share within the highly fragmented environmental industry, particularly in the US.

The physical manifestations of harm from PFAS have led to an increase in litigation, which is expected to continue to rise, particularly in the US. Lawsuits are no longer aimed solely at PFAS producers but have now expanded to include companies that “own or operate sites contaminated with PFAS, or those engaged in the disposal or distribution of products containing PFAS, extending to diverse sectors such as food, cosmetics, and public utilities”, as highlighted in the recent SII Report: “PFAS: Forever Chemicals – Investor Briefing” 

As the number of cases continues to increase and the types of claims diversify, potential liabilities become open-ended. Beyond the obvious negative financial implications of settling class action suits are the risks of reputational damage stemming from both lawsuits and environmental concerns.

The evolving regulatory and litigation landscape presents both material financial risks and opportunities for PFAS producers and investors, necessitating strategic adjustments and proactive measures from companies across various sectors.

The EU, for example, is proposing the most far-reaching restriction of around 10,000 PFAS. The potential impacts of this ban are being closely examined, but a significant industry concern is that European producers may be at a competitive disadvantage when compared to their non-EU counterparts that continue to use PFAS. To counteract this disadvantage, the EU intends to extend their ruling to include all products brought onto the EU market by third countries, ensuring they comply with the same rules applicable to European producers.

While there is evidence that regulation is tightening, the extent and pace of this continues to vary from country to country. This inconsistency is likely to lead to a less effective response to PFAS emissions and contamination.

Investors have an important role to play in addressing the risks associated with PFAS. By engaging with companies, supporting shareholder resolutions, divesting from companies, and collaborating with the broader industry, investors can help to drive positive change towards protecting the environment and public health. 

 

Key investor actions

To further support action against PFAS, investors should consider the following:

1.     Advocating for corporate disclosure on:

  • The use or presence of PFAS and the types and quantities of PFAS used
  • Emissions of PFAS throughout product portfolios and product lifecycles
  • The availability of alternatives to PFAS within product portfolios.

2. Encouraging corporate action on:

  • Acknowledging PFAS-related risks as an important issue for the business
  • Making commitments to phase out the production and use of PFAS, formalising this in a policy statement or equivalent
  • Developing time-bound plans with objectives and targets for:
    • Establishing a governance framework to oversee delivery against the plans
    • Measuring progress against their commitments and targets for the phase-out of PFAS, improved emissions management and remediation
    • Providing timely reporting on the management of PFAS and the impacts arising from the use of PFAS.

3.     Building investor support for policy engagement:

  • Increased reporting requirement
  • PFAS bans on specific applications where suitable alternatives exist
  • The EU PFAS restriction proposal
  • Tighter drinking water standards
  • Stricter emissions standards.

4.     Building partnerships and collaborating with peers and other key stakeholders:

  • Coordinating investor engagement to speed up company action to phase out PFAS in favour of safer, sustainable alternatives.

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