INSIGHT: Investors’ concerns over hazardous chemicals grow, call for phase-out

Morgan Condon

08-Dec-2022

LONDON (ICIS)–Finding safer alternatives to hazardous substances is a key priority for investors in chemical companies, and is likely to continue to grow in importance.

The International Chemical Secretariat (ChemSec) highlighted growing concerns from investors in a virtual event to discuss its annual ChemScore ranking of the largest chemical companies based on their environmental impact and treatment of hazardous chemicals.

The Swedish-headquartered NGO advocates for stricter controls on hazardous chemicals, and its stance has been supported by a letter signed by 47 asset managers calling for the industry to phase out the production of persistent chemicals.

OVERVIEW FROM INVESTORS
Investors with $8tn under management and advice highlighted the implications of continuing to manufacture certain hazardous substances, both in terms of human health and the environment and the financial risk to producers from litigation.

“In addition to the financial risks associated with litigation, producers of persistent chemicals face the risk of increased costs associated with reformulating products and modifying processes, which can have significant implications for company performance,” read the letter coordinated by Aviva Investors and Storebrand Asset Management.

“As investors, we believe that companies’ licence to operate is dependent on the public understanding of risks and impacts,” they wrote.

Other financial backers co-signing the letter included AXA IM, Credit Suisse Asset Management, Resona Asset Management and Robeco.

Aviva senior lead analyst Eugenie Mathieu noted that it was clear this was a growing concern for investors as the letter had double the number of signatories compared to the previous year.

Chemsec scores producers on four categories: their portfolio of hazardous products; the development of safer alternatives; the management and transparency of each company, and the lack of controversies.

A total of 54 companies were ranked using only public information, the NGO produces the report to fill in a gap in environmental, social, and governance (ESG) rankings, using EU and global policies.

Due to increased sustainability regulations in Europe and North America, these regions saw an increase in their score, while Asia declined due to a lack of transparency.

RISKS AND OPPORTUNITIES
Speaking at the event, Victoria Liden, a sustainability analyst for Storebrand Asset Management, also advised that investor awareness about the use of hazardous chemicals is growing.

“ESG is not black and white, so we see the need to address hazardous chemicals, and we see both risk and opportunities,” said Liden.

“We have seen how chemicals not considered a problem today could become significant liabilities in the future and impact company share price, something we as investors are concerned about.”

A lot of focus in the chemicals sector has been on supporting the green transition, but Liden said it was an eye opener to see how many companies are working on recycling or producing materials for solar panels and batteries for electric vehicles that use hazardous products.

By using the Chemscore data, investors could actively identify the leaders and laggards in the sector, and decide wheter or not to engage with some companies.

Liden believes that shareholder engagement in addressing the issue is an effective tool, and investors have several steps to escalate concerns if a company is not meeting expectations.

“Apart from the risks, we are also seeing a great focus on opportunities in terms of innovation and investing in innovation. When some chemicals are restricted, there will be a need for alternatives,” added Liden.

By forging a path to producing safer alternatives, manufacturers can secure an early advantage in gaining market share, which Liden said is something that more investors are waking up to.

Front page picture: Hazardous substances signs  
Picture source: Hollandse Hoogte/Shutterstock

Focus by Morgan Condon

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