WASHINGTON, D.C.//April 4, 2007//In the wake of costly litigation, product sales bans, and reputational damage arising from asbestos, toxic materials in cosmetics and toys, and Teflon-related chemicals, U.S. investors are becoming increasingly wary of toxic chemical risks _ in products, in supply chains, and in their own portfolios. The number of shareholder resolutions dealing with toxic product risks jumped from three in 2004-2005 to 17 in 2006-2007, including 13 resolutions introduced for the O07 proxy season at such leading U.S. corporations as Apple, CVS, Dow, DuPont, Sears, and ServiceMaster.
In response, the Investor Environmental Health Network (IEHN), which represents 20 investment organizations with $22 billion in assets under management, today released the 52-page “Fiduciary Guide to Toxic Chemical Risk.” The guide for institutional investors examines the financial dimensions of toxic chemical risk, including how to quantify such risk, the theory behind the danger posed by toxic chemicals to the wealth of shareholders, and a comprehensive set of action steps that can be taken by investors to translate the long-term threats and opportunities associated with toxic chemical issues into prudent portfolio stewardship.
The report is authored by Jane Ambachtsheer, Mercer Investment Consulting, Jonas Kron, Attorney at Law, Richard Liroff, Investor Environmental Health Network, Tim Little, Rose Foundation for Communities and the Environment, and Rachel Massey, Global Development and Environment Institute.
The IEHN primer for institutional investors concludes: “Researchers are increasingly detecting scores of these substances in human blood, breast milk, and amniotic fluid, and scientists are increasingly recognizing the particular vulnerability of fetuses and young children to them. These and related findings are contributing to rising awareness that the strategic choices businesses make about managing toxic chemicals in their products can have major financial consequences. As DuPont has been discovering with PFOA, a chemical used to produce Teflon and stain and grease repellants, consumers and industrial customers may abandon product lines over toxicity concerns. At the same time, liability litigation and government enforcement actions may further undermine bottom lines and reputations.”
Report co-author and Rose Foundation Executive Director Tim Little said: “Companies’ strategic choices have serious implications for government pension funds. Our report estimates the combined annual costs of environmentally related childhood asthma, cancers and neurobehavioral disorders in California, Connecticut and New York States as on the order of $15 billion dollars. Government employee pension funds, in particular, should take heed and take action _ the funds, state treasuries and fund members are shouldering the resulting health care and special education costs.”
Richard Liroff, Ph.D., executive director, IEHN, said: “Poor corporate management of toxic hazards can increase risks for investors. Regulatory controls are tightening around the globe, not only in Europe but also in US states such as California, and in developing markets such as Korea and China. The failure to address safer materials is causing products to be locked out of markets. By contrast, corporate efforts to minimize or avoid exposures, or to offer safer alternatives, can benefit corporate bottom lines and reward investors.”
Craig Metrick, US lead for responsible investment at Mercer Investment Consulting, said: “The good news for investors is that there are constructive steps they can take immediately to mitigate the potential risk posed by toxic chemicals in their portfolio. These steps we are outlining include comprehensive directions that can help fiduciaries understand the relationship between toxics and financial risk, and guide their exploration of these issues with investment managers and consultants.”
The 2006 proxy season saw a flurry of positive corporate steps following the filing of shareholder resolutions focusing on toxic chemical risks, including:
- Whole Foods Markets announced that it would remove baby bottles and other products that contain certain toxics from its shelves as part of a new corporate policy initiative to reduce customers’ exposure to hormone-disrupting chemicals.
- Wal-Mart announced a new “preferred substances policy” that incorporates a precautionary, hazards-based approach to chemicals management, initially focusing on persistent bioaccumulative toxics and carcinogens.
- ConAgra agreed to analyze and report on alternatives to PFOA in food packaging.
- Becton, Dickinson agreed to survey its suppliers regarding brominated flame retardants in its medical devices.
- Johnson & Johnson agreed to initiate a stakeholder dialogue with one of the cosmetics industry’s harshest critics, the Campaign for Safe Cosmetics.
The full IEHN report is available online athttp://fiduciary.investorenvironmentalhealthnetwork.org and athttp://www.iehn.org.
Experts expect the concerns about toxic chemical risks to continue apace in the 2007 proxy season, with many key votes scheduled over the next few weeks:
- Apple. Shareholders are requesting a report on the feasibility of adopting a policy to eliminate persistent bioaccumulative toxic chemicals, including an expeditious timetable to end the use of all brominated flame retardants and PVC plastics. Lead Filer: Trillium Asset Management. Estimated voting date: April 30
- Bed, Bath, and Beyond. Shareholders are seeking a report summarizing how products sold at Bed, Bath and Beyond might be affected by safety concerns associated with PVC, PFOA, and cosmetics, and options for management initiatives that can be taken in response to these public policy challenges. Lead Filer: As You Sow Foundation. Estimated voting date: June 29.
- CVS. Shareholders asked for a report on CVS policy on cosmetics safety, including assessment of products that may be affected by new public policies and growing consumer interest in safer cosmetics. Lead Filer: Boston Common Asset Management. Outcome: Withdrawn following company commitment to dialogue with investors on safer cosmetics issues.
- Dow (asthma). Refiling of 2006 resolution that requests report analyzing impact of Dow products on asthma and measures Dow is taking to phase out or restrict such chemicals. Lead Filer: Trillium Asset Management. Estimated voting date: May 10.
- DuPont (PFOA phase-out). Shareholders are asking the company to issue a report evaluating the feasibility of an expeditious phase-out of the use of PFOA and materials degrading to it, and the development and adoption of safer substitutes. Lead Filer: Amalgamated Bank. Estimated voting date: April 25.
- DuPont (PFOA expenditures). Shareholders are requesting a report on funds expended by DuPont related to PFOA pollution, including, e.g., attorney and lobbying fees and site remediation costs. Lead Filer: United Steelworkers Union. Estimated voting date: April 25.
- DuPont (chemical security). Shareholders are requesting the independent directors of DuPont to report on the implications of a policy for reducing harm from catastrophic chemical releases by reducing the use and storage of extremely hazardous substances and taking other steps. Lead Filer: Green Century Capital Management. Estimated voting date: April 25.
- Hasbro. Shareholders are asking for preparation of a sustainability report. Resolution’s “whereas” clauses refer to PVC. Lead Filer: Camilla Madden Charitable Trust. Estimated voting date: May 25.
- Mohawk Industries. Shareholders requested a report on the feasibility of expeditious phase-out and substitution for PVC, PFOA, and chemicals breaking down to PFOA. Lead Filer: United Methodist Church General Board of Pension and Health Benefits. Outcome: Resolution withdrawn when company shared its commitment to move away from the use of PVC and materials containing or breaking down to PFOA with shareholders.
- Scotts Miracle-Gro. Shareholders requested a report on the company’s expenditures during 1993-2005 on efforts to oppose local policies to limit lawn care product use. Lead filer: Boston Common Asset Management. Outcome: 9.3 percent of vote. In its opposition statement to the resolution, the company reported it had spent less than $300,000 in fiscal year 2006 to oppose local pesticide ordinances.
- Sears Holdings. Shareholders requested preparation of a sustainability report. The filing letter to the company accompanying the letter focused on PVC. Lead filer: Evangelical Lutheran Church in America. Outcome: Resolution withdrawn based on consultations with company.
- ServiceMaster. Shareholders request a report on the feasibility of discontinuing the use of synthetic pesticides at TruGreen Chemlawn, instead substituting natural and non-toxic lawncare services. Lead filer: Green Century Capital Management. Outcome: Estimated voting date May 8. Note that ServiceMaster has announced its pending acquisition by a private equity consortium led by Clayton, Dubilier, and Rice, Inc.
The Investor Environmental Health Network (http://www.iehn.org) is a collaboration of investment managers encouraging companies to adopt “safer chemicals” policies for cosmetics and other products. Members of the network are concerned that companies will be locked out of markets and suffer financial and reputational damage, if they don’t systematically identify and eliminate hazardous chemicals in their products.
ABOUT THE REPORT AUTHORS
Jane Ambachtsheer is a principal of Mercer Investment Consulting. She leads Mercer’s global Responsible Investing business, and consults to investors in North America, Europe, and Australasia.
Richard A. Liroff is the founder and director of the Investor Environmental Health Network and for many years served as a senior program manager at World Wildlife Fund working on toxic chemical issues.
Tim Little is the executive director of The Rose Foundation for Communities and the Environment and director of Rose’s Environmental Fiduciary Project. He is co-author of a series of papers examining environmental risk and the competitive advantages of incorporating environmental performance factors into business and portfolio management analysis. The Rose Foundation is the lead filer of a citizen petition to the Securities Exchange Commission seeking new guidelines for environmental risk disclosure that has been endorsed by institutional investors collectively representing over $3 trillion. Visit www.rosefdn.org for details and downloads of previous reports.
Jonas Kron is an attorney specializing in shareholder advocacy and institutional investor fiduciary duties as they apply to environmental, social and corporate governance issues.
Rachel Massey is a researcher at the Global Development and Environment Institute at Tufts University, where she has helped to build a program in Economics for Health and the Environment. Her recent work has included a series of studies of the economic implications of the proposed new European chemicals policy, REACH.
CONTACT: Patrick Mitchell, (703) 276-3266 or .