by Richard Liroff
Fifty years ago, the DuPont Company’s advertising slogan, “Better Things for Better Living …”Through Chemistry” celebrated the many enhancements to American life from the chemical revolution of the mid-20th Century. But there was an ugly downside to that revolution, reflected in thousands of Superfund sites, polluted air and water, and compromised public health. Now mainstream companies like Wal-Mart and General Electric are recognizing that safer, greener chemistry is good for business.
They’re positioning themselves to capitalize from an evolving “perfect storm” of new scientific information, tightening regulations, rising public concern, and corporate and government environmentally preferable purchasing programs. Companies that fail to follow their lead risk being shut out of major markets while companies that follow their example can differentiate themselves from their competitors and grab market share.
Indeed, the breadth of “chemical risk” or “environmental health risk” to portfolios may be just as broad as the “climate risk” that investors are coming to realize. Just as “climate risk” cuts a broad swath across portfolios with the potential to create a host of corporate winners and losers, “chemical risk” threatens companies up and down the supply chain in diverse economic sectors worldwide.
Emerging scientific knowledge about the impact of chemicals on vulnerable fetuses and children and science-based activist campaigns are major drivers of media attention and attendant pressures on corporate products and reputations. Likewise, there are cross-cutting and synergistic effects of new regulations (in Europe and various states) targeting both specific classes of products (like electronics and cosmetics) and specific classes of chemicals.
Forward-looking sustainability and “beyond compliance” endeavors from leading corporations effectively shut various chemicals and products out of major procurements. Potentially affected sectors include electronics, health care, personal care products, home cleaning products, automobiles and automotive products, food professing and retailing, “big box” specialty retailing, building supplies, home and office furnishing and, of course the chemical sector.
Recent developments in the U.S. health care sector illustrate the market consequences of emerging B2B (business-to-business) requirements for safer products. For example, Kaiser Permanente is the largest nonprofit health plan in the United States, serving 8.2 million members. It operates 30 hospitals, 431 medical buildings, and had operating revenues of $28 billion in 2004. It anticipates devoting $21 billion through 2012 to capital expenditures, including millions of feet of new office space. Kaiser Permanente has set out to eliminate or reduce hazards to human health from chemicals that have been relied on to provide health care. The company has been working to ?green? its buildings, working with manufacturers to produce cleaner, less toxic materials.
Companies Getting on Board
The company has focused on phasing out PVC (polyvinyl chloride), eliminating mercury, and removing DEHP (di-ethylhexyl phthalate) from its neonatal units. In 2004 it launched a new chemical policy that calls for avoiding the use of carcinogens, mutagens, and reproductive toxicants, and persistent, bioaccumulative, toxic chemicals. In June 2004, Collins & Aikman Floorcoverings Inc. responded to Kaiser Permanente?s policy, announcing a new PVC-free line of carpets that uses an alternative plastic material for backing. Kaiser-Permanente awarded the company a three year contract. Likewise, in response to a request from Kaiser-Permanente, Construction Specialties, Inc. developed a new line of interior wall materials free of PVC, brominated flame retardants, phthalates, and precursors of dioxins and furans.
Kaiser-Permanente is joined by others in the health care community in its quest for safer health care products. Catholic Healthcare West, a system of 40 hospitals and medical centers in the western United States, awarded B. Braun Medical Inc. a five year $70 million contract to deliver PVC/DEHP-free products, switching away from Baxter Healthcare. The hospital chain’s CEO noted that Braun was the first supplier having the capacity to supply such products.
Health care GPOs (group purchasing organizations) are undertaking related initiatives. For example, Premier, Inc., owned by 200 health care systems in the U.S. representing 1,500 hospitals, has created an internet-based resource to help health care organizations in the environmentally friendly selection, recycling, and disposal of computers and electronics. Consorta, Inc, a $4.1 billion health group purchasing organization, has an environmentally preferable purchasing program that draws on a database containing information from suppliers about their environmentally preferred products.
General Electric’s splashy launch of its Ecomagination initiative in 2005 reflects acknowledgement of the rewards from greening products. GE is doubling its research investment in cleaner technologies by 2010, with a goal of doubling its profits from Ecomagination products and services at the same time. One such product is a new resin for use in electrical wiring and automobiles that replaces existing products that raise toxic concerns.
Wal-Mart is drawing increasing attention for its safer chemicals initiatives. As part of its initial announcement that it would be putting itself on a more “sustainable” footing, it signaled its intent to phase out polyvinyl chloride packaging for its own product brands. Continuing in that vein, it’s told its suppliers that it will no longer buy detergents containing a toxic chemical that’s been outlawed in Europe and that some of its suppliers have already eliminated, and it announced in early 2006 that all computers sold in its stores in the United States must comply with European standards that restrict the use of six specific chemicals in electrical and electronic products.
Wal-Mart’s actions are wholly consistent with its renowned business model of holding down both its own costs and the prices it charges its customers. On a website page labeled “Smart Products”, Wal-Mart clearly states this “business case” for safer chemicals and products:
“We believe that environmentally sensitive facilities and processes add quality and value to our products…
(W)e see real promise in our ability to bring cleaner, more environmentally preferable products within the reach of everyday people around the world. We believe you should not have to pay more for healthy and environmentally preferable products.”
Wal-Mart further indicates that it is “developing incentive plans and common-sense scorecards for our merchandise buyers that encourage innovation and more environmentally preferable products.”
One Wal-Mart supplier well-positioned to take advantage of this new orientation is family-owned SC Johnson and Co., Inc. Several years ago it launched an ambitious Greenlist process, designed to systematically reduce the environmental footprint of its products while maintaining or increasing performance. When the company applied the Greenlist process to its blue Windex product, it not only removed potentially problematic chemicals, but it improved the product’s performance and its market share.
So how can investors and senior corporate managers calculate whether companies are strategically positioning themselves to benefit from or avoid liabilities associated with “chemical risk”? In much the same way that a benchmarking framework has been developed for assessing corporate management of climate risk, one has been developed for chemical risk. The framework, available on-line in the library section of the Investor Environmental Health Network website, addresses both a corporation?s internal processes and its relations with its supply chains and investors.
It provides for companies to commit to safer alternatives, via a clear CEO statement about chemicals of concern, associated commitments to chemical substitution goals, and routine public reporting on progress. It also calls for enhanced disclosure to investors about relevant emerging science and potential liabilities and market risks associated with company products. Via training programs, well-managed companies will build their internal capacity to address these issues, and via procurement requirements, financial risk-sharing arrangements, and supplier certifications, they will provide incentives to their vendors to supply safer chemicals.
Recent investor corporate engagements through the Investor Environmental Health Network include safer cosmetics policies at retailers and manufacturers, safer pesticides policies at lawn care companies, and reduced use of polyvinyl chloride (PVC) in packaging and products.
In American political wars, environmentalists have been caricatured by some defenders of business as Luddites whose resistance to 20th century technology would keep us back in the 19th century or even earlier. But maybe it’s time to put the shoe on the other foot. Arguably it is the corporate defenders of 20th century chemical technology, proclaiming in glossy advertisements that their chemicals are essential to life, who are barriers to the transition to safer and green 21st century chemistry that is good not only for the bottom line, but also for public health and the environment.
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Richard A. Liroff, Ph.D is founder and director of the Investor Environmental Health Network.
Contact him: rliroff@iehn.org
The Investor Environmental Health Network is a collaboration of investment managers that advocates for safer corporate chemicals policies to grow long-term shareholder value and reduce financial and reputational risks to companies.
The business case for corporate safer chemicals policies, a list of shareholder resolutions on safer chemicals policies, and a roster of participants can be found at www.iehn.org.
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