- Chemical pollution includes pollution caused by agri-chemicals, petroleum, pharmaceuticals, heavy metals, and industrial emissions.
- Hazardous chemicals are substances that can cause adverse effects to both the human health and the environment.1
- Per- and polyfluoroalkyl substances (“PFAS”) are a group of synthetic persistent chemicals widely used for waterproofing and non-stick products, with molecules comprising a chain of linked carbon and fluorine atoms.2 Due to the strength of the carbon-fluorine bond, these chemicals do not easily degrade in the environment or in humans.3
- Polychlorinated biphenyls (PBCs) are chemicals that were formally used in the production of electrical appliances, hydraulic equipment and paints. Production was banned in the US in 1976 and internationally in 2001 due to their negative effects to human and environmental health.4
Understanding the issue
Chemicals undoubtedly play an important and useful role in today’s world. Nearly all manufactured products (~95%) contain chemicals as they are the key components of many materials, such as plastics and textiles.5
At the same time, however, chemical waste in the environment degrades biodiversity and jeopardises clean water, pollination, and healthy soils.6 According to Eurostat, 75% of all the chemicals that are manufactured and used in Europe are hazardous to human health and/or the environment.7
In recent years, a particular concern has developed about the persistence of certain synthetic long-lasting chemicals called PFAS or per- and polyfluoroalkyl substances – nicknamed “forever chemicals”.8 Even though these persistent forever chemicals present a threat to the environment, wildlife, and human health, they have been used for decades on an industrial scale.
These substances contain a strong carbon-fluorine bond that is hard to break, meaning that other molecules slide off PFAS-treated surfaces. As a result, PFAS are added to products, such as non-stick cookware and cosmetics, to provide stain-resistant or waterproof properties. It is these characteristics, however, that make PFAS so harmful. The chemicals are virtually indestructible – hence, the name “forever chemicals” – and do not fully degrade in the environment or within living tissue.
Chemicals like these are a significant contributor to oceanic and coastal pollution. Landfill, road and land runoff, and sewage discharges are just some of the ways in which chemicals find their way into our waterways and oceans, from the Mariana Trench to the ice in the Artic Sea.9
These chemicals are toxic to the marine ecosystem. They accumulate in fish and shellfish, which are a food source for marine life, wildlife and humans. Once consumed, they may cause negative effects on human health, such as organ failure, neurological disorders, and increased cancer risk10. Well-studied PFAS compounds have also been found to cause harm to the immune system, including the reduced effectiveness of vaccines.11 Other issues include liver problems, and harm to reproductive systems, with reduced birth weights and impacts on fertility.12
Even though these persistent forever chemicals present a threat to the environment, wildlife, and human health, they have been used for decades on an industrial scale.
The long-term impact of hazardous chemical pollution on our marine ecosystems is already starting to be realised. Chemicals, banned globally decades ago, such as polychlorinated biphenyls (“PCBs”), are still being found in high concentrations in marine organisms, particularly deep sea creatures.13 Research led by the Zoological Society of London uncovered that levels of banned chemicals in UK-stranded orcas are 30 times over the toxic threshold.14 It is believed the UK orca population is on track for extinction in the next decade due to severe PCB pollution and their effect on reproduction.15
Chemical pollution has now breached the safe planetary boundary according to scientific studies16 , which is recognised as one of the key drivers of the current biodiversity crisis.17 Unless we curb the flow of chemical pollution into the oceans, all forms of life will be adversely affected and restoration efforts will be hampered.
In light of all of the above, addressing the chemical pollution issue should be a top priority for investors. Companies with significant exposure to hazardous chemicals may face regulatory, reputational, insurance, and liability risks. In addition to this, hazardous chemicals pose significant systemic risks. This should be of concern to financial institutions such as sovereign wealth funds, large asset owners, and large investment managers which are, in effect, universal owners. Hazardous chemicals are leading to animal health, human health, and environmental crises. All of these will have impacts on companies beyond the chemicals sector, which will require the management of rising health care costs.18
What are we doing to mitigate the risks?
Our asks of companies
EOS has been engaging on hazardous chemicals for over a decade. Recently, this engagement has been in collaboration with the International Chemical Secretariat (“ChemSec”), an independent non-profit organisation that wants to see toxic and persistent chemicals replaced by safer alternatives.19
In 2023, EOS joined the Investor Initiative on Hazardous Chemicals (“IIHC”), as one of 50 signatories representing more than US$10tn in assets under management or advice20 . The IIHC was formed primarily to encourage manufacturers through engagement to increase their transparency on hazardous chemicals and cease producing forever chemicals such as PFAS.
As members of the IIHC, we have aligned our expectations of chemical companies with those set out by the Initiative.21
- Increased transparency – To help investors appraise relevant risks, we expect companies to disclose both share of revenue and production volume of products that are, or contain, hazardous chemicals. This information should cover all of a company’s operations. Many companies will disclose chemical information and data in 2025 under the requirements of the Corporate Sustainability Reporting Directive (“CSRD”).
- A time-bound phase-out plan of products that are, or contain, persistent chemicals – we expect companies to publish a phase-out plan that includes a realistic road map with clear KPIs to track progress.
- Develop safer solutions – we expect companies to set a target for the share of revenue generated by safer solutions and publish a strategy to achieve it. Safer solutions are products that do not contain or use any intentionally added substances meeting the substances of very high concern (“SVHC”) criteria or that are persistent.22
Our approach to engagement
The IIHC builds on action from 2022 when collaboratively EOS wrote to 50 companies regarding their involvement in the manufacture of hazardous chemicals.23 24 The companies were targeted based on their ChemScore, a system administered by ChemSec that ranks the world’s 50 largest chemical producers on their work to reduce their hazardous chemical footprint.25
EOS are asking companies to improve their transparency around the chemicals they produce globally, including by disclosing any action taken to improve their ChemScore rankings. We also want them to set and disclose a time-bound commitment to phase out PFAS from production. In 2024, as at 31 August 2023, through the IIHC initiative EOS have engaged with BASF, DuPont de Nemours, Dow Inc, LyondellBasell, Solvay, and Sika on their ChemScores, focusing on increased transparency, eliminating PFAS and hazardous chemicals, and the development of safer alternatives.
EOS are asking companies to improve their transparency around the chemicals they produce globally, including by disclosing any action taken to improve their ChemScore rankings.
Case study: Sika
In 2024 EOS attended the AGM of Swiss chemicals company, Sika, virtually and asked the chair about the company’s approach to managing risks related to hazardous substances, with a reminder that we co-lead the IIHC on behalf of Sika. We reiterated the litigation, regulatory, and reputational risks related to the use or production of hazardous substances. We welcomed Sika’s increased transparency, including disclosure of the proportion of sales containing SVHC and PFAS, and the work to remove these substances from existing products. We encouraged the positive direction of travel and asked Sika to confirm it would not develop any new products containing these substances.
We also asked the company to annually disclose the full list of substances it has managed to phase out in line with best practice, suggesting a distinction be made between those substances fully phased out and those retained as intermediates for industrial purposes.
Finally, we asked whether the company would tackle those chemicals that are not yet on the EU’s Registration, Evaluation, Authorisation, and Restriction of Chemicals (“REACH”) list but meet the hazard-based criteria to be placed on it.
Outcomes
The chair of the board emphasised the role that the company’s new sustainable portfolio management methodology will play in guiding work on reducing the risks associated with hazardous substances. All new products must meet sustainability criteria, including a hazard risk criterion. We were pleased to hear the chair confirm that the company will make sure that no new products will contain these substances of very high concern. The company noted our request on future reporting and said it would review its reporting on hazardous chemicals ahead of next year. We were disappointed that the company did not comment on those chemicals that are not yet on the REACH list yet and whether these would be proactively managed.
Public policy and market best practice
We continue to seek to improve investor engagement by supporting ambitious policies and regulations that address or seek to phase out harmful chemicals. We do this directly and through our participation as a Steering Committee member of the IIHC.
For instance, in 2023 EOS wrote to EU Commissioner Mairead McGuinness in response to public consultation for the EU Taxonomy for Biodiversity, Water, Pollution Prevention and Circular Economy (“Taxo4”). In our letter, we called on the Taxonomy criteria to be truly sustainable, so as to encourage the development of safer chemicals.26 We wrote that we were concerned that the production and use of harmful chemicals, in addition to proposing a major threat to human health and the environment, were linked to major financial risks for investors and manufacturing companies. These risks include costs and damages related to regulation, reputation, insurance, and litigation.
The director in charge, Michael Haag, responded to our letter thanking us for our comments, specifically the usefulness of criteria for pollution prevention and the control of the use and presence of chemicals in addressing SVHC. The director explained the process that the Commission had taken to fast track select activities and provided reassurances that although certain activities in the environmental taxonomy delegated act (concerning chemicals) were not included, these may be at a later stage.
We also routinely provide feedback and support to the IIHC and ChemSec on the development of guidance and market best practices to support engagement and an overall improvement in the ChemScore performance of focus companies.
This information does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.
For further insights on this topic, read our article exploring the key threats to ocean health.
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1 What are hazardous chemicals? | Safety Services – UCL – University College London
2 By persistent, we mean organic substances meeting the persistence criteria in Article 57d of the REACH regulation”.
5 Investor Initiative on Hazardous Chemicals (IIHC) (chemsec.org)
6 https://www.eea.europa.eu/publications/zero-pollution
7 https://www.eea.europa.eu/publications/zero-pollution
8 EOS Public Engagement Report (hermes-investment.com)
9 Chemicals pollute our sea | Threats | Marine Conservation Society (mcsuk.org)
10 Noman, M. A., Feng, W., Zhu, G., Hossain, M. B., Chen, Y., Zhang, H. and Sun, J., 2022, ‘Bioaccumulation and potential human health risks of metals in commercially important fishes and shellfishes from Hangzhou Bay, China’, Springer Science and Business Media LLC.
11 How “forever chemicals” might impair the immune system | PNAS
13 Marine Pollution – One Ocean (oceanprotect.org)
14 Banned pollutants threaten Europe’s remaining orcas | ZSL
15 Chemicals pollute our sea | Threats | Marine Conservation Society (mcsuk.org)
17 UK Chemical Pollution | JNCC – Adviser to Government on Nature Conservation
18 Investor Initiative on Hazardous Chemicals (IIHC) (chemsec.org)
20 Investors launch initiative to tackle chemical pollution crisis (chemsec.org)
21 Investor Initiative on Hazardous Chemicals (IIHC) (chemsec.org)
22 Investor Initiative on Hazardous Chemicals (IIHC) (chemsec.org)
23 Investors with $8 trillion call for phase-out of dangerous “forever chemicals” (chemsec.org)
24 Investors launch initiative to tackle chemical pollution crisis (chemsec.org)
25 Investors pressure top firms to halt production of toxic ‘forever chemicals’ | PFAS | The Guardian
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