I first started at ChemSec back in 2010. I remember my first task was to research and find out if investors factor in the risk of hazardous chemicals in their portfolio analyses. What I found out was that only 18 out of 152 asset managers and rating agencies within the realm of Socially Responsible Investments (SRI) did so. Far too few.
Fast-forward a couple of years. Sustainable investing is now on everyone’s mind and investments are growing by 30% each year. But only on the topic of climate change. Still no interest in chemicals.
I realised that something was changing. The investment community started to show increasing interest in our ranking
Then came Covid-19 and investors had other things on their plate. But when things slowly started to get back to normal, I realised that something was changing. The investment community started to show increasing interest in our ranking of the world’s biggest chemical producers — ChemScore.
As a result, ChemSec is now coordinating a network of 50+ investors with a staggering US $11 trillion in assets dedicated to reducing the impacts of hazardous chemicals on people and the planet.
But why the sudden interest? From what I can tell, there are three main reasons why investors have become interested in chemicals all of a sudden.
1. Toxic chemicals are financial disasters
Harmful chemicals are rapidly turning out to be a financial disaster for the companies involved with them. There are no two ways about it, toxic chemicals are bad business.
One of the worst chemical groups is PFAS, otherwise known as “forever chemicals”. Three years ago, giant DuPont, and its spin-off Chemours, had to pay $671 million to settle several thousands of lawsuits connected to a PFAS leak into local water supplies.
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A year later, 3M – another PFAS giant – had to pay $850 million to settle a similar case. That same company has now announced that it will stop producing PFAS since it doesn’t make economic sense to continue any longer.
The transition from hazardous chemicals to safer alternatives has the potential to disrupt the entire global economy, affecting every single industry and supply chain out there. This is one of the reasons why investors want to stay as far away from as possible from liability cases and harmful chemicals.
2. New sustainable finance standards in the EU
Glossy sustainability reports and nice-looking green labels just don’t do it anymore. Investors need to know that what they’re investing in is truly sustainable. While the EU Commission urgently needs to channel money into sustainable transformation, banks and asset managers need to be transparent about how “green” their investments truly are.
Luckily, there is a whole bouquet of European sustainable finance regulations that are coming into force. All the way from new reporting standards and sustainability criteria for investment services to the EU taxonomy, which helps to identify sustainable economic activities.
Big systemic risks are important for institutional investors to address
And when it comes to chemicals, this is something investors are craving. A month and a half ago, twenty of the world’s largest institutional investors wrote an open letter to the EU Commission, calling for ambitious chemical criteria in the EU taxonomy.
3. We’re up against a triple planetary crisis
The world is facing a triple planetary crisis with climate change, chemical pollution and loss of biodiversity as three highly interlinked crises. Chemical pollution plays a huge role in affecting the other two. The chemical sector is, for example, the third largest industrial consumer of fossil fuels with oil and natural gas accounting for 99% of the feedstock for chemical production.
Chemical pollution also represents a big threat to biodiversity. It threatens 20% of the world’s red-listed species, for some it’s the main factor pushing them toward extinction.
Big systemic risks such as these are important for institutional investors to address. Fortunately, more and more investors are becoming increasingly aware of hazardous chemicals’ role in all of this and are now taking action.
Senior Business and Investors Advisor