In just three years, the Investor Initiative on Hazardous Chemicals (IIHC) has grown to more than 75 major investors with over $23 trillion under management.

Its aim is to reduce the harm caused by hazardous chemicals and thereby lower the financial risks they pose, both to companies and those invested in them. IIHC members talk regularly with the world’s largest chemical companies to encourage more sustainable chemical management.

Of course, investors want to make money. But their financial self-interest serves a broader purpose.

Power in numbers

“We engage with companies because we would like to see them future-proof their products from new regulation and potential litigation on hazardous chemicals,” says Eugenie Mathieu, senior ESG analyst at Aviva Investors and chair of the IIHC steering committee.

“We do that with the chemicals industry because we believe greater transparency and safer chemicals will help to support better long-term financial performance, lower risk, and can bring more investment into the sector.”

The IIHC is a powerful group, adds Tsitsi Griffiths, engagement manager for EOS at Federated Hermes. While her company talks to companies directly about hazardous chemicals, the IIHC provides a joint investor voice. “There is power in numbers,” she says.

“We would like to see companies future-proof their products”

Eugenie Mathieu, Aviva Investors

“More than anything, this is a financial issue,” Griffiths says. “Litigation can be very costly, also there are regulatory risks. In the US, for example, 31 states are considering PFAS policies this year. It’s a big deal. How do companies manage their portfolios if regulations change? This impacts cash flows, the workforce and so on.”

Risks associated with mismanagement of toxic chemicals are often long-term, they might not seem so urgent. The IIHC makes a lot of references to asbestos, Griffiths says, the hazards of which were not accepted for a long time but then became hugely expensive for manufacturers and users.

ChemScore helps

This is where ChemScore, the sustainability assessment tool for the chemicals industry, comes in. The assessment enables companies to stay ahead of regulators and prioritise development of safer alternatives, says Joris Laseur, engagement manager at Morningstar Sustainanalytics.

“ChemScore challenges the status quo,” Laseur says. “The scope of ChemScore’s assessment is nicely centred around just four key asks.”

Building a constructive relationship with ChemScore helps companies to communicate their progress to investors, Mathieu says. “It enables investors to gain a greater understanding of both the challenges and best practice in moving towards safer, sustainable solutions, whilst also highlighting what some of the industry leaders are doing to tackle the issues they face.”

Chemical companies have different approaches to the IIHC. Some welcome the opportunity to talk.

“Some enjoy engagement, they find it a learning exercise,” Griffiths says. “Often you find there is someone passionate about sustainability inside the company, but they are not sure that investors really care. So having investors who actively engage means they get recognition for the work they are doing.”

Other companies are more resistant, however.

“Sometimes the industry still makes it hard to be understood,” Laseur says. “For example, when a company finally comes forward with a commitment to phase out PFAS, it often comes with exemptions, making it challenging for outsiders to assess how much concerning exposure is still left unaddressed.”

Changing the conversation

Perseverance pays off. One company did not engage for many years but this year changed its mind. The company explained that other investors outside the IIHC had enquired about their engagement with ChemScore.

“Some companies might not be listening to the IIHC, but other big investors are,” Griffiths says.This difficult work is starting to change to conversation around chemicals in the investment community and within industry itself.

“We have done really well despite broader scepticism around corporate social responsibility,” she says. “There is no other organisation focusing on hazardous and persistent chemicals. The IIHC is already making a difference, and we will continue to encourage companies to improve their chemical stewardship processes.”