ChemSec coordinates the Investor Initiative on Hazardous Chemicals (IIHC), an investor-led collaborative engagement initiative involving 50+ participating investors and their representatives with over $10 trillion under management or advice. The initiative aims to reduce the adverse impacts of hazardous chemicals and thereby its members’ exposure to the financial risks to which they are linked. The members engage in ongoing dialogues with the world’s largest publicly traded chemical companies.
IIHC asks of chemical companies
✔️ Increase transparency
To help investors appraise relevant risks at the company, disclose both the share of revenue and production volume of products that are, or contain, hazardous chemicals. This information should cover all your operations (including subsidiaries) worldwide.
✔️ Publish a time-bound phase-out plan of products that are, or contain, persistent chemicals
The phase-out plan should include a realistic road map with clear KPIs to track progress.
✔️ Develop safer alternatives for hazardous chemicals
Following a robust evaluation, substantially ramp up R&D and investment in the development of safer alternatives. Although a universally accepted definition of safer alternatives is still pending, safer products that substitute the use of hazardous chemicals and support accelerated phase-out are likely to present a significant opportunity for value creation.
What do we mean with hazardous chemicals?
By hazardous chemicals, the IIHC means (A) substances meeting the Substances of Very High Concern (SVHCs) criteria, as defined in Article 57 of the REACH regulation; (B) substances meeting the criteria as Substances of Concern (SoCs) as defined in Annex 2 of the Corporate Sustainability Reporting Directive (CSRD); and (C) persistent chemicals. By persistent, the IIHC means organic substances meeting the persistence criteria in Article 57d of the REACH regulation.
If you have any questions regarding the IIHC, please contact ChemSec’s Sustainable Finance Advisor Patrik Witkowsky.
- Æquo Shareholder Engagement Services
- Allianz Investment Management
- Amundi Asset Management
- AP1 (Första AP-fonden)
- AP2 (Andra AP-fonden)
- AP3 (Tredje AP-fonden)
- AP4 (Fjärde AP-fonden)
- Aviva Investors
- AXA Investment Managers
- BNP Paribas Asset Management
- Boston Common Asset Management
- Cardano Asset Management
- Comgest Group
- Credit Suisse Asset Management, a UBS Group Company
- DNB Asset Management
- Domini Impact Investments
- EOS at Federated Hermes
- Fisch Asset Management AG
- Folksam
- Handelsbanken Fonder
- Impax Asset Management PLC
- La Française Asset Management
- LBP AM
- Matthews Asia
- Mercy Investment Services, Inc.
- Nordea Asset Management
- Rathbones Group Plc
- Resona Asset Management Co., Ltd.
- Robeco
- SCOR SE
- Skandia
- Storebrand Asset Management
- Swedbank Robur
- Trillium Asset Management
- Triodos Investment Management
- WHEB Asset Management
- Zurich Insurance Group Ltd
- Öhman Fonder
- Achmea
- Adrian Dominican Sisters
- AkademikerPension
- AP7 (Sjunde AP-fonden)
- CommonSpirit Health
- Congregation of St. Joseph
- DPAM
- Ethos Foundation
- First Affirmative Financial Network
- Harrington Investments, Inc.
- KLP Asset Management
- Legal & General Investment Management Ltd (LGIM)
- Lombard Odier Asset Management
- SEB Investment Management
- Sisters of St. Francis of Philadelphia
- Stewart Investors
- Trinity Health
- Vancity Investment Management
- Active engagements in bold:
- 3M
- AGC
- AkzoNobel
- Arkema
- Asahi Kasei
- Avery Dennison
- BASF
- Bayer
- Braskem
- Chemours
- Corteva
- Covestro
- Daikin
- DIC Corporation
- Dow
- DuPont
- Eastman Chemical
- Ecolab
- Evonik
- Hanwha Solutions
- Honeywell
- Indorama Ventures
- Johnson Matthey
- Lanxess
- LG Chem
- Lotte Chemical
- LyondellBasell
- Mitsubishi Chemical
- Mitsui Chemicals
- Nan Ya Plastics
- Nippon Paint
- Nitto Denko
- Nutrien
- PPG Industries
- PTT Global Chemical
- SABIC
- Sasol
- Sherwin-Williams
- Shin-Etsu
- Resonac
- Sika
- Solvay
- Sumitomo Chemical
- Teijin
- The Mosaic Company
- Toray Industries
- Umicore
- Wanhua Chemical
- Westlake Chemical
- Yara
Quotes from IIHC members
Rachel Crossley, Head of Stewardship for Europe at BNP Paribas AM:
”We hope that by working cooperatively with other institutional investors we can persuade the world’s major chemicals producers to be more transparent about which chemicals they produce and the steps they are taking to ameliorate the associated risks”.
Eugenie Mathieu, Earth Lead at Aviva Investors:
”We believe that a growing part of the chemical industry welcomes investor pressure in this area and relishes the opportunity for systemic change toward greater sustainability”.
Victoria Lidén, Senior Sustainability Analyst at Storebrand:
”We have reached significant goals when engaging with several companies during the past year and are looking forward to continuing the movement to push the chemical sector in a more sustainable direction as part of the Investor Initiative on Hazardous Chemicals”.
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Why should investors care about chemicals?
It has been estimated that 95 per cent of all manufactured goods rely on some form of industrial chemical process. However, exposure to a large share of these chemicals has been linked to adverse impacts on human health and wildlife. For example, in the European Union, 75 per cent of the almost 300 million tons of chemicals used annually are considered hazardous to human health or the environment. The harmful impacts encompass a range of health issues, including cancer, birth defects, obesity, and weakened immune systems. Chemical pollution is also a key driver of the decline of species and biodiversity globally. Moreover, the chemical sector is a significant contributor to climate change.
Chemical production has increased 50-fold since 1950 and is expected to triple by 2050 compared to 2010 levels. Yet, some scientists believe that our production of chemicals already now exceeds the environmental limits within which humanity can safely operate.
The need to address persistent chemicals is particularly urgent. A large newsroom investigation, led by Le Monde and Watershed Investigations, revealed that 17,000 sites in Europe are contaminated with PFAS, a well-known group of persistent chemicals. These chemicals, many of which are hazardous and very slow to break down, are now so widespread as to be found in the blood of almost every human. It can even be found in the snow within the most pristine regions of Antarctica. ChemSec has estimated that the annual social costs of PFAS worldwide, from remediation and increased healthcare costs, is €16 trillion.
The investor case for addressing this issue is straightforward. Individual companies that continue to rely heavily on hazardous chemicals face significant and likely material regulatory, reputational, insurance and liability risks. At the same time, hazardous chemicals present systemic risks to universal owners, such as pension and sovereign wealth funds, and large investment management firms. These chemicals fuel various human health and environmental crises and force countries and municipalities to devote their scarce resources to remediation and managing higher healthcare costs.
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Tools for investment analysis
To help asset managers better assess the financial risks linked to hazardous chemicals and engage constructively with the industry, ChemSec provides three free tools: ChemScore, SIN Producers and the SIN List.
What kind of substances is it and which companies are producing them? The following ChemSec tools can answer these questions:
SIN Producers
The SIN Producers List is the only searchable database of companies that are producing or importing the most hazardous chemicals in Europe and USA.
Questions to ask chemical companies
Here are some examples of questions that investors can ask companies when engaging with them. Some of the questions only apply to certain companies. When a question relates to a specific criterion in ChemScore, the criterion is stated in parentheses.
- At what level in your company has your ChemScore rating been discussed?
- Have your company set any targets or aspirations for improving your ChemScore rating?
- What is your general strategy for reducing and eliminating your use of hazardous chemicals?
- 3M have published a time-bound phase-out plan of all its PFAS substances (criteria 1.4 and 3.2). Do you have a strategy for reducing or eliminating the use of PFAS and other persistent chemicals?
- Lanxess and Ecolab have a cut-off criterion (criterion 2.3) for Substances of Very High Concern (SVHCs) in their new products. Do you have plans to implement a similar policy for new products?
- Eleven of your peers offer safer alternatives (criterion 2.4) and market those on independent third-party platforms like ChemSec’s Marketplace (criterion 2.5). Do you have plans to do the same in the coming year?
- Circularity is becoming more prioritized by policy makers and regulators globally. Do you have strategies in place to increase your circular products portfolio (criterion 2.6)?
- Do you have plans to increase the use of biobased, renewable or mechanically recycled feedstocks in your production (criteria 2.7 and 2.8)?
- Various chemical companies define “safer” or “sustainable” products in very different ways. What are your definitions?
- How much of your R&D spending is allocated to developing safer and sustainable alternatives?
- Solvay have a public time-bound phase-out plan for their hazardous portfolio (criterion 3.2). In addition, Indorama, SABIC and Yara have phase-out plans, but not time-bound. Are you developing similar plans?
- Eighteen companies have taken first steps to report in accordance with the EU taxonomy regulation (criterion 3.3). Do you have plans to do the same?
- 36 out of 54 ChemScore companies actively engaged with ChemSec in 2022 (criterion 3.5). Will you engage with them in the coming year to improve your score?
- Lanxess and Eastman disclose their global portfolios of hazardous chemicals (criterion 3.6). Will you be doing the same in the near term?
- Five companies have clear key performance indicators to assess their progress on circularity (criterion 3.8). Do you have plans to do develop similar indicators to track your progress?
- Braskem publish the volumes and sales of a large part of their product portfolio. Do you have similar plans to disclose the volumes and sales of your hazardous product portfolio?
- How do you use your experiences from previous incidents to develop your health and safety policies?
- Are you actively engaged in remediating pollution and minimize human exposure to hazardous chemicals, beyond legal requirements?
Dr Emma Berntman, Senior Engagement Specialist at the FAIRR Initiative, has played a crucial role as an advisor during the establishment of the IIHC. Her expertise and guidance have been invaluable in shaping the structure of the initiative.
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Disclaimer
The IIHC does not require or seek collective decision-making or action with respect to acquiring, holding, disposing and/or voting of securities. IIHC participants are independent fiduciaries responsible for their own investment and voting decisions. The use of particular engagement tools and tactics, including the scope of participation in IIHC engagements, are at the discretion of individual IIHC participants. IIHC participants may not claim to represent other participants or make statements referencing other participants without their express consent. Any decision by participants with respect to acquiring, holding, disposing and/or voting of securities shall be at their sole discretion and made in their individual capacities and not on behalf of the IIHC, its networks of investors and their representatives or their other participants or members.
The IIHC and its investor and their representatives’ networks do not act or speak on behalf of each other or IIHC participants. They also do not seek directly or indirectly, either on their own or another’s behalf, the power to act as proxy for a security holder and do not furnish or otherwise request, or act on behalf of a person who furnishes or requests, a form of revocation, abstention, consent or authorization. In addition, the IIHC does not provide investment or voting recommendations.
IIHC and its investor participants do not provide investment, legal, accounting or tax advice, nor do participants necessarily endorse or validate the information contained herein. IIHC participants are committed to comply with competition laws. IIHC participants shall not allow IIHC led meetings, their organisation or name, either directly or indirectly, to be used for any illegal or anti-competitive purposes. It is the duty of each participant to ensure that their participation in the IIHC does not contravene or assist any other party in the contravention of applicable competition laws or any other applicable international or domestic statute or regulation and participants shall take all due care to ensure that no infringement occurs as a result of their IIHC participation.
IIHC participation shall not require any participant to adopt, follow, implement or obey any decisions, rules, terms of reference, recommendations, policy positions, discussion points or any other form of concerted activity, written or oral, of the IIHC or other member company insofar as it might limit the commercial freedom of the participant and in particular the level of premiums and settlements or other terms and conditions that such participants might choose to apply.
By participating in the IIHC, participants shall not disclose to other participants commercially confidential or sensitive information. Participants commit to refer to publicly available information only at meetings. Where IIHC participants wish to use information that is not publicly available to support media releases, lobbying or other legitimate business activity through the IIHC they shall only do so after receiving legal advice and ensuring that the activity is fully compliant with applicable law (including, without limitation, competition law). The terms of engagement, responsibilities, rights, and other information contained elsewhere herein are intended to be interpreted in a manner consistent with the foregoing.
This disclaimer has been adapted from the CA 100+ disclaimer, with reference to the UK competition laws