Environmental NGO ChemSec has unveiled its new corporate benchmarking tool, aimed at helping investors access data on the best and worst performers in the chemical industry based on the amount of hazardous chemicals they produce and their efforts to transition to safer, greener alternatives.
ChemScore measures the chemical footprint and other sustainability metrics of 35 of the world’s largest chemical companies, many of whom have links to textile manufacturers. The goal of ChemScore is to drive investors towards chemical industry frontrunners and divest from laggards.
The 35 largest publicly-traded chemical companies are assessed based on four key criteria, a company’s:
- Hazardous Product Portfolio – each company’s total production of hazardous chemicals, weighted on the basis of the company’s total revenue. Lower production of hazardous chemicals gives a higher category score.
- Development of Safer Chemicals – the strategy towards safer products, including design stage, marketing of safer products, R&D and green chemistry.
- Management & Transparency – the companies’ transparency with product ingredients, and public commitments to phase out certain substances.
- Controversies – the companies’ track record of accidents and controversies such as fines and liability cases.
“For investors, a better understanding of companies’ involvement in hazardous chemical production is crucial. Many of these chemicals not only pose a threat to human health and the environment, they also threaten the return of an investment”, says Anne-Sofie Bäckar, executive director at ChemSec.
Persistent chemicals, such as PFAS, are an illustrative example. These chemicals have been building up in humans and nature over decades and the levels are now critical at many places around the world. In the US, several chemical companies producing such substances are now facing litigation with estimated costs ranging from US$25bn to US$40bn, ChemSec says.
“It’s not a coincidence that their stock prices have taken a nosedive compared to the industry average”, says Bäckar.
The top performer in this year’s ChemScore is Dutch conglomerate DSM.
Among the key findings of the survey, none of the 35 companies fully disclose what kind of chemicals they produce in regions outside of the EU and US (where regulation forces them to disclose it) and only three companies score more than ten points (out of 18) in the category that looks at the hazardous chemicals in the companies’ portfolios including Indorama Ventures, which produces mainly polyester.
14 of the companies produce persistent chemicals. While still flying under the regulatory radar in many regions, these chemicals have proven to be problematic as the levels build up in nature and humans over time.
Meanwhile, four companies are ahead of the rest when it comes to green chemistry and development of safer chemicals: DSM, AkzoNobel, Sherwin-Williams, and LG Chem.
ChemScore has been developed with input from chemical industry representatives. It has also consulted the investment community, including Aviva Investors, a global asset manager with GBP346bn in assets under management.
“Understanding which companies are leading on sustainable management of chemicals, or lagging behind their peers, is a very important part of the larger sustainability puzzle and we are proud to take the lead in this issue within the investment community. ChemScore broadens our understanding of how companies are managing the risks involved in manufacturing chemicals. These include litigation, lack of preparation for new regulation and reputational risk. ChemScore also gives us valuable insight into how we can encourage companies to improve”, says Eugenie Mathieu, senior ESG analyst with Aviva Investors.