Toxic Cosmetics Get Under the Skin of Concerned Investors

Health-conscious investors and consumers are starting to demand cosmetic companies report and ban toxic ingredients, Anne Moore Odell writes for Social Funds.com.

BRATTLEBORO, Vt., Mar. 15, 2007 -- As new studies expose the high number of toxic ingredients in personal care products and cosmetics, many consumers are asking just how safe are the products they use every day. Meanwhile, many investors are asking how safe from liability and market changes are the companies that manufacture and sell these products.

Please support our sponsors"The ground is shifting for manufacturers across all industries, including personal care," stated Noran Eid, an analyst at Innovest Strategic Value Advisors. "Investors should be aware of these issues when assessing long-term competitiveness and profitability."

Richard Liroff of the Investor Environmental Health Network agreed: "the safer cosmetics issue is part of larger safer chemicals policy issue. Companies need to know what's in their products or otherwise they run the risk of getting locked out of markets."

With the release of three major reports on toxic chemicals in the last two months, various companies, investors and concerned citizens are seriously inquiring what are the short-and-long term health effects of toxic chemicals on the human body. Pressure for cosmetics companies to change the way they manufacture and market products is coming from several directions at once: from local, state, federal and international governments, from shareholders, and from consumers. The cosmetic industry, including goods and services, accounts for up to $60 billion a year in sales in the U.S. alone.

IEHN's report, entitled "Beneath the Skin: Hidden Liabilities, Market Risk and Drivers of Change in the Cosmetics and Personal Care Products Industry" focuses on the cosmetic industry's lack of regulation in the U.S. According to the report, the industry operates with little oversight by the Food and Drug Administration. The IEHN is a collaboration of 20 investment managers, working with companies to create safer chemical policies.

Less than two weeks before the release of the IEHN report, Innovest Strategic Value Advisors released a report called, "Cross-Cutting Effects of Chemical Liability from Products" that examines four major industries, of which personal care was one, and the loss of market share if companies don’t address toxic chemicals in products.

The third report, "Toxic Chemicals, Asian Investors are at Risk," was released January 2007 by the Association for Sustainable & Responsible Investment in Asia. This report looks at Asia’s lack of response to chemical reforms passed in other areas of the world. The report warns investors that Asian companies could face a marked loss of market share unless they start to address chemicals found in products.

"The issues associated with toxins in cosmetics threaten to pose volatility to long term markets, and regulatory shocks, over time," said Sanford Lewis, Counsel for IEHN and one of the authors of its report. "Moving to safer materials is not just a niche issue, it is a crucial opportunity to move in advance of consumer sensitivities and regulatory trends, and a substantial risk to companies not to do so."

In 2007, shareholders have submitted thirteen resolutions concerning chemicals in products, up from ten the previous year. It remains to be seen how many resolutions reach the shareholders as proxies. Currently, proposals are being taken off the table after agreements have been reached with filers and companies.

Last year and again this year, Boston Common Asset Management filed resolutions at the drugstore chain CVS on the issue of cosmetic safety. Last year’s resolution received 8.74 percent vote in favor. "Asking CVS to develop a cosmetics safety policy that is then implemented, not only under their private label cosmetics, but whom they purchase from (brand names), would be a critical step for CVS to take in the effort to address cosmetic safety," Lauren Compere, Chief Administrative Officer at Boston Common, told Socialfunds.com.

New concerns over toxic chemicals in products come from recent scientific studies of the effects of chemicals on the body. The common ingredient phthalate has been linked to underdeveloped reproductive organs in males. Another area of concern is the cosmetics industry’s use of nano-particles that can enter the bloodstream and cause tissue damage.

In 2005, the European Union passed Directive 76/768/EEC banning over 1,000 chemicals for use in cosmetics. The same year, California Governor Arnold Schwarzenegger signed the California Safe Cosmetics Act of 2005 which requires companies to report to the state the ingredients found in their products. There is legislation pending on cosmetics in at least five other states. The Washington Safe Cosmetics Act of 2007 is modeled after the California bill and Oregon will introduce two bills this year. In 2006, Maryland, New York, and Massachusetts all had bills concerning these issues.

"The Californian bill is mild. However, cosmetic companies spent a lot money trying to defeat it," Stacy Malkan, spokesperson for the Campaign for Safe Cosmetics said. "It is progress, but a small step forward." The Campaign for Safe Cosmetics was founded by Alliance for a Healthy Tomorrow, the Breast Cancer Fund, Commonweal, Environmental Working Group, Friends of the Earth, National Black Environmental Justice Network, National Environmental Trust, and Women’s Voices for the Earth.

The IEHN report states that the FDA only regulates nine ingredients in cosmetics. Action by the FDA is only taken when cosmetic companies themselves report consumer exposure to chemicals. The top ten cosmetic companies alone use over 10,000 of the 75,000 chemicals registered for use in the U.S. These ten top U.S. Cosmetic companies are The Procter & Gamble Company, Unilever, The Estee Lauder Companies, Inc, Avon Products, Inc. Colgate-Palmolive Company, L'Oreal U.S.A, Revlon, Mary Kay, Alberto Culver and Johnson & Johnson.

Companies’ responses to this mounting pressure have varied. Over 500 personal health care and cosmetic companies have signed the Campaign for Safe Cosmetics’ pledge called Compact for Global Production of Safe Health and Beauty Products. When companies sign the pledge they promise to replace hazardous materials with safer alternatives within three years.

"The sector is fragmenting into two camps—the endorsers of the safe cosmetics code, and the non-endorsers," Lewis said. "Also, it is remarkable to see a comparatively wholesome industry like cosmetics adopt some of the dirty and defensive tactics of the tobacco industry—hiring former FDA employees, and lobbying heavily against state regulation, in addition to defending their voluntary self-policing program."

Many of the larger cosmetic companies have not signed the Compact, but instead have created the Consumer Commitment Code which works with companies to create a ingredient review process with voluntary reporting to the FDA.

Procter and Gamble was one the companies to sign this code. "While we were happy to sign the code and were, in fact, involved in its development, in essence we have met all the requirements of the code for a very long period of time," said Terry Loftus, Procter and Gamble spokesperson. "We won't bring a product to market without having first done a thorough safety assessment of all product ingredients to ensure that the product is completely safe for use," Loftus added.

"I call it the non-commitment code," said Malkan, referring to the Consumer Commitment Code. "What we would like is for companies to provide information on toxic chemicals not only to the FDA, but to the public as well."

One positive example of a company responding to shareholder and consumer concern is the Whole Food Market’s removal of baby products containing Bisphenol-A and phthalates from its product line last year and announcement of a policy to reduce customer exposure to hormone-disrupting chemicals in products.

The Campaign for Safe Cosmetics is asking companies to take a comprehensive look at the chemicals a person uses over the course of a day instead of limiting the focus to the chemicals used in just one product.

The new awareness of the risk of certain chemicals can have financial benefits. Companies that are able to make changes to their products are finding new consumers in Europe and among concerned citizens in the U.S.

"There is money in safe products," Malkan told Socialfunds.com. "There is a huge push in the market for safe cosmetics, with California leading the way. The United States is very far behind the curve. It makes many U.S. industries vulnerable."