The Benefits of Coming Clean on Your Company's Toxic Footprint

The Benefits of Coming Clean on Your Company's Toxic Footprint

This is the third and final part of a series exploring how to reduce your company's toxic footprint by reducing and eliminating the "worst of the worst" toxic chemicals and promoting use of "best of the best" green ones. Today's article addresses public disclosure and public policy positions.

Part one of this series is focused on corporate commitment: "How Companies Are Committing to Reduce Toxic Footprints." Part two explores gathering and measuring data on toxics use: "Getting a Grip on Your Company's Toxic Footprint." For background and details about the benchmark referred to throughout this series, please read "An Updated Benchmark for Corporate Green Chemistry Practices."

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Investor and public accountability represent another core component of reducing your company's toxic footprint. As the fabled U.S. Supreme Court Justice Louis D. Brandeis wrote nearly 100 years ago, "Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman."

Ideally, companies will take the following actions:

• In annual and quarterly SEC filings, discuss and analyze material risks and opportunities to the company associated with toxic chemicals and with safer alternatives and cleaner production processes. Disclosures should include new government- or peer-reviewed studies of environmental and health hazards pertinent to toxic chemicals in company products; the range of potential liabilities and market risks associated with toxic chemicals in company products, and market trends associated with alternatives to toxic chemicals used in company products.
• Issue a sustainability or corporate social responsibility report that includes a discussion of product toxicity and corporate milestones for and progress in reducing or eliminating toxic chemicals.
• Engage in effective consumer disclosure practices regarding chemicals of concern (in product labeling, warning notices and catalogue listings) so as to avoid potential "duty to warn" liabilities and, where safer alternatives are offered, to publicize the benefits of these alternatives.

Investor Disclosures. The Investor Environmental Health Network (IEHN) has made enhanced disclosure to investors a core focus. We've produced two reports based on reviews of corporate financial filings with the Securities and Exchange Commission (SEC) and we've advocated filing reforms in direct discussions with SEC staff and with staff of the Financial Accounting Standards Board (FASB). FASB, an agency that's likely well-known only to accounting aficionados, generates the generally accepted accounting principles governing corporate financial reporting in the United States.

IEHN's 2008 report, Toxic Stock Syndrome: How Corporate Financial Reports Fail to Apprise Investors of the Risks of Product Recalls and Toxic Liabilities, is based on searches through thousands of SEC filings and detailed review of more than 25 companies' reports. The report examined disclosures on supply chain weaknesses before and after the 2007 toy recalls due to lead paint; scientific studies showing products causing asthma; potential risks of nanotechnology; and REACH.

The report concluded that major industrial and other sectors affected by product toxicity risks are doing a poor job of informing shareholders of market risks they face due to toxic chemicals in their products. The report urged companies to provide shareholders with additional information on chemical supply chain issues. It also urged SEC staff to issue new guidance to companies requiring them to more specifically report their product lines vulnerable to regulation under REACH and to report more fully on credible adverse scientific findings that may impact their company.

IEHN's 2009 report, Bridging the Credibility Gap: Eight Corporate Liability Accounting Loopholes that Regulators Must Close, observes that existing financial disclosure regulations do not require companies to sufficiently disclose the potential liabilities associated with production and use of nanomaterials. Currently applicable accounting rules are the very same ones that permitted companies to legally understate their potential liabilities from asbestos litigation until the moment that they declared bankruptcy and wiped out shareholder value.

The report uses nanomaterials as the poster child for the broader toxics disclosure issue, since one particular form of nanomaterial has been associated with lung damage similar to damage in laboratory animals exposed to asbestos, and toxicity questions surround nano-silver. One loophole cited in the report allows companies to conceal emerging science that forewarns of potential liabilities in the future. The report observes, "In the history of public health issues such as asbestos and tobacco, companies' defensive science only staved off the eventual liability for a limited period of time; investors were not given fair warning in company disclosures."

IEHN's report recommends that companies be required to disclose on a summary basis what is known about hazards of products as these become understood in the laboratory, particularly when these are recognized by "significant institutes, task forces, institutions or agencies anywhere in the world, such as government research or regulatory bodies, insurers, reinsurers, think tanks, prestigious bodies, etc." Companies would then provide brief descriptions of measures the company is taking to minimize or eliminate the issue, and indicators of the potential severity of the scale of the problem.

Sustainability/Responsibility Reporting. Sustainability reporting has really taken off. A survey published by consultancy KPMG in 2008 concluded that corporate responsibility has "gone mainstream". Globally, 80 percent of the Fortune 250 -- the largest companies in the world -- are producing corporate responsibility reports, as are 70 percent of the largest U.S. companies. These are often supplemented by more-detailed internet-based disclosures.

Companies are increasingly producing reports according to the consensus-based reporting standards of the Global Reporting Initiative (GRI). Regrettably, despite their positive impact the GRI standards are very slim regarding chemicals in products, so they don't drive corporate reporting on this issue. Nevertheless, examples of such discussions appear in reports from, e.g., Dell [PDF], IKEA, Sony [PDF], SC Johnson, Sara Lee [PDF] (critical ingredients program), and Levi Strauss. See also The Body Shop's Living Our Values reports in 2007 and 2009 [PDF] that focus on specific chemicals and reference The Body Shop's underlying chemicals policy.

Not surprisingly, companies whose raison d'être is producing less toxic products devote considerable attention to the suspect chemicals they don't use, as evidenced by Burt's Bees' corporate social responsibility report. Aveda, now a unit of Estée Lauder, similarly discusses the chemicals it doesn't use.

Effective Consumer Disclosure Practices. Ingredient disclosure has been a very sensitive topic for many years and a centerpiece for activist campaigns around both cosmetics and cleaning products. Companies have begun to take dramatic steps forward in ingredient disclosure. In September 2008, Seventh Generation, long a proponent of ingredient disclosure, created an online label reading guide listing various ingredients found in common cleaners and providing information about how the ingredients are used and any potential side effects to people.

Early in 2009, SC Johnson unveiled it's "what's inside" ingredient disclosure program. While some companies post Material Safety Data Sheets (MSDS) on their websites to serve as ingredient disclosure, corporate chemical professionals in the Green Chemistry and Commerce Council broadly view them as grossly inadequate. [PDF] Companies benchmarking their disclosure practices should aspire to Seventh Generation's disclosure levels and recognize that MSDS posting doesn't count for much.

Public Policy Positions

The public policy portion of the benchmark has two components:

• Encourage progressive trade association stances on toxics reduction;
• Speak with an independent voice and organize ad hoc industry and industry/NGO coalitions to advance toxics reduction

The U.S. Chamber of Commerce, one of Washington's most powerful lobby organizations, has seen major U.S. companies cancel their memberships, resign from their board of directors, or issue strong statements distancing themselves from the chamber because of its strident objections to federal legislation on climate change.

Throwing fuel on the fire, one senior Chamber of Commerce official was quoted as urging a Scopes trial on the science of climate change. Companies have multiple reasons for joining and receiving benefits from trade associations, but at some point companies must decide when they'll part company if the trade association crosses the line on basic corporate principles in a manner that risks reputational damage or is contrary to the company's core business interests.

There's about to be a major debate on federal toxics policy reform in the United States; companies must decide how to position themselves. A core group of businesses and investment groups have already endorsed the four Guiding Principles for Chemicals Policy of the Business-NGO Working Group for Safer Chemicals and Sustainable Materials. These include:

1. know and disclose product chemistry;
2. assess and avoid hazards;
3. commit to continuous improvement; and
4. support public policies and industry standards that advance the first three principles, ensure comprehensive hazard data are available for chemicals on the market, and take action to eliminate or reduce known hazards and support green chemistry research and education.

The American Chemistry Council (ACC), said a few years ago that the existing federal chemical policy framework "works well". ACC has now acknowledged change is in order, although this 180 degree shift has been met with skepticism from environmental health advocates. SOCMA, the trade association of small and mid-size chemical companies, opposes [PDF] substantial overhaul of the existing regulatory framework. The Soap and Detergent Association (SDA) and the Consumer Specialty Products Association (CSPA) both participated in the August 2009 release of the ACC's principles, though both joined with the Grocery Manufacturers Association in releasing their own "Building Blocks for U.S. Chemicals Management Policy" in October 2009.

Environmental health advocates have set forth their principles under the umbrella of the Safer Chemicals, Healthy Families campaign. The campaign coalition includes, for example, The Autism Society, Breast Cancer Fund, American Nurses Association, the Learning Disabilities Association, the Natural Resources Defense Council and the Environmental Defense Fund.

Seventh Generation has already aligned itself with the environmental health advocates, launching the "million babies crawl", an on-line campaign "to attract a million or more crawlers to dramatize the wide public support" for overhauling national chemicals policy. The company's crawl website states flatly that "the federal law that should protect us from health-harming chemicals just doesn't work."

So on the spectrum of SOCMA on one end, Seventh Generation on the other, and various trade associations somewhere in between, where does your company want to be? Especially if you're on the board of your trade association, do you want to tilt it towards the environmental health community or towards the chemical industry?

In lobbying on specific provisions of newly proposed legislation, think hard about your reputational risks, especially if you market children's products or to mothers. Data continue to mount on chemicals in fetuses' cord blood, amniotic fluid, breast milk and blood. Data also are accumulating on chemical links to learning disorders and asthma among young children.

With scientists discerning new links of chemicals to diabetes and other chronic health disorders, will your company be on the side of those who routinely say "more research is needed" and "no cause-effect linkages have been established," or will you tilt towards your customers concerned about both their families' health and about the costs of getting sick?

Companies should think hard about reputational risks, extra overhead costs, roadblocks to moving to safer chemicals, obstacles to assuring customers products are safe, and the increased health care costs and reduced productivity from employees' exposure to toxic chemicals. Your core business interests are better aligned with your customers downstream than with the upstream manufacturers of the toxic chemicals in your products. Your public positions on chemical policy reform should similarly align.

This concludes our three-part series on corporate toxic footprints. Part one, focused on corporate commitment, is "How Companies Are Committing to Reduce Toxic Footprints;" part two, exploring ways to develop data on toxic chemicals and their alternatives, is "Getting a Grip on Your Company's Toxic Footprint;" for more background on the benchmark itself, please read "An Updated Benchmark for Corporate Green Chemistry Practices."

Richard A. Liroff, Ph.D., is founder and director of the Investor Environmental Health Network . IEHN is a collaboration of investment managers that advocates for safer corporate chemicals policies to grow long-term shareholder value and reduce financial and reputational risks to companies. The business case for corporate safer chemicals policies, a list of shareholder resolutions on safer chemicals policies, and a roster of participants can be found on the IEHN website, www.iehn.org. The author is engaged with numerous organizations and processes discussed above; mention of commercial products and services should not be construed as endorsement. This article has benefited from comments provided by corporate and NGO colleagues working on toxicity reduction.