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Market News

 April 05, 2007
Toxic Chemicals and Shareholder Risk

 Washington, D.C, USA (GLOBE-Net) - Rising public and scientific concern over exposure to toxic chemicals has created a variety of regulatory, reputational, and product related risks for companies. Poor management of these risks can adversely impact share values, while strong corporate responsibility can improve bottom lines and reward investors, concludes a new report on investors and chemical risk.

The Fiduciary Guide to Toxic Chemical Risk was prepared by a number of experts in responsible investment, environmental law, and health, on behalf of The Investor Environmental Health Network, which represents 20 investment organizations with $22 billion in assets under management.

The guide examines the financial dimensions of toxic chemical risk, including how to quantify such risk, the theory behind the danger posed by toxic chemicals to the wealth of shareholders, and a comprehensive set of action steps that can be taken by investors to translate the long-term threats and opportunities associated with toxic chemical issues into prudent portfolio stewardship.

According to the report, investors are becoming increasingly wary of toxic chemical risks in products, in supply chains, and in their own portfolios. This follows a series of costly lawsuits, product sales bans, and brand damage related to asbestos, toxic materials in cosmetics and toys, and Teflon-related chemicals.

This heightened sense of risk has materialized in the form of shareholder resolutions on toxic chemicals. The number of such actions jumped from three in 2004-2005 to 17 in 2006-2007, including 13 resolutions introduced for the '07 proxy season at leading corporations including Apple, CVS, Dow, DuPont, Sears, and ServiceMaster.

One prominent example of increased corporate risk from toxic chemicals is Teflon, a DuPont product. PFOA (Perfluorooctanoic acid), which is used to make Teflon, has been detected in low levels in wildlife and humans, and animal studies conducted have indicated effects of concern.

In response, governments in Canada and the United States have taken steps to restrict or eliminate the use of PFOA and related substances, requiring major action on the part of DuPont. In 2005, the company was forced to pay a record $16.5 million to settle with the U.S. Environmental Protection Agency over reporting data for the chemical.

Other examples reflect the growing recognition that producing and marketing less toxic products provide significant business opportunities, such as General Electric's landmark Ecomagination program and Wal-Mart's Smart Products Initiative.

Chemicals risk in Canada

The environmental and health impacts of chemicals used in industry and in households has been the subject of in depth scientific study in Canada, the United States and Europe in recent years. Studies show alarming levels of potentially toxic substances in humans and animals.

Environmental Defence, a non-profit organization, has conducted studies on environmental contaminants and issued several reports as part of its 'Toxic Nation' series. A study of 11 Canadian volunteers in 2005 found an average of 44 chemicals in each person, including DDT, PCBs, stain repellents, flame retardants, mercury and lead. Many of these substances are thought to be hormone disruptors, causing developmental problems in children and a variety of diseases.

The Canadian government's Chemicals Management Plan targets 200 chemicals categorized as presenting the greatest risk to human health and the environment. Every three months, the government will introduce a list of 15-30 new chemicals and will provide a 6 month comment period for industry and stakeholder groups.

Essentially, the onus has been shifted to industry, which will have to prove that a chemical can be used safely. For both corporate executives and investment managers, strong action to reduce risk related to these toxic substances will protect assets in the future, open up new opportunities for innovation, and reduce health and environmental impacts.

The full report from the Investor Environmental Health Network can be found here.



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