Investors raise pressure over ‘forever chemicals’ amid growing litigation

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Investors are stepping up pressure on companies to end the production and use of hazardous “forever chemicals” amid concerns over increasing litigation and regulatory scrutiny.

More than 50 investment firms representing $10tn in assets will write on Wednesday to the world’s biggest producers of perfluoroalkyl and polyfluoroalkyl substances, known as PFAS, to demand a “time-bound phaseout plan”, increased transparency on production and greater investment in safer alternatives. 

This is the third year that investors such as LGIM, Aviva Investors, BNP Paribas Asset Management, Nordea and Storebrand Asset Management have joined forces against PFAS as part of the Investor Initiative on Hazardous Chemicals. They are writing to 50 of the world’s biggest chemical companies, including Germany’s BASF, Chemours of the US and Japan’s Daikin. 

Chemours and BASF said they had not yet received the letter and could not comment, while Daikin was unable to reply to a request for a response.

The letter says that: “Manufacturers and users of PFAS chemicals are exposed to deep liability and insurance risks, reminiscent of those historically linked to asbestos.” This “could materially adversely harm the long-term value of companies involved in their manufacture and sale.”

Favoured for their resistance to oil, water and temperature changes, PFAS are used in millions of products from non-stick cookware and batteries, to computer chips and smartphones. However, they do not break down easily, they accumulate in people and the environment, and are increasingly linked to health problems including cancers and infertility. 

More than 9,800 lawsuits alleging harm from PFAS have been launched across 140 industries since 1999, according to a report by risk consultancies Milliman and Praedicat, and law firm Mendes & Mount. 

These health concerns are prompting a growing number of US states to limit their use, while EU regulators are considering an outright ban of some 10,000 variants.

Many sectors argue that such a blanket ban is too broad, with many variants critical to green technologies, pharmaceuticals and chipmaking. However, investors are pushing for more backing of the alternatives that would enable a full exit. 

John Hoeppner, a signatory of the letter and head of US stewardship at Legal & General Investment Management, which manages $1.3tn in assets, said companies were not doing enough to cut PFAS exposure.

“We are looking at this as a universal owner,” he said. “We own chemical companies but also, on the demand side, we own cosmetic companies, consumer goods and electronics. We are more interested in whether the use of these chemicals will create major costs for our portfolio.”

Sabrina Sanz, ESG analyst at Amundi, which manages $2tn in assets, said the group assesses the potential impact on companies, society and the environment as “severe”. It has put the most exposed companies on a “watchlist to closely monitor progress and prioritise engagement”, she added.

Susan Baker, director of shareholder advocacy at Trillium Asset Management, said the litigation risk was not just for manufacturers. “We want better transparency for downstream companies who need to know what is in their products and supply chain.”

The number of signatories has risen steadily from 23 in 2021 to 51, in a sign that shareholders are more alert to the implications for their portfolios of these persistent chemicals. 

“For some companies, if you compile all the lawsuits, they could end up bankrupt,” said Cecilia Fryklöf, head of active ownership at Sweden’s Nordea. “We want them to ramp up investment in alternatives to future-proof their businesses so they can continue to create value.”

Late last year, 3M announced it would halt PFAS production by 2025, and then agreed to pay up to $12.5bn to settle claims over polluted drinking water in the US. 

A study to be published on Wednesday by risk analysts Praedicat estimates that companies could face personal injury claims of more than $66bn in the US alone, not including claims for environmental damage and clean-up. These other claims could lead to costs of more than $400bn, it estimates.

The letter is part of a campaign co-ordinated with ChemSec, an independent non-profit group, partly funded by the Swedish government, which advocates for an end to production of hazardous persistent chemicals.

ChemSec will release its annual ranking of sustainable chemical companies on Wednesday. The ranking found that only five of 50 companies had a public strategy to quit hazardous chemicals.