Rising litigation & tighter regulation pose risks for PFAS producers & users

By Hélène Soyer Nogueira 25 January, 2022

Forever chemical producers & users are facing regulatory risks now more than ever. Find out why in our interview with Soyer from Moody's ESG Solutions

PFAS (a.k.a. forever chemicals) are a family of 5,000 widely used synthetic chemicals for food packaging, clothes, cosmetics etc.; they contaminate water & are linked to illnesses
Lawsuits & contamination controversies now 4X of 2018; 92% of them are of critical severity - raised over health injuries, diminished property value & clean-up costs
Regulatory efforts to restrict or ban PFAS are tightening worldwide & investors are paying more attention = more risk for co's; need to rapidly advance R&S into safer alternatives
Hélène Soyer Nogueira
Author: Hélène Soyer Nogueira
Hélène Soyer is the Research Manager of the Basic Resources team at Moody's ESG Solutions. Her team covers the ESG Assessments of companies in the Chemicals, Mining &Metals, and Forest Products & Paper sectors. Of French origin, she studied Political Science at the Institut d'Etudes Politiques de Grenoble, and Environmental studies at Universiteit van Amsterdam. She came to Brussels to work at the European Commission, in the Unit Forest Based Industries of DG GROW (Internal Market, Industry, Entrepreneurship and SMEs). She then worked on environmental conservation projects sponsored by the European Commission in different organisations before joining Vigeo Eiris (V.E) as ESG Analyst ten years ago. V.E was acquired by Moody's Corporation in 2019.
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PFAS (per- and polyfluoroalkyl substances), also called forever chemicals because of their persistence in the environment, is a family of 5,000 widely used synthetic chemicals. With increasing attention and worries over PFAS pollution, producers and users are increasingly exposed to financial, legal and reputational risks. Just in October 2021, the US Environmental Protection Agency announced a three-year initiative to regulate PFAS and restrict their use. 

With the increasing scrutiny and tightening regulations, we sat down with Hélène Soyer Nogueira from Moody’s ESG Solutions who with her team has recently released a report on the current situation, risks for producers and users and trends to be aware of. See what she had to say to stay ahead of rising PFAS risks. 

CWR: Thank you, Hélène, for doing this interview and for sharing your recent report on controversies relating to per- and polyfluoroalkyl substances, or PFAS. What are PFAS and why should we be worried about them, especially when they are in our water?

Hélène Soyer Nogueira (HN): PFAS are widely used synthetic chemicals that can cause long-lasting harm to human health and the environment.

PFAS are widely used chemicals incl. in food packaging, clothes, cosmetics etc…

This family of 5,000 synthetic chemicals can repel grease and water to make non-staining, waterproof products that are resistant to friction and heat. Uses include food packaging, clothing, cosmetics, household products, electronic devices and building materials.

These chemicals are considered essential in some cases, such as applications in medical treatment, pharmaceutical manufacturing, surgical equipment and renewable energy.

PFAS are sometimes called “forever chemicals” as they are not biodegradable. This raises concerns about their persistence in the environment and potential to cause long-lasting negative impacts on human health.

..they are not biodegradable & quickly enter the environment; they have been linked to certain illnesses

PFAS come from many sources and can quickly get into the environment – the air, soil and water – so they can easily contaminate drinking water. These chemicals can build up in the body and may cause various health disorders – a process that has been linked to illnesses including kidney cancer and thyroid diseases.

CWR: What has your team found after looking into PFAS? Which industries face the biggest risks? How bad is PFAS contamination?

HN: Chemical companies are most exposed to PFAS controversies, followed by industrial goods and services companies. Businesses face significant costs from rising litigation and remediation projects, as well as reputational risks. And as regulations tighten, companies face risks linked to the restriction or banning of the chemicals.

The number of PFAS-related water contamination controversies and lawsuits has risen in recent years. According to our database, there were 86 active PFAS-related controversies in June 2021, a jump from 22 in June 2018. A recent report we published shows that as of June 2021, PFAS-related controversies affected 26 companies from 10 different sectors.

In 2021: 86 active PFAS-related controversies – a jump from 22 in 2018

While PFAS manufacturers are particularly vulnerable to controversies, claimants also pursue companies and products in industries that use PFAS. That may include mechanical components and equipment, building materials and aerospace sectors.

Most recorded PFAS-related controversies concern activities in the US, accounting for 94% of the total.

Many US states have raised claims over environmental contamination and related health injuries from exposure to PFAS in drinking water, diminished property values due to PFAS in soil and wells, and clean-up costs where PFAS have been detected. Residents injured by contaminated public water have made claims against PFAS manufacturers for negligent manufacturing and disposal practices. Water, community involvement and product safety are the main environmental, social and governance, or ESG, topics affected.

92% of total PFAS controversies have “High/Critical” severity with lawsuits centered on environ clean-up & remediation

Our data identify 92% of PFAS controversies having “High” or “Critical” severity. Lawsuits against PFAS manufacturers have centered on environmental clean-up and remediation. Several large fines and settlements have gathered considerable attention, representing high material, reputational and legal risks for companies and their investors.

CWR: What are the key challenges for companies facing PFAS-related risks and how could they address the issues?

HN: Companies facing litigation over water contamination could often be more responsive about remediation, establishing a dialogue with impacted stakeholders and collaborating with affected communities. Despite the material risks associated with PFAS controversies, our data shows that companies’ overall responsiveness is mostly assessed as “Non-communicative” (64%).

Another key challenge for companies lies in their ability to enhance transparency and focus on safer alternatives as regulations on PFAS tighten worldwide. Increasing regulation is likely to cause companies to accelerate research and development into safer products – a trend that is encouraged by more and more downstream users committing to phase-out deadlines and adapting to new rules.

CWR: What is the current position of PFAS manufacturers and what is the best route for companies moving forward?

HN: The need to adapt quickly to develop safer chemicals raises the question of whether PFAS producers are ready to move to safer alternatives. Our data shows that PFAS producers achieve a ‘Limited’ average score on product safety (43 /100), performing below their peers in the chemical industry (49/100).

Additionally, only one-third of PFAS producers have a commitment that includes the substitution of harmful compounds with alternative substances, and only 40% of these companies report having put measures in place to phase out hazardous chemicals.

PFAS producers are performing below peers

Common best practices include directly phasing out PFAS from products and/or replacing the chemicals with safer alternatives where possible. Directly phasing out PFAS can be applied to food packaging, cosmetics and firefighting foam, among other applications. Further investment in research and development is needed in fields such as stain resistance as there is currently a lack of substitutes for PFAS, or substitutes are not sufficiently developed.

CWR: How are the regulatory efforts to restrict or ban PFAS shaping the industry, and does more need to be done?

HN: Regulatory efforts vary from one country or region to another, but moves to restrict or ban the use of PFAS are accelerating worldwide. In the US, there are legislative proposals at a state and federal level, for example, to impose legal limits on PFAS in drinking water or to act on PFAS in food packaging and in textiles.

EU aims to ban all PFAS from non-essential uses

In Europe, the European Union adopted the Chemical Strategy for Sustainability last year with the aim of banning all PFAS from non-essential uses and developing methods for rectifying PFAS contamination in the environment.

How the criteria for “essential use” is defined will be critical as it could determine the future of certain products, companies and industries. In parallel, REACH authorities in the Netherlands, Germany, Denmark, Sweden and Norway are preparing a restriction on PFAS, meaning that many uses will most probably be banned.

A public consultation has been launched for authorities to seek information on available alternatives and better understand economic impacts. Finally, within the strategy, the EU also aims to provide financial support for research and innovation programmes.

Main barrier for moving away from PFAS is the lack of alternatives

These developments put pressure on the industry to adapt quickly and develop safer alternatives. The main barriers today for moving away from using PFAS in products are the lack, cost and inadequate performance of alternatives.

CWR: Finally, is there anything we especially need to keep our eyes on regarding PFAS-related risks in the future?

HN: We expect rapid and effective changes from PFAS manufacturers and users as they adapt to increased scrutiny from stakeholders and comply with upcoming regulatory frameworks.

More investors are turning their focus to these risks

As the issue of managing chemicals gains momentum, more investors are turning their focus to the risks associated with the manufacture and use of hazardous chemicals.

We are collecting data on companies’ strategies and efforts to adapt to these emerging risks, with the aim of better identifying companies that are at the forefront of innovation and safer alternative development, so that they are better equipped to create market opportunities. In parallel, our research assesses companies’ involvement in controversies related to PFAS and other chemicals of concern in real-time and how they respond.

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