Is Chemistry Business’ Biggest Blindspot?

Regulatory change poses financial risk to firms that do not adopt sustainable manufacturing processes, explains Jillian Stacy, Business Manager for Sustainable Chemistry at Enhesa.

Despite all the effort put into corporate sustainability – from the appointments of chief sustainability officers and chief risk officers to the development of detailed sustainability reports and materiality assessments – most companies still have a fatal flaw lurking beneath the surface: chemicals management.

Among S&P 500 companies, for example, where 99% of businesses are producing sustainability reports and the average length of these reports has swelled to 83 pages, it’s still hard to find any information about the chemical composition of the products these companies produce, the compounds used in their manufacturing processes, or the manner in which those chemicals are handled and recycled. In fact, according to new research from Enhesa, 43% of companies say they still do not understand the full chemical make-up of their products.

This vulnerability has the potential to not only derail the best intentions of corporate sustainability and ESG initiatives, but also create serious business risks for these companies. Regulations – such as the European Union’s Registration, Evaluation, Authorization and Restriction of Chemicals 2.0 (REACH 2.0), and its various jurisdiction-specific offshoots, and the newly reformed Toxic Substances Control Act (TSCA) in the US, in addition to new reporting requirements introduced under the Corporate Sustainability Reporting Directive (CSRD) – introduce significant penalties and tough new reporting requirements for chemicals management.

Why chemical transparency is so hard

The chemical conundrum comes amid a truly tenuous time for companies trying to navigate the rigours of sustainability compliance in an increasingly divided world. A recent Harvard Law School Forum on Corporate Governance report perfectly captured the troubling paradox confronting big businesses as they wrestle with sustainability reporting in a world with steadily increasing regulatory requirements and growing threat of backlash against ESG initiatives. Even though the political realm is rattling the cages of all things ESG, businesses are getting more serious and detailed than ever about the information they share about climate and nature impacts, their carbon emissions, and their commitments to employee safety, even if they aren’t talking about it as much.

But when it comes to chemicals management, that level of detail and specificity has been elusive.  In fact, 71% of respondents to a recent Enhesa survey said they have faced significant hurdles in obtaining complete chemical data, the biggest of which is inconsistent responses from suppliers on chemical information, thus hampering their efforts to achieve complete chemical transparency.

This creates a huge level of business risk, as regulators and customers have put companies squarely under the microscope on chemical compliance. Survey respondents report that regulators (81%) and consumers (60%) are their main sources of pressure for their chemicals management and sustainability goals, as opposed to just 11% of respondents who cite C-suite business leaders as a primary driver. With this extensive external pressure, the stakes have been raised, as it has become clear companies will be held accountable for the chemicals within their supply chain, throughout their entire lifecycle, from manufacturing to packaging to disposal and recycling.

A practical approach

For the businesses and big brands at the centre of this chemical transparency disconnect, tracing a direct link between the chemicals used in the production of their products and the specific risks associated with chemical pollution can feel like a hopeless challenge. In most cases, these companies have little more to work with than basic safety data sheets, which disclose information on chemicals and chemical compounds that could harm workers, but they leave huge knowledge gaps around the use of potential pollutants or restricted chemicals, like PFAS or other heavily regulated compounds. Yet, that level of clarity is expected under several current and pending regulations.

Perhaps even more challenging, these businesses also need to be able to project future risks around chemicals that are not currently restricted, but will likely be subject to future regulatory activity. To achieve this, companies need to be able to understand not only existing regulations but also developing and pending ones that have the highest likelihood of being passed. Business leaders are forecasters by nature, but most simply don’t have the expertise to make confident, informed decisions with the regulatory intelligence they currently have at their disposal.

The only effective way to get the level of certainty needed is to conduct detailed chemical hazard assessments, which look at the toxicological hazards inherent in chemicals, regardless of use, quantity, or mitigation measures, based on a combination of screening against known chemical hazard lists and review of scientific literature. Getting there, however, requires a level of transparency on the part of suppliers and partners – and a commitment from business leaders to make changes when potential conflicts are found.

Fortifying the weakness

I recently worked with a global footwear brand focused on making its global supply chain more environmentally sustainable. Looking only at the chemicals used in the formulation of rubber used in the soles of shoes, we identified some 200 different chemicals used in their product line-up. Over those, we found 154 substances were on lists of known toxins and regulated chemicals in certain jurisdictions, and another 15 that were likely to be regulated in the near future based on their hazard profiles.

While identifying those risks was a critical first step in the process, the real work is only just beginning as the brand starts transitioning to safer chemicals going into their products and more sustainable manufacturing processes. In the long run, it will save the company from potential fines, crippling business disruptions and catastrophic reputational damage. But, in the short term, it requires an investment in unearthing known unknowns.

As businesses make their way through 2025, a year that will see a great deal of volatility and uncertainty around sustainability regulation, they need to gain a 360-degree view of their business risks. The current landscape of chemicals management just simply leaves too much of companies’ fate to chance. Given the desire of both customers and regulators to hold companies accountable, it is critical to start closing the knowledge gap on chemical risk.

The post Is Chemistry Business’ Biggest Blindspot? appeared first on ESG Investor.