Nothing Lasts Forever
Investors can play a part in turning the tide against PFAS, says Sudip Hazra, Director of the First Sentier MUFG Sustainable Investment Institute.
Various chemicals known as perfluoroalkyl and polyfluoroalkyl substances (PFAS) have garnered global scrutiny, not least due to the negative long-term health and environmental impacts.
Their properties, including chemical inertness, temperature resistance, and oil, water and stain-repellence, make them extremely useful in a broad range of consumer and industrial applications. However, these very same properties mean PFAS can persist in the environment far longer than any other human-made chemical – earning them the infamous nickname of ‘forever chemicals’.
While they have useful applications in a several sectors (aerospace, defence, automotive, aviation, textiles, construction and many more), exposure to PFAS has also been linked with serious health implications. These include endocrine disruption, increased cholesterol, and a higher risk of certain cancers.
The Swedish Supreme Court ruled in December 2022 that municipal water company Ronneby Miljö & Teknik was liable for personal injuries suffered by over 150 residents in the area who had high levels of PFAS in their blood due to drinking water contaminated with the forever chemicals.
The spotlight on PFAS in both a public forum and in the legal and regulatory sense means companies and investors are under more pressure than ever to reduce PFAS use and invest in alternatives. This is not just a matter of compliance or risk mitigation – it is a critical component of sustainable investment, aiming to reduce the damage associated with these persistent chemicals.
The regulatory and litigation response
Global ESG commitments have meant that the regulatory focus on PFAS has been growing consistently, with several jurisdictions considering phasing out and banning these substances.
The EU is considering a proposal to ban PFAS from all applications with sustainable substitutes available. Bans on firefighting foam containing these chemicals are being introduced in the EU, New Zealand, and several US states, while regulators are restricting the use of PFAS in consumer applications such as food packaging, cosmetics, and textiles. Additionally, it is highly likely that PFAS-related drinking water standards will be tightened in Europe and North America, alongside greater regulation of wastewater discharges.
However, while there is ample evidence of a tightening of regulation across multiple regions, there is also much uncertainty about the extent and pace of this will take. As is often the case with these types of issues, implementation timelines will likely remain fragmented as regulators try to reduce PFAS through phase-out strategies and stricter emissions management while minimising potential economic disruptions.
In terms of litigation, there are clear significant risks – most notably in the US, but also in countries such as Sweden and the Netherlands, where recent lawsuits suggest a flurry of action is yet to come.
This can take the form of personal injury plaintiffs claiming injury from exposure to PFAS, actions filed by individual states by attorneys-general for natural resources and other damages, and public water supplier plaintiffs seeking drinking water testing and remediation costs. The potential liabilities are open-ended, which may prompt companies to settle and avoid sustainable verdicts.
Consequently, the regulatory and litigation response means PFAS producers and product manufacturers are presented with various material risks. On the other hand, tightening regulations create new opportunities for waste management, water treatment, and environmental testing service providers.
Integrated strategies for investors
What does this all mean for investors? In light of tightening regulation, increased litigation, and growing public awareness of PFAS, it is becoming more important for investors to integrate specific PFAS-related considerations into their investment strategies. Companies and investors will be expected to pursue mitigation measures actively.
For example, investors could incorporate PFAS-related risks and opportunities into their investment strategies by focusing on any of the following: PFAS producers, product manufacturers using PFAS, waste management, water treatment, or environmental testing service providers. Collaborative engagement can drive progress toward phasing out these chemicals.
Technological innovation in PFAS detection and remediation is emerging as a critical area. Advanced PFAS destruction technologies, such as plasma treatment and enhanced oxidation methods, are addressing the challenge of breaking down the notoriously resilient carbon-fluorine bonds. Meanwhile, soil remediation techniques, including the injection of colloidal active carbon, are reducing contamination in affected areas.
Environmental testing companies such as Merck and Agilent Technologies are expanding capabilities to meet increased demand for PFAS detection, while wastewater treatment advancements, led by companies like AECOM and Montrose Environmental Group, are scaling up to meet tightening regulatory standards.
With a total addressable market for PFAS management solutions estimated at US$250 billion, these innovations not only support compliance with stricter regulations but also position pioneering companies for long-term growth.
What actions can investors take?
Investors can play a pivotal role in addressing PFAS-related risks and opportunities through four key actions.
First, advocate for corporate disclosure by urging companies to report on their use, emissions, and management of PFAS, as well as the availability of substitutes. Transparency and reporting are key. To minimise potential regulatory issues, investors could encourage companies to map supply chains to identify where and why PFAS are used. This opens up conversations to understand how PFAS can be phased out in favour of available substitutes.
Second, encourage proactive corporate action, such as committing to phase out PFAS, setting measurable targets for emissions reduction, and investing in research and development for safer alternatives. Companies like Patagonia and Under Armour in the textile sector are making public commitments to remove PFAS, demonstrating leadership in transitioning to safer alternatives.
Third, build investor support for policy engagement by backing stricter regulations, including bans on non-essential PFAS applications and tighter drinking water standards. Investors can play a significant role in policy engagement by encouraging international collaboration.
Finally, foster partnerships and collaboration with other investors, NGOs, and key stakeholders to coordinate efforts and accelerate progress in phasing out PFAS and adopting sustainable alternatives. Partnerships can actively coordinate efforts to promote the adoption of safer, sustainable alternatives. The Investor Initiative on Hazardous Chemicals (IIHC), supported by Swedish NGO ChemSec, actively engages with major global manufacturers.
These steps not only mitigate risks but also position investors to drive meaningful environmental and societal impact.
Powering positive opportunities
Growing regulatory pressure, increasing litigation, and heightened public awareness surrounding PFAS present challenges, yet investors have a real opportunity to facilitate genuine positive change.
Companies across the value chain, from PFAS producers to waste management and environmental testing providers, are navigating a transformative landscape. By actively engaging with companies, advocating for transparency and innovation, and aligning with policy advancements, investors can ultimately play a crucial role in driving the transition toward a PFAS-free future.
Beyond mitigating financial risks, these actions offer a chance to support sustainable practices that safeguard public health and the environment, underscoring the vital role of responsible investing in tackling complex global issues.
The post Nothing Lasts Forever appeared first on ESG Investor.