between smoking and health. Or asbestos and health.

Transcription

1 Dear Gentlemen, I want to thank you sincerely and warmly for this invitation. It is a great honour for me, and I look forward to our exchange of views. I have already met some of your companies before and hope to meet more of you in the days and years to come. And hopefully this event will lead to more discussions in the future. We do have different perspectives, which of course reflect the different stands from where we come. Perspectives, by definition, always depend on where you stand and I believe that we will only understand the full landscape in front of us when we learn about our different perspectives. I must admit that I was not only honoured but also positively surprised by your invitation. After all, ChemSec is a very small organization. It was founded in 2003 by four environmental organisations, we work only with industrial chemicals and we do not run public campaigns. We are a miniscule organization compared to each one of your companies. However, we co- operate with companies and lately also with investors, for example we steer a group of multinational companies coming together to discuss chemicals management. So I assume that your invitation to me is due less to the size of ChemSec and more to the influence we may have on the markets for chemicals and therefore also on product innovation. So I want to share with you my understanding of the sources of this possible influence. Victor Hugo once said that nothing is as powerful as an idea whose time has come. I will repeat his statement: nothing is as powerful as an idea whose time has come. I believe whatever influence ChemSec may have is due solely to this: we express an emergent idea, an idea that has been emerging since the turn of the century. This idea is simple: man- made hazardous chemicals are increasingly seen as a commercial risk. I will illustrate this idea with four trends and describe how I see these four trends. The trends are linked, like the old domino theory, where one effect is the cause of another. And of course I will talk about the SIN List and how it is linked to these trends. The first trend concerns the science of chemicals. Knowledge about actual or suspected health effects caused by chemicals is steadily accumulating. Today it is possible to identify impacts of hazardous chemicals at concentrations that could not even be measured 20 years ago. An example is the research on endocrine disrupting chemicals. UN and WHO released a report two years ago called "State of the Science of Endocrine Disrupting Chemicals". This report concludes that the links between hormone disrupting chemicals and common diseases are significantly underestimated. As we all know, this report has been questioned. From my point of view, I feel there is a wide spread resistance among some actors to assimilate to the new knowledge. And I am afraid that the critic against endocrine disrupting chemicals is a repetition of the criticism that once met the emerging science of the links 1

2 between smoking and health. Or asbestos and health. The second trend concerns regulation and in particular the anticipation of regulation. Regulation follows from the first trend. As science evolves, so will regulation. REACH was the quantum step in world- wide regulations and has had knock- on effects the domino theory again around the world and not the least in Asia. The third trend concerns the industrial response to the first two trends. At ChemSec we have been primarily involved with that part of industry that markets directly to the consumers. I will come back to this in more detail, but just let me present the trend I think is of most importance to you: down stream users of chemicals are becoming more and more knowledgeable and more and more demanding when it comes to chemicals. The fourth and last trend concerns investors. This trend obviously follows from the first three. We have noticed that investors show an increasing interest in how chemicals of concern may affect the valuation of companies. I will come back to this trend as well. This trend could be stated as follows: chemicals of concern in products that translate into commercial risk in turn translate into investor risk. So, what about the SIN List? In your invitation to me you in particular asked about the SIN List. This list is primarily a tool for companies that market everyday life products. Four points should be made: The SIN List is based on REACH and could be characterized as ChemSec s list of candidates to include in the official REACH candidate list. The SIN List is strictly developed from the REACH criteria for substances of very high concern. It is not a wish list from NGOs. The SIN List gives an indication of regulations to come. The SIN List thus informs companies about the commercial risk of chemicals of very high concern in their products. We developed the SIN List after some companies had asked us which chemicals we at ChemSec thought would be targeted by the official REACH candidate list. They wanted to be prepared since they have very long production circles. ChemSec launched the first SIN List in 2008 and the latest update was launched in October last year. When we launched the SIN List in 2008 there were no substances listed on the REACH candidate list. After the launch, authorities in some countries asked for information about substances they considered to suggest for inclusion on the candidate list. Actually a few countries asked for all information our scientists had collected. So the SIN List contributed to the direction of the REACH candidate list. Today the correspondence is very high between the lists, however of course the SIN List contains more substances than the candidate list. Remember Victor Hugo and the power of an idea: to us, the impact of the SIN List is a very clear illustration that there in fact is an idea out there whose time has come. So the SIN List is ChemSec s tool for managing the third trend mentioned before: that down stream users of chemicals are becoming more and more knowledgeable and more and more 2

3 demanding when it comes to chemicals. The impact it has had can be summarized with: the downstream users globally use the SIN List as a pre- view for what might be regulated and it also guides companies in their future production development. Furthermore, the EU Commission stated that the SIN List is one of the main drivers for innovation among the chemical producers. The SIN List is science based. Most chemicals on the SIN List are already officially classified. When no official classification existed, such as for persistency, bioaccumulation or hormone disruption, we asked top- scientists in these areas to assess existing scientific independent data. From this we have evaluated if these substances fulfil the criteria for substances of very high concern in REACH. We will in the future continue to develop the SIN List and we will work along two paths. The first path is to develop the SIN List to become useful for public procurement and companies purchasing. The second path is to follow the scientific development to see which chemical groups could be of interest to include in the SIN List in the future e.g. sensitizers, allergens and nano material. Both paths are based on requests from companies. Additional we are developing tools for companies to avoid regrettable substitutions. To avoid shifting to a chemical which they later find out is having similar properties as the problematic chemical they wanted to replace. I will come back to the impact the SIN List has had on the trends. I now want to turn to the second trend, a topic of mutual interest to both you in the chemical industry and to us at ChemSec: innovation and regulation and how they relate to each other. Innovation is the base of economic development. Without innovation: no industrialization, and without industrialization: no escape from poverty. We all agree on this. Where the view of ChemSec may differ from your view is in the role that regulation has and should have in stimulating innovation in the use of chemicals. So I want to make our view clear. The topic is as old as environmental policy itself: do chemical regulations hinder or stimulate innovation? Our view is as follows: anticipation of regulation is a driver of innovation! This is a key statement for me, so let me repeat it in a slightly different form: It is the anticipation of regulation that drives innovation! This is in line with what has been observed in other areas of environmental regulations. e.g. let us look at the automotive industry. Car emission standards started in California in the early 1970 s. and then spread to the rest of the US, Japan and Korea. In 1990 finally all companies in EU were in favour of additional and more stringent regulations. And there is no question whatsoever that the global debate on climate change has contributed to the push for electrification of the automobile industry. 3

4 There are two lessons here. First, it is obvious that the regulations stimulated massive innovation within the automobile industry. Second, the anticipation of future tightening s of car emission standards stimulated further innovation which in turn speeded up the next round of regulations. And therefore also improved the air quality. This kind of regulations I would like to see more of regarding chemicals. OECD has recently published a study of the effect of environmental regulations on productivity growth, which I guess is a good proxy for innovation. The OECD has reached the same conclusion: - well- designed environmental regulations do not hinder overall productivity growth; - they boost productivity in companies with high productivity; - however, low productivity companies experience a fall in productivity growth. In our view, this holds for the chemicals sector as well. The General Directorate for Enterprise in the EU Commission commissioned a study a couple of years ago on the effect of REACH on innovation. The conclusion at that time was that innovation was primarily stimulated by the candidate list and the SIN List. The mechanism is obvious: these lists anticipate future regulations and therefore stimulate all those companies that want to position themselves for future markets. So I am optimistic. The SIN List contributes to innovation. I also think it contributes to the continued restructuring of the your industry, the chemical industry. Some of you will win, some of you will lose. Presumably the ones of you with good contacts with downstream markets will have an advantage. It will be very interesting to see how this plays out. Regulation of chemicals is becoming more intensive in increasing parts of the world e.g. Korea, it is called Korea- REACH, Switzerland were we are located today. China has set up list of chemicals for priority action and this year we expect the government to present an 'elimination list' as well as a 'restriction list'. In California the Safer Consumer Products Regulation has been implemented. REACH is often seen as the model regulation, which many governments wish to build upon. We have been invited to all these countries and states to present the SIN List. So chemicals regulations are increasing globally. Let me now come back to the third trend I mentioned in the beginning: Downstream users increasing knowledge and demands when it comes to chemicals. It is an awareness that was not there some years ago. What is also new is the creation of new coalitions, even among competitors, to find sustainable alternatives and substitutes to hazardous chemicals. They are no longer happy with being served ready- made solutions from you. Some of them want to know exactly what is in their products and they want to be able to choose themselves the best alternatives. It should also be noted that this third trend increasingly exists independently of regulation. ChemSec has a business group with companies from a wide variety of everyday life products, which we regularly consult, with for example IKEA, Boots the chemist, Shaw Floors, Sony, Dell among others. These companies have one concern in common: they clearly see chemicals of concern as commercial risk and as detrimental to their reputation among consumers and also in direct opposition to their long- term ambitions. 4

5 One example supporting the trend comes from the textile industry. The zero discharge of hazardous chemicals initiative has been set up by an impressive number of apparel and footwear brands. Together they represent some 30% of total textile market value globally. These are companies that both compete and cooperate, and they have decided to cooperate on the elimination of man- made hazardous chemicals. So these companies have developed a list of chemicals, for which they have used the SIN List as input, that they want you in the chemicals industry to develop alternatives to. They put the question in the open, for anyone of you to pick up. The buyers are there- who can sell them what they want? The next example comes from the construction industry. This industry is a latecomer to the environment scene. But things began to change once the climate impact of buildings became an issue, and a series of building classifications have been developed. Since climate efficient buildings are energy efficient buildings they now have a higher valuation on the property markets. And, of course, once eyes are opened, other issues are seen. Construction companies have begun to realize that they, too, are involved in exposing the public to hazardous chemicals. The construction industry has also learnt a heavy financial lesson: chemicals in products they once were told were harmless later turned out to be anything but, as PCB and asbestos illustrate. The more advanced part of this industry accordingly does not want to have new negative surprises. We have new green building standards, e.g. in US the so- called LEED version 4, encouraging more transparency when it comes to chemical composition of building materials. In fact the construction company Skanska resigned as a member of the U.S. Chamber of Commerce to protest the organization s backing of a chemical industry- led initiative to oppose the implementation of a new, stronger LEED certification program and to ban the future use of the new green building standard for government buildings. I see this example as a proof of the idea: man- made hazardous chemicals are increasingly seen as a commercial risk. And remember, nothing is as powerful as an idea whose time has come. We see similar trends in other sectors. The electronic and the automotive industries have databases to enable informed choices for their member companies. The electronic sector has the BOM check and the automotive industry has the GADSL database. These databases contain information about the chemical composition of different material they use for their products. The interest among companies is driven by science, regulation and pressure from consumers. A company not working towards substitution of harmful chemicals do not just risk that specific product, they risk their whole portfolio and brand- and we all know that that it is very costly and burdensome to recover from a bad reputation- but very easy to get one. Nowadays information and rumours are very easily spread round the globe via social media. Even if the interest would decrease among consumers and media it would be a too high commercial risk for consumer close companies not to look over the chemicals they are using. This third trend increasingly exists independently of regulation in my view. 5

6 For these companies the distinction between hazard and risk does not necessarily exist. Once industrial chemicals are found where they should not be in the environment, in human breast milk or wherever the distinction between hazard and risk breaks down. It becomes a commercial risk. We at ChemSec also have more and more contacts with chemical producers. Since some years back we have been contacted by chemical producers, including some of you that are here today to discuss common interests, trends and market possibilities on a higher corporate level. Coming back to the forth trend, investors show an increasing interest in how chemicals of concern may affect the valuation of companies. This trend obviously follows from the first three. Let me take two examples: Mattel the toy company, had to recall more than nine million toys in 2007 due to lead in their paint. This cost the company US$110 million in recall expenses and a drop in the stock price of 18 per cent. Another example: Johnson & Johnson. In 2009, tens of thousands of consumers stopped buying, and thousands of stores in China stopped selling, the company s baby products after formaldehyde and 1,4- dioxane were found in some of these products. Johnson & Johnson saw its market share in China for baby products decline by almost 10 per cent. Two years ago we arranged two meetings for investors in order to investigate the potential interest regarding chemicals and financial risk. The participants that turned up, had, taken together 5.2 trillion euros asset under management. So there was an interest. These investors asked for information about the share of the profits that depend on chemicals likely to be regulated or face other market constraints. We could not deliver that information, however we gave them the information that was possible for us to provide them with. And so the SIN producer list was developed, a list of all the companies that have registered SIN Listed chemicals on the EU market. You are probably aware of it since many of your companies are listed. All European social and responsible rating agencies do cover product stewardship in their analysis. Since 5 years we have been motivating them to also ask specifically about the use and production of hazardous chemicals. In a survey in autumn, they told us that nowadays they receive more and more feedback from their clients requesting information about chemical risks. We have also noticed that, chemical companies have begun to report on chemicals on the REACH candidate list in their previous sustainability reports. I looked into the participants list for this meeting and will highlight the text from three of your companies in this room that to me sounds very promising and positive. Solvay not only reports the exact amount of SVHCs, but also on efforts to phase them out. Clariant stated that: Clariant is also attempting to reduce the toxicity of its products constantly by replacing existing hazardous chemicals with those that are safer. As part of the product safety and product responsibility programs, Clariant is constantly looking for 6

7 substitutes for and alternatives to hazardous substances. DSM stated that: DSM is bolstering its approach to safer ingredients by bringing alternatives that are more environmentally friendly to the market in substitution of more hazardous chemicals. It seems, that you in the chemical sector are more and more fulfilling the need of society to understand your strategies towards hazardous chemicals. Avoiding risks is a key strategy to minimize losses for any investment. What is even more important for investors is the question where they want to put their money in. Where are possibilities for them to make future profits and increase the value of investments? Innovation does cost. And it may be difficult to convince clients to pay more for a more sustainable product, but in the long run it pays out. We saw recently that Arkema had to close its facility for DEHP production, whereby Eastman Chemicals and BASF could increase their sales of non- phthalate plasticizers by 25 %. To me these four trends that I have presented: 1. the increasing knowledge of health effects caused by chemicals; 2. regulations and in particular that the anticipation of regulations drive innovation; 3. downstream users increasing knowledge and demands when it comes to chemicals; 4. and investors increasing interest in how chemicals of concern may affect the valuation of companies, they are all linked, like the old domino theory and taken together they support the idea: man- made hazardous chemicals are increasingly seen as a commercial risk. Will this idea stay alive and prosper? Remember Victor Hugo: Nothing is as powerful as an idea whose time has come Well, science will continue to accumulate more and more facts and likely causal links between chemicals and human health. I believe downstream uses will co- operate even more in the future to overcome challenges with chemicals. Furthermore, I believe more sectors will develop databases similar to the ones in the electronic and automotive sectors. The request on 100% information about the chemical content will increase as well. And this will transfer the interest for chemicals management to sectors higher up in the supply chain. This trend will move faster forward with progressive legislation but, nevertheless, the trend has now taken on a life of its own. Once you have been enlighten and adopted a chemical management there is no going back. There are so far a limited numbers of investors interested in how chemicals of concern may affect the valuation of companies, however it is a clear trend. You all know about the Carbon Disclosure project, to which 5000 companies today report about carbon emissions. We expect something similar to come within the chemicals field in coming years. I believe that this will lead to that openness and transparency will no longer be seen as a commercial threat instead seen as a market opportunity by more and more of you and your companies. 7

8 I am convinced that this is the direction. For some persons like me this development goes too slowly, for others it goes too quickly. When I think about the future I believe that more and more of you will see market opportunities with innovative products to replace chemicals of concern. You in this room are the ones that can decide how your company will look at the challenges and opportunities. I am glad that you have chosen already to bring these issues up on this high level and I hope that I have provided you with some new insights that may encourage you to continue working in this direction. I am looking forward to further discussions on this, first now, but also after this meeting. Thank you for your attention! 8