by Brianna Crandall — January 9, 2015—With chemicals present in the products we use every day, the demand for increased transparency on chemicals up and down the supply chain is growing, and we need to understand how and with which chemicals we are interacting, opines a new report from the United Nations Environment Programme (UNEP). Consumers and end users, retailers and brands all want to know more, driving companies to disclose information about the hazardous chemicals in their products and to make safer choices, adds the report.
The new UNEP report, The Business Case for Knowing Chemicals in Products and Supply Chains, prepared in collaboration with the environmental non-governmental organization (NGO) Clean Production Action, highlights the benefits to companies when they invest in an “active strategy” for chemicals management, one in which they proactively manage the chemicals in their products and supply chains to stay ahead of regulatory and market demands.
These companies are said to reduce risk and generate long-term value through increased sales, enhanced brand reputation, and well-managed supply chains for themselves, their shareholders, the public and the planet.
Passive strategies
The report demonstrates how companies with “passive strategies” can face big fines, loss of market share and value, and tarnished reputations if an unknown “hidden liability” of hazardous chemicals in their products comes to public light. The report notes that over a three-year period Walmart, Target, Walgreen, CVS Pharmacy and Costco paid a total of U.S. $138 million in fines because of chemicals of concern found in their products.
Product recall costs can also be significant, reminds the report: Sony’s recall of its PlayStation in 2011 due to illegally high cadmium levels cost the company more than $150 million in lost sales and product reformulation costs, and RC2 Corporation’s 2007 recall of toy trains due to lead in the paint cost $48 million and halved its stock price.
The marketplace is also swift to punish: in China in 2009, tens of thousands of consumers stopped buying, and thousands of stores stopped selling, Johnson & Johnson’s baby products after formaldehyde and 1,4-dioxane were found in some of these products in the United States. Johnson & Johnson saw its market share in China for baby products decline by almost 10 percent.
Active strategies
Conversely, the report says, proactive businesses that adopt an active strategy reap the rewards of their efforts: they avoid fines and product recalls, are well-prepared for new government regulations, and respond quickly to ever-growing market demands to know and control the chemicals in their products.
According to the report, the examples are striking:
- Coastwide Laboratories, a division of Staples, designed and invested in a new product line—The Sustainable Earth brand—based on safer chemicals. This became a primary driver of Coastwide Laboratories’ sales and market share growth in the early 2000s.
- Shaw Industries’ investment in safe chemicals for carpet backings netted the company substantial benefits. Shaw replaced its polyvinyl chloride (PVC) carpet backing with a safer alternative, reducing weight by 40 percent, and quickly captured market attention—production capacity tripled in 2000, and by the end of 2002, sales of its EcoWorx products exceeded those of its PVC-backed carpets. Shaw says the Cradle to Cradle Certified Product Standard guides its focus on chemical and material health, material reutilization, energy, water and social fairness.
- Seagate Technology, a manufacturer of data storage devices, put in place a chemicals information management database that tracks the chemicals that go into its products, requiring full disclosure from suppliers. This means that each time a new chemical of concern is noted, staff simply search the company’s database to see if it is present in its products. This enables the company to respond to new substance restrictions with existing resources and to avoid the “saw-tooth effect” (where the costs of data collection vary widely, as the company responds to unpredictable new requests for data), and gives Seagate a better understanding of both the chemistry of its products and its suppliers’ performance.
The report notes that many sectors—apparel, footwear, outdoor industry, automotive, electronics, cleaning, personal care, building and retail—have leaders advocating and building active chemicals management strategies, and the necessary complementing information systems. But progress is not uniform, and many sectors do not have sufficient systems in place to enable reliable exchange of the chemical content information that is needed to meet current and future regulatory and customer demands.
“Transforming corporate cultures to the active strategy is itself a significant challenge,” the report concludes. “The demands from consumers as well as the continual increase in regulatory requirements help foster that interest, but creating the organizational willpower to absorb up-front costs for uncertain future risks is often a difficult case to make.”
