24-11-2023 08:30

Nordea in dialogue with companies about PFAS phase-out

PFAS is one of several problematic chemicals that are today found in our bodies and the environment and linked to a number of health problems. As a responsible investor Nordea has therefore joined the Investor Initiative on Hazardous Chemicals (IIHC) where over 50 asset managers are trying to impact companies to phase out the use of hazardous chemicals.
Cecilia Fryklöf, Head of Active Ownership
Cecilia Fryklöf is Head of Active Ownership at Nordea and also a member of the steering committee for the Investor Initiative on Hazardous Chemicals (IIHC).

Chemicals can make food last longer, make clothes rainproof and prevent computers from catching fire. But over time the chemicals that make life easier accumulate in our bodies and threaten our health, and the phase-out of especially PFAS substances is now high on the agenda for the EU and other authorities.

As a responsible investor Nordea is looking into how we can contribute to the phase-out. We are already in dialogue we several major producers of hazardous chemicals and together with the asset managers in the IIHC initiative we have sent a letter to the world’s top 50 chemical producers asking them to make phase-out plans and develop safer alternatives to hazardous chemicals.

Head of Active Ownership Cecilia Fryklöf is representing Nordea in the IIHC initiative and  we have met with Cecilia to learn more about why Nordea has decided to be active in this engagement.   

Cecilia, why is the use of dangerous chemicals important to Nordea?

"Nordea is an active owner and dialogue with companies is a cornerstone of our strategy for responsible investments. The production and use of dangerous chemicals, such as PFAS, can negatively affect nature, animals and people. The environmental and human health risks related to forever chemicals and PFAS translate to financial risks through litigation, reputational damage and regulatory action. Our aim is to reduce the adverse impact of hazardous chemicals and our exposure to the financial risks that are linked to them.”

"In light of these risks, it’s important for us as investors to know which chemicals that the companies we invest in actually produce and use – and to which extent. How would a regulatory ban or increased restriction affect the company’s product portfolio and what challenges would it entail? Is the company prepared for increased restrictions on PFAS and other hazardous chemicals? Have they invested in research and development to find other less harmful alternatives to replace PFAS substances in future?”

"It’s important to evaluate these issues so that our investments retain their value and the negative impact on animals, nature and people is reduced."

What has Nordea done as part of the IIHC initiative so far?

"We’ve done quite a lot of things. Nordea has taken an active role in the initiative and is part of the steering committee. IIHC is currently in dialogue with 16 of the 50 companies that ChemSec has identified in their ChemScore ranking, which evaluates chemical producers’ efforts to transition to less hazardous alternatives. We have also participated in dialogues with companies at industry level and spoken with representatives from the European Commission. In addition, we have started our own bilateral dialogues with manufacturers of industrial and consumer goods that Nordea Asset Management invests in. We foresee that these companies will be affected by the upcoming tightened legal requirements as well as consumer demand.”

Facts about the dialouges

IIHC asks chemical companies to:

Increase transparency
To help investors appraise relevant risks at the company, disclose both the share of revenue and production volume of products that are, or contain, hazardous chemicals. This information should cover all operations (including subsidiaries) worldwide.

Publish a time-bound phase-out plan of products that are, or contain, persistent chemicals
The phase-out plan should include a realistic road map with clear KPIs to track progress.

Develop safer alternatives for hazardous chemicals
Following a robust evaluation, substantially ramp up R&D and investment in the development of safer alternatives. Although a universally accepted definition of safer alternatives is still pending, safer products that substitute the use of hazardous chemicals and support accelerated phase-out are likely to present a significant opportunity for value creation.

How have the companies responded to your inquiry?

"Some producers are actually quite far in the process and are well prepared. They have plans to phase out some of the hazardous chemicals they use or are already in the process of replacing them. Others haven't made it quite as far. They may currently believe that it isn’t possible and are therefore to a greater extent against the restriction proposals. We need to continuously evaluate whether a company will be a profitable investment in the long term – especially if the ban from the EU is implemented.”

How long do you think this kind of dialogue will take and what does Nordea plan to do going forward?

"It’s always difficult to predict an exact time horizon. We can see that the authorities in both the EU and the US are already tightening the restrictions, and new bills are also being discussed. Through dialogues with the companies we have invested in, we’re determined to continue to encourage both producers and users to focus on increased transparency, research and development to find safer alternatives and commit to phase-out plans with fixed deadlines. We will continuously assess how well prepared the companies are to meet future requirements.”

What is PFAS?

  • PFAS or highly fluorinated substances is a collective term for approximately 4,700 identified chemicals, all of which are man-made. They are all difficult to degrade and some can have harmful effects on humans and the environment. 
  • PFAS are widely used: in the manufacture of clothing to protect against grease, dirt and water, as well as in fire-fighting foam, cleaning agents, building materials and smartphones. 
  • For a few PFAS substances, there is documentation that they are harmful to health because they impact reproduction and causes cancer. According to ChemSec, which is partner in the IIHC initiative, PFAS can be found in the bloodstream of 97% of the world’s population

At the beginning of 2023, the European Chemicals Agency (ECHA) published a list of around 10,000 PFAS substances which the agency proposes to restrict. ECHA is the body that implements the EU's chemical legislation. The proposal has been open for comments since March 2023, and if a substance – after a consultation period and scientific evaluation – proves to pose an unacceptable risk, its use can be restricted or even completely banned.

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