The idea behind ChemScore’s Product Portfolio category is that, from an investor’s point of view, a product portfolio with a low hazard profile is considerably less likely to be hit by regulatory measures and future litigations connected to workers’ health, consumer exposure or accidents and spills, as well as customers’ needs for non-toxic or low-toxic products.
This category assesses each company’s total production of hazardous chemicals. However, different hazardous chemicals carry different financial risks. This is why we have applied “double counting” of so called hazard marks.
Please note: Definitions and explanations of the kinds of chemicals we have counted can be found further down, under the headline “What chemicals have we looked for?”.
First, we counted all SIN List, HHP, POP and PIC chemicals produced or used by the company, to establish the total number of chemicals that the company needs to keep track of and phase out from its production from a health, environmental or financial perspective. Each individual hazardous chemical produced/used received one hazard mark.
Second, we took a closer look at substances with an elevated financial risk from a regulatory perspective. This basically means that we assessed all chemicals that are already severely restricted globally (POPs), or in the EU (Authorisation List). We also assessed chemicals that are about to be restricted in the EU (Candidate List). Production or use of such chemicals was penalised with two hazard marks for each POP and Authorisation substance, and one hazard mark for each Candidate List substance.
Third, again seen from a financial perspective: Persistent chemicals pose a huge future risk, due to their inherent ability to cause liabilities long after humans have been exposed to them or they have been released into nature. Textbook examples of such risks are the PFAS scandals now revealing globally, causing lawsuits and damage claims worth billions. For these reasons, each persistent chemical used or produced was penalised with two hazard marks.
Weighted hazard penalty
The total number of hazard marks were then tallied and divided by the company’s revenue (in billion USD). The resulting figure (the weighted hazard penalty) determined the company’s score in the category. The higher the weighted hazard penalty – the lower the score.
This means that a smaller company producing few hazardous chemicals may have ended up with the same, or even a lower, score than a larger company producing more hazardous chemicals. The largest company in the ChemScore ranking is approximately ten times larger than the smallest one, in terms of revenue. And since we don’t know the volumes produced of each hazardous chemical, calculating weighted hazard penalty using revenue is necessary to avoid unfairly disfavouring large chemical producers, where each hazardous chemical most likely makes up a lesser percentage of the revenue than at smaller companies.
Note: The total revenue of each company is used for weighting of the score even if some companies have business units that are not related to chemicals.
Finally, the score rendered from the weighted hazard penalty was multiplied with the percentage of the company’s production taking place within the EU or the US, where stricter legal requirements have resulted in increased transparency and availability of reliable data. The more of your production that takes place inside the EU and/or US, the better the multiplier.
Since none of the chemical producers have 100 percent of their production within these regions – although some come pretty close – this multiplier entailed a lower final category score for most of the companies. For companies with a very large production in for example Asia (well over 50 percent), this low transparency really hurt their chances to score well.
That’s why the ranking has some companies that only produce one toxic chemical, or even zero (according to available data), with the same poor score as a company that produces, say, 50 toxic chemicals. We believe that this is the best way to level the playing field between the companies, since it is widely assumed that companies with large production in areas with weak legislation and transparency produce a lot of toxic chemicals.
However, all companies were given the chance to get around this circumstance by sharing information about their global production, which ChemSec suggested in the communication around the ChemScore ranking. Unfortunately, none of the companies took that advice.
Where does the chemical data come from?
All information in ChemScore builds on information in the public domain, such as production of industrial chemicals in the EU and US, including the production of all their respective subsidiaries on these continents. EU production data comes from the European Chemicals Agency (ECHA) and US data from US EPA Chemical data reporting under TSCA. Production here refers to the number of individual chemicals, not the volume.
What is not included?
- The production of hazardous chemicals outside the EU and US cannot be obtained from public sources. The ranking in this category is therefore only based on the portion of sales in EU and US markets. Read more under Production Transparency.
- The production of pharmaceuticals. As this sector is treated by investors as a separate sector it is not included in ChemScore.
- Information about the specific production volumes (tonnes/year) and revenue for each hazardous substance, since this is not publicly available.
What chemicals have we looked for?
– SIN List
The SIN List – SIN short for Substitute It Now – is a list of very hazardous chemicals (currently approximately 1,000 substances) that are used in a wide variety of articles, products and manufacturing processes around the globe. The SIN List is developed by ChemSec, in close collaboration with scientists and technical experts. The list is based on credible, publicly available information from existing databases and scientific studies. The inclusion process relies on the same criteria as the EU’s legislative framework for chemicals: REACH. Therefore, a substance being put on the SIN List is a strong signal that it will be placed on the official EU REACH Candidate List, facing strict regulation in the EU.
– Candidate List
REACH, the EU’s legislative framework for chemicals, is in many aspects the leading chemicals legislation in the world. The EU’s REACH Candidate List is the first step towards strict regulation of particularly hazardous substances, in legal terms called Substances of Very High Concern (SVHCs). When a chemical is included on the Candidate List, it triggers information requirements in the whole supply chain and also the “consumers’ right to know” principle. Inclusion on the Candidate List is also the first step towards Authorisation.
A substance on the EU REACH Authorisation List is forbidden to use within the EU, unless the EU Commission has granted a company-specific authorisation. Applying for authorisation is time-consuming and costly, and the grant is time-limited. Without an authorisation, the chemical has to be phased out by the stated sunset date.
The Stockholm Convention on Persistent Organic Pollutants (POPs) is a global environmental agreement to protect human health and the environment from the harmful impact of these chemicals. POPs remain intact in the environment for long periods of time, allowing them to become widely distributed geographically and accumulate in the fatty tissue of humans and wildlife. Given how far these chemicals can travel, no one government acting alone can protect its citizens or environment from POPs. In response to this global problem, the Stockholm Convention requires its parties to take measures to eliminate or reduce the release of POPs into the environment. POP substances are banned globally, unless specifically exempted in the Stockholm convention.
PIC, short for Prior Informed Consent, is one of the key provisions of the Rotterdam Convention to make the export of chemicals more transparent, since – often domestically restricted – hazardous chemicals are exported to poorer countries with less stringent chemicals regulation in place. For each PIC chemical (there are currently about 1,500), a guidance document is prepared to help importing governments assess the risks connected with the handling and use of the chemical, allowing them to make more informed decisions. All exporters are required to ensure that exports of PIC chemicals are not done in violation of the decision of each importing country.
Highly Hazardous Pesticides (HHP) are a number of hazardous chemicals and chemical groups (currently approximately 330) with known hazardous properties, intended for pesticidal purposes in agriculture and similar activities. These substances are among the worst ones, frequently produced and used worldwide. The HHP list has been drawn up by PAN (Pesticide Action Network International), and is based on publicly available sources from governments and international organisations.
– Persistent chemicals
Persistent chemicals are particularly problematic, since they don’t break down. Instead, they accumulate in humans and/or the environment. Because of this, investors should be especially wary of persistent chemicals. Substances not considered a problem today might become huge liabilities in the future with regard to clean-up and compensation costs, as well as legal responsibilities.
Criteria and calculations in this category
- Number of SIN List chemicals, POPs, PICs and HHP substances produced
- Number of EU REACH Candidate List chemicals produced
- Number of chemicals produced on EU’s REACH Authorisation List and/or POP substances
- Number of persistent chemicals produced on the SIN List and POP substances
- Weighted hazard penalty
- Percentage of EU/US revenue