In our previous article "Phasing out hazardous chemicals", we outlined our approach to investing in chemical companies and shared some notable engagement stories from 2022. Continuing into 2023, we maintained our role as lead investors for Shin-Etsu and Evonik, and as supporting investors for Akzo Nobel. It is gratifying to see that all three notably improved their score. There is room for further improvement, however, as they are still way off the maximum score.


In the sections below, we summarise some engagement highlights from our conversations with Evonik and Shin-Etsu, companies where we are lead investors.

Evonik reduces use of PFAS

Evonik is one of the world’s largest specialty chemicals groups. Its main end markets are consumer care, autos, nutrition, and construction. The company is transitioning to become a more sustainable company, for example by producing animal nutrition products that allow more sustainable farming, products that allow a better absorption of medicines in the body, or biodegradable surfactants used in personal care products.

During our engagement session with Evonik in May 2023, the company presented its proactive approach towards chemical safety and sustainability. Despite receiving ‘only’ a C-grade in ChemScore 2023, it has improved by three points overall. The company aspires to further enhance its score but acknowledges challenges in completely eliminating hazardous substances.

Evonik employs minimal quantities of PFAS, primarily in the production of pharmaceutical active ingredients. Additionally, they produce limited amounts of PFAS, mainly used in surface coatings for protective purposes. However, the company is actively seeking alternative substances for use in these surface coatings. The company is actively setting goals to reduce hazardous chemicals, intending to integrate these in its sustainability objectives. Since 2001, Evonik has made notable progress in managing hazardous substances, making significant improvements especially with the use of PFAS in its products since 2015. The company is committed to reducing ‘substances of very high concern’ (SVHC) in their new products, aligning with the REACH regulation threshold of 0.1%. Reducing such substances is vital in safeguarding human health and the environment, ensuring regulatory compliance, enhancing corporate responsibility, and promoting sustainable and future-proof business practices.

Overall, Evonik's approach underscores its deep commitment to both environmental stewardship and customer safety. By prioritising robust internal standards and proactive measures in handling hazardous substances, the company not only aligns with global safety regulations but also demonstrates leadership in sustainable industry practices, setting a benchmark for responsible chemical management in the sector.

Shin-Etsu focuses on chemical management

Shin-Etsu Chemical is the largest maker of silicon wafers for semiconductors and PVC. A wide variety of its products help other companies develop and manufacture sustainable products, such as ion-lithium batteries, LED lighting, contact lenses, etc.

Shin-Etsu shows significant progress, increasing its score from 8 to 15. The company actively engaged with ChemSec, which we encouraged them to do.

For over 45 years, Shin-Etsu has been manufacturing two PFAS chemicals, adhering to regulations in both Japan and the US. It has proactively revised its design processes to minimise the use of hazardous materials and actively searches for substitutes where legal regulations demand this.

Recognising the different definitions of hazardous substances in various countries, Shin-Etsu maintains that these materials are needed in its production processes. The company focuses primarily on intermediates rather than end-product components, and it currently does not plan to phase out these materials.

In its latest sustainability report, Shin-Etsu highlights the significance of chemical substance management. The company prioritizes legal compliance, environmental protection, and conservation, treating chemical management with the same importance as other environmental issues. While their efforts are noteworthy, we advocate for a more forward-thinking approach towards developing alternatives and assisting customers in achieving greater sustainability. This perspective is maintained even though Shin-Etsu generates significantly less persistent chemicals than many of its peers featured in the Chemscore ranking.

Conclusion

Overall, we recognise the advancements these companies have achieved, as reflected in our dialogues with them last year, demonstrating their willingness to enhance their strategies and/or transparency. However, there's still potential for further advancement. Eliminating hazardous chemicals necessitates a collaborative effort from all parties involved: consumers, regulators and investors. It's vital for consumers to understand the risks associated with hazardous chemicals to both health and the environment. Regulators should enforce stringent control and usage of these chemicals globally. Meanwhile, investors must persist in raising awareness and advocating for greater transparency and the development of alternative solutions. We will therefore continue this engagement project.

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