Hazardous chemicals have been a key topic of our company engagement agenda since 2021. In a collaborative engagement effort we encourage chemical companies to phase out hazardous chemicals and transition toward more sustainable solutions. In 2024, the third round of engagement on this topic, we met with chemical companies Akzo Nobel, Evonik, and Shin-Etsu to discuss synthetic, highly toxic per- and polyfluoroalkyl substances, in short: PFAS. The three companies are part of our impact equities and bond portfolios.

In our previous articles Phasing Out Hazardous Chemicals (2022) and Phasing Out PFAS (2024), we outlined our approach to investing in chemical companies and shared notable engagement results.

Launch of the engagement season

Triodos Investment Management, alongside other investors, partners with ChemSec to promote safer chemical alternatives. The release of ChemScore, an annual report by ChemSec, marks the start of our engagement season. This report ranks the top 51 chemical producers on their efforts to reduce their chemical footprint and move towards sustainable practices. 

In 2024, the ChemScore results indicate minimal progress, with the three companies we engaged showing stagnation or slight declines. This contrasts with 2023, when all three made improvements, particularly Shin-Etsu, which saw significant gains (see Table 1).

The ultimate goal is to reduce the production and use of hazardous chemicals. While ChemScore shows transparency improvements among the 51 ranked companies, ChemSec reports minimal reductions in hazardous chemical production. Rather than signaling a trend break, these scores show that engagement requires time and persistence.

Engagement outcomes

AkzoNobel: Prioritising CSRD reporting

AkzoNobel's ChemScore dropped by one point in the product portfolio section, but it still ranks higher than Evonik and Shin-Etsu. ChemSec's findings are based on publicly available data, mainly from the US and EU, where AkzoNobel's sales decreased from 59% to 50% of total sales, affecting transparency in chemical production.

Despite not manufacturing PFAS, AkzoNobel sources resins externally and is working with customers to eliminate hazardous substances, like chrome primers in aerospace, where alternatives exist. As the company prepares for Corporate Sustainability Reporting Directive (CSRD) compliance, it emphasises transparency, although internal targets for phasing out certain substances remain undisclosed. AkzoNobel has engaged with ChemSec and maintains a priority substances list that extends beyond ChemSec's Substitute It Now (SIN) List, though it is not comprehensive.

Evonik: Planning PFAS removal

German Evonik is one of the world’s largest specialty chemicals groups, serving markets such as consumer care, automotive, nutrition and construction. The company is transitioning towards sustainability by producing innovative products, such as biodegradable surfactants for personal care, animal nutrition products that enable sustainable farming and solutions that enhance medicine absorption.

In 2024, we engaged with Evonik regarding PFAS, which constitute about 1% of its turnover and affect only 10 products. Notably, Evonik plans to phase out PFAS by 2027 and has already replaced one hazardous chemical, with alternatives in progress for two more. However, due to PFAS's minimal impact on its portfolio, the company has not prioritised public disclosure on this issue, despite investor calls for greater transparency.

Shin-Etsu: More transparency needed

Japanese Shin-Etsu Chemical, the largest producer of silicon wafers for semiconductors and PVC (polyvinyl chloride, the world’s third-most widely produced synthetic polymer of plastic), enables the development of sustainable products such as lithium-ion batteries, LED lighting and contact lenses. Compared to other chemical companies, Shin-Etsu uses fewer hazardous substances, mainly related to silicones and PVC manufacturing.

After our engagement, Shin-Etsu improved transparency by collaborating with ChemSec and disclosing more information, including compliance with non-Japanese regulations. We encourage the adoption of ChemSec’s SIN List to stay ahead of regulatory changes.

Shin-Etsu has also begun sharing circular initiatives, such as PVC recycling and rare earth material recovery, aligning with its goal of carbon neutrality by 2050. With the CSRD in effect, the company will need to enhance disclosures on hazardous substances and accelerate the search for alternatives, even as some regulations allow extended timelines for specific uses like semiconductors. Proactive preparation will be crucial.

Progressing towards a safer future: the path ahead

Hazardous chemicals are finally stepping into the spotlight, driven by new regulations like the EU's CSRD and stricter reporting from the US EPA. While we’re heading in the right direction, there’s still much work to be done. Currently, only a handful of PFAS substances are classified and regulated, but that’s set to change in the coming years. Companies must begin reporting on these chemicals now and prioritize the development of safer alternatives. This proactive approach will not only help them stay ahead of regulations but also position them as leaders in the industry, meeting the rising demand for sustainable products. Beyond environmental benefits, this shift can lead to significant financial gains, as highlighted in "A Profitable Detox – Why Safer Chemistry Makes Financial Sense."

Our discussions with Akzo Nobel, Evonik, and Shin-Etsu demonstrate that with patience and persistence, meaningful engagement can drive positive change in both sustainability and financial performance.

Active stewardship

Stewardship is an integral part of our investment management process, with engagement, voting and advocacy as the key pillars. Find out more about our Stewardship activities.