When the Chemical Footprint Project launched in December 2014, it aspired to become the next carbon footprint or the next widely used tool for measuring company performance on a critical sustainability concern — toxic chemical use in the manufacturing of products. 

It’s made steady progress since then, with 31 companies, including Levi Strauss, Walmart and HP Inc., using the Chemical Footprint Project’s annual survey to inventory and report on their hazardous chemical use, as well as their progress towards safer alternatives. 

Last month, however, the initiative scored a big win that just might bring it closer to reaching its lofty goal. Nearly 45 percent of TJX Companies’ shareholders voted in favor of a resolution calling on the discount retailer to report on its plans to reduce its chemical footprint (the “chemicals of concern” used to manufacture the products it sells in its stores).  

“To get that kind of vote on this ask, that sends a message,” said Cherie Peele, program manager at the Chemical Footprint Project. 

Investors, it seems, want more transparency from companies about how they are moving toward safer chemicals, to manage their risks and respond to consumer preferences. Socially responsible investors are further concerned about the environmental justice implications of the science linking hazardous chemical exposure to chronic diseases such as diabetes because communities of color bear the brunt of chemical production. This investor interest just may spur more companies to take up chemical footprinting, and particularly as they see their high-performing peers reap the rewards of consumer trust in their brands.

The chemical footprint provides a way to not just say that we care about safer chemicals and green chemistry, but demonstrate it by measuring the process towards safer chemicals.

The TJX vote was “a good demonstration that the E in ESG is not just about climate or water, it includes chemicals. It’s something that I hope companies take to heart,” said Boma Brown-West, senior manager of consumer health at EDF+Business. 

The strong vote surprised the investors who filed the proposal, Trillium Asset Management LLC and First Affirmative Financial Network, because it was the first time such a resolution had been brought to a vote. Ordinarily, such first-time shareholder resolutions receive single-digit votes.

That fact that it got over 40 percent is “an indication that some major institutional money managers voted in favor,” said Holly Testa, director of shareholder engagement at First Affirmative Financial Network. “It’s an indication that there’s widespread investor interest in this issue. It’s a mainstream concern.”

“I think it’s going to set a precedent for future work on [chemical footprinting],” said Susan Baker, vice president of Trillium Asset Management. “I have to give credit to the leaders out there that have policies and are really listening to the changes in the marketplace. They’re gaining competitive advantage.”

Roger McFadden, president of McFadden and Associates and former senior scientist at Staples for 10 years, said he sees corporate interest in chemical footprinting rising. Whereas in the past, “they were afraid their footprint wouldn’t be all that good,” or they feared they might not stack up well against their direct competitors, now, he says, “I think that’s the exact reason chemical footprinting is catching on. Enough companies are doing it that their competitors are beginning to pay attention to it.” 

Brand value and competitive advantage

A core advantage for companies participating in the chemical footprint survey “boils down to building trust, protecting your brand,” said McFadden, pointing to recent examples where companies have taken big economic and reputational hits when the health impacts of toxic ingredients in their products came to light — namely, the weed killer Roundup and baby powder.  

“The chemical footprint provides a way to not just say that we care about safer chemicals and green chemistry, but demonstrate it by measuring the process towards safer chemicals,” he said. 

Trillium filed the shareholder resolution with TJX in part because it saw the discount retailer lagging behind its peers. “There wasn’t evidence that they were taking a proactive approach in keeping abreast of regulatory changes and consumer preferences,” Baker told GreenBiz.

“They really need to think about responsible sourcing, and how it impacts customer trust,” she added, pointing to retailers measuring their chemical footprints and moving toward safer alternatives. “Look at Target. They have all these private label brands that are attracting people into their stores. Their customers trust their brands.”

TJX did not respond to GreenBiz’s request for comment; however, in its 2020 Proxy Statement it noted, “The company is already taking steps to better understand and appropriately address how the company manages its chemical footprint. … Developing and implementing a comprehensive chemical policy is especially complex in light of the company’s off-price business model,” which involves buying from a vast universe of vendors. 

In response, Baker and Testa point to Dollar Tree, which has a similar off-price business model yet nevertheless participated in the 2019 Chemical Footprint Survey and has committed to eliminating 17 hazardous chemicals from products in its stores.

COVID-19 spurs environmental justice concerns

As evidence mounts that chemical exposure has effects on chronic disease, such as diabetes, obesity and heart disease — and that individuals with those health conditions are more vulnerable to the coronavirus — socially responsible investors are wanting more disclosure and action from companies on chemical risks, Testa told GreenBiz.

“The connections are becoming clearer…” she said, and “that has staggering economic and societal consequences.” 

Research documents that the chemical plants that produce the chemicals used in everyday products are often sited in communities of color, in areas some call sacrifice zones.

“If the brands and retailers can start a program of reducing these chemicals, it’s going to go upstream and reduce the impacts of air and water pollution to the most vulnerable in this country,” Baker said.

The Sisters of St. Francis of Philadelphia has been linking environmental justice and chemical risk concerns in its work with retailers such as Dollar Tree and oil and gas companies with stores or facilities in communities of color. “We are tying the pandemic, climate change, environmental justice and human rights. They’re very much linked to one another,” said Sister Nora Nash.

Even just beginning the process is a leadership role. We’d like to think that anybody who’s participating, we see them in a leadership role.

For companies such as Dollar Tree and TJX, it “hits both sides,” Testa added. Much of the companies’ products are made in countries with low standards for protecting workers from chemical exposure, and their consumer bases also have a high representation of lower income and minority communities purchasing their products. Such products may contain chemicals of high concern if the company is not assessing its chemical footprint. 

The next carbon footprint?

With just 31 companies reporting their chemical footprints, the initiative has a way to go before it becomes as widespread as the carbon footprint. Peele says that “we’re still in the process of socializing” the survey. The Chemical Footprint Project survey is also evolving every year as it works with companies on the challenges of collecting and reporting information that comes from many places within a company. 

McFadden agrees that it takes time for a reporting scheme to become mainstream, noting that the carbon footprint had slow uptake initially because companies were unsure about it. And he notes that carbon is just one chemical, whereas chemical footprinting is thousands of chemicals. 

Still he sees potential for the chemical footprint to become just as mainstream as the carbon footprint, particularly once companies get over the fear factor of “What am I measuring?” and “What if my grade makes us look bad?”

To that Peele responds, “Even just beginning the process is a leadership role. We’d like to think that anybody who’s participating, we see them in a leadership role.”

Ultimately, if investors don’t spur more companies to report their chemical footprint, consumers just might do the job. 

“The next generation, my kids and grandkids, they’re not going to accept the things … that my generation accepted,” McFadden said. “They’re going to expect much more transparency and disclosure. Companies are going to have to recognize that. If they push back against that, they’re going to push back against their customers.” 

Just a couple of months into 2020, the world was amid significant discussion about the core purpose of businesses, led by BlackRock CEO Larry Fink calling for corporate America to take control of its carbon footprint and major companies, including Microsoft and Delta, making ambitious zero-carbon pledges.

When COVID-19 arrived, we saw the impact that global crises have overnight, teaching the corporate sphere valuable lessons about risk mitigation. Economic estimates predict that the pandemic will decrease global GDP by 3 percent in 2020, and at our current pace, climate change is estimated to decrease the global GDP by anywhere from 2.5 percent to 7.5 percent by 2050.

While climate risk remains an often overlooked or undervalued factor in risk management programs, there is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational.

There is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational.

The current COVID-19 pandemic has emphasized the importance of prioritizing resilience by exposing the fragility of global supply chains and dysfunctional systems across businesses and forcing them to change the way they plan and operate to factor in large-scale crises. Hospitals, for example, felt the disastrous impact of vulnerable supply chains, and needed to plan for alternative sources of personal protective equipment to keep their medical workers and staff safe.

These learnings must be applied to similar risk brought about by climate change — businesses need to prepare for the impact of devastating weather events on supply chains and infrastructure they rely on to remain safe and operational.

As key members of the financial team, risk managers need to grasp the implications of sustainability across the organization, from strategic risks posed by new regulations to operational risks posed by extreme weather and financial risks with regards to taxes and insurance. As we continue to fight climate change, understanding the strategic, operational and financial risks — and the tools available to assess and plan for them — will help finance teams take a more forward-facing approach to risk management and avoid repeating past mistakes.

Strategic risk factors

Four key risk factors are associated with strategic risk and sustainability: economic changes; corporate responsibility; regulatory risk; and reputational risk.

From an economic standpoint, there have been major shifts brought about by decarbonization and diversifying portfolios — consider the rapid decline of the coal industry, for example. In addition, companies are being held more accountable for their impact on the environment, with pressure coming from all sides, including customers, investors, competitors and regulators.

Increased regulation and legal requirements around resource management and carbon reduction, as well as required carbon reporting, can result in major fines if not complied with.

Finally, reputational risk, while hard to quantify, can be enormous, particularly in today’s political climate and as both internal and external stakeholders become more educated on the action against climate change.

Operational risk factors

Sustainability also can affect how businesses approach operations, such as supply-chain optimization, procurement strategies, data privacy and security. For instance, the finance team can make more informed decisions around power purchase agreements, onsite and offsite renewable energy, decentralization and microgrids, energy independence and cost savings opportunities when factoring climate risk into the overall procurement strategy.

There are also more direct operational risks to consider as a result of climate change in the form of extreme weather events, which continue to increase in both frequency and intensity. Businesses must account for the possibility of outages, damages and closures, all of which can threaten the ability to protect employees, assets and data centers (which can pose new risks in terms of data privacy and leaks) and, ultimately, to keep the business operational.

Financial risk factors

Climate change poses significant financial risks to an organization as sustainability policies and corporate initiatives can affect taxes, insurance, resource management, energy sourcing, investor support and even intangible assets such as goodwill — for instance, the impalpable value that customers and investors place on a company’s ability to reduce its footprint. From changes in insurance premiums and coverage to identifying financial benefits of electrification, there are almost countless financial risks and opportunities for the financial team to assess.

Sustainability planning also opens the door to integrating new technologies to save money, such as alternative energy vehicles, which bring financial benefits all their own.

Integrating climate risk strategy

Integrating climate risk into new or existing risk management programs can seem daunting, but the financial team can leverage strategic assessments to make the process simpler. For instance, vulnerability assessments allow businesses to understand where climate change is most likely to affect them. Scenario assessments can provide a forward-looking view of the potential impact, so finance teams can plan ahead to mitigate future developments.

The world’s current state is illuminating the need for resilience to global events we may not be able to foresee or control. With climate change being the next undeniable threat, it’s on the shoulders of the financial team to ensure that companies are adequately prepared for different climate events to improve their resilience and mitigate the associated risks.

The strategic planning used now to prepare for these issues may encourage innovation and new methods of operating that not only benefit the bottom line but also prepare a business for when unexpected events do occur. This also offers opportunity to strategically prepare and recover from events in a way that helps reduce climate change and improve the environment on a global scale.