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March 01, 2007
Toxic Cosmetics Getting Under the Skin of Concerned Investors
by Anne Moore Odell
Health-conscious investors and consumers are starting to demand cosmetic companies report and ban
toxic ingredients.
SocialFunds.com --
As new studies expose the high number of toxic ingredients in personal care products and cosmetics,
many consumers are asking just how safe are the products they use every day. Meanwhile, many
investors are asking how safe from liability and market changes are the companies that manufacture
and sell these products.
 "The ground is shifting for manufacturers across all
industries, including personal care," stated Noran Eid, an analyst at Innovest Strategic Value Advisors. "Investors should be aware of
these issues when assessing long-term competitiveness and profitability."
Richard Liroff
of the Investor Environmental Health Network (IEHN) agreed: "the safer cosmetics issue is part of larger safer
chemicals policy issue. Companies need to know what's in their products or otherwise they run the
risk of getting locked out of markets."
With the release of three major reports on toxic
chemicals in the last two months, various companies, investors and concerned citizens are seriously
inquiring what are the short-and-long term health effects of toxic chemicals on the human body.
Pressure for cosmetics companies to change the way they manufacture and market products is coming
from several directions at once: from local, state, federal and international governments, from
shareholders, and from consumers. The cosmetic industry, including goods and services, accounts for
up to $60 billion a year in sales in the US alone.
IEHN’s report, entitled "Beneath the
Skin: Hidden Liabilities, Market Risk and Drivers of Change in the Cosmetics and Personal Care
Products Industry" focuses on the cosmetic industry’s lack of regulation in the US. According to
the report, the industry operates with little oversight by the Food and Drug Administration (FDA).
The IEHN is a collaboration of 20 investment managers, working with companies to create safer
chemical policies.
Less than two weeks before the release of the IEHN report, Innovest
Strategic Value Advisors released a report called, "Cross-Cutting Effects of Chemical Liability
from Products" that examines four major industries, of which personal care was one, and the loss of
market share if companies don’t address toxic chemicals in products.
The third report,
"Toxic Chemicals, Asian Investors are at Risk," was released January 2007 by the Association for
Sustainable & Responsible Investment in Asia (ASrIA). This report looks at Asia’s lack of response to chemical
reforms passed in other areas of the world. The report warns investors that Asian companies could
face a marked loss of market share unless they start to address chemicals found in products.
"The issues associated with toxins in cosmetics threaten to pose volatility to long term
markets, and regulatory shocks, over time," said Sanford Lewis, Counsel for IEHN and one of the
authors of its report. "Moving to safer materials is not just a niche issue, it is a crucial
opportunity to move in advance of consumer sensitivities and regulatory trends, and a substantial
risk to companies not to do so."
In 2007, shareholders have submitted thirteen resolutions
concerning chemicals in products, up from ten the previous year. It remains to be seen how many
resolutions reach the shareholders as proxies. Currently, proposals are being taken off the table
after agreements have been reached with filers and companies.
Last year and again this
year, Boston Common Asset Management filed resolutions at the drugstore chain CVS on the issue of
cosmetic safety. Last year’s resolution received 8.74% vote in favor. "Asking CVS to develop a
cosmetics safety policy that is then implemented, not only under their private label cosmetics, but
whom they purchase from (brand names), would be a critical step for CVS to take in the effort to
address cosmetic safety," Lauren Compere, Chief Administrative Officer at Boston Common, told
Socialfunds.com.
New concerns over toxic chemicals in products come from recent scientific
studies of the effects of chemicals on the body. The common ingredient phthalate has been linked to
underdeveloped reproductive organs in males. Another area of concern is the cosmetics industry’s
use of nano-particles that can enter the bloodstream and cause tissue damage.
In 2005,
the European Union passed Directive 76/768/EEC banning over 1,000 chemicals for use in cosmetics.
The same year, California Governor Arnold Schwarzenegger signed the California Safe Cosmetics Act
of 2005 which requires companies to report to the state the ingredients found in their products.
There is legislation pending on cosmetics in at least five other states. The Washington Safe
Cosmetics Act of 2007 is modeled after the California bill and Oregon will introduce two bills this
year. In 2006, Maryland, New York, and Massachusetts all had bills concerning these issues.
"The Californian bill is mild. However, cosmetic companies spent a lot money trying to defeat
it," Stacy Malkan, spokesperson for the Campaign for Safe Cosmetics
said. "It is progress, but a small step forward." The Campaign for Safe Cosmetics was founded by
Alliance for a Healthy Tomorrow, the Breast Cancer Fund, Commonweal, Environmental Working Group,
Friends of the Earth, National Black Environmental Justice Network, National Environmental Trust,
and Women’s Voices for the Earth.
The IEHN report states that the FDA only regulates nine
ingredients in cosmetics. Action by the FDA is only taken when cosmetic companies themselves report
consumer exposure to chemicals. The top ten cosmetic companies alone use over 10,000 of the 75,000
chemicals registered for use in the US. These ten top US Cosmetic companies are The Procter &
Gamble Company, Unilever, The Estee Lauder Companies, Inc, Avon Products, Inc. Colgate-Palmolive
Company, L'Oreal USA, Revlon, Mary Kay, Alberto Culver and Johnson & Johnson.
Companies’
responses to this mounting pressure have varied. Over 500 personal health care and cosmetic
companies have signed the Campaign for Safe Cosmetics’ pledge called Compact for Global Production
of Safe Health and Beauty Products. When companies sign the pledge they promise to replace
hazardous materials with safer alternatives within three years.
"The sector is
fragmenting into two camps—the endorsers of the safe cosmetics code, and the non-endorsers," Lewis
said. "Also, it is remarkable to see a comparatively wholesome industry like cosmetics adopt some
of the dirty and defensive tactics of the tobacco industry—hiring former FDA employees, and
lobbying heavily against state regulation, in addition to defending their voluntary self-policing
program."
Many of the larger cosmetic companies have not signed the Compact, but instead
have created the Consumer Commitment Code which works with companies to create a ingredient review
process with voluntary reporting to the FDA.
Procter and Gamble was one the companies to
sign this code. "While we were happy to sign the code and were, in fact, involved in its
development, in essence we have met all the requirements of the code for a very long period of
time," said Terry Loftus, Procter and Gamble spokesperson. "We won't bring a product to market
without having first done a thorough safety assessment of all product ingredients to ensure that
the product is completely safe for use," Loftus added.
"I call it the non-commitment
code," said Malkan, referring to the Consumer Commitment Code. "What we would like is for companies
to provide information on toxic chemicals not only to the FDA, but to the public as well."
One positive example of a company responding to shareholder and consumer concern is the Whole
Food Market’s removal of baby products containing Bisphenol-A and phthalates from its product line
last year and announcement of a policy to reduce customer exposure to hormone-disrupting chemicals
in products.
The Campaign for Safe Cosmetics is asking companies to take a comprehensive
look at the chemicals a person uses over the course of a day instead of limiting the focus to the
chemicals used in just one product.
The new awareness of the risk of certain chemicals can
have financial benefits. Companies that are able to make changes to their products are finding new
consumers in Europe and among concerned citizens in the US.
"There is money in safe
products," Malkan told Socialfunds.com. "There is a huge push in the market for safe cosmetics,
with California leading the way. The United States is very far behind the curve. It makes many US
industries vulnerable."
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SRI World Group, Inc. All Rights Reserved.
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