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February 10, 2005
Benchmarking Corporate Governance on Product Toxicity and Safer Alternatives
by William Baue
The benchmark, released by the Rose Foundation today, addresses the scientific uncertainty of
product toxicity through risk assessment and opportunity identification instead of inaction.
SocialFunds.com --
Business operates in the field of uncertainty (will a new product fail or succeed? will share price
rise or fall?), where corporate choices in the present are punished or rewarded in the future.
Today, the Rose Foundation for Communities and
the Environment issued a report on the presence of toxic chemicals in
products, an area marked by scientific uncertainty over the effects of human exposure to such
products. The report includes corporate governance benchmarking guidelines aimed at steering
decisions concerning product toxicity away from risks and toward opportunities.
 Report author Rich Liroff, a senior fellow
in the toxics program at the World Wildlife Fund (WWF), modeled the benchmark on a 14-point "Climate Change
Governance Checklist" issued in a 2003 CERES/Investor Responsibility Research Center (IRRC) report. Climate change resembles human
response to toxicity in that scientific uncertainty does not stop regulation and litigation from
proceeding, precluding the luxury of inaction for businesses that wish to avoid risk and remain
competitive.
"The framework modifies IRRC/CERES benchmark provisions of good corporate
environmental governance, deletes benchmark provisions specific to greenhouse gasses, and
substitutes benchmarks that measure corporate commitment to using less toxic chemicals or
non-chemical methods," Dr. Liroff writes in the report. The benchmark framework calls for
corporate commitment to safer alternatives policy, investor and public accountability, data
development, and internal capacity building and "greening" the supply chain. "The benchmark is an
initial set of 'best practices' that investors should demand of their portfolio companies."
The socially responsible investment (SRI) community plays a prominent role in the report, which
includes an annex summarizing shareowner action over the past several years around the issue of
product detoxification as well as addressing shareowner activism in the report body. Shareowners
advance the same rationale as the report: product toxicity increases the risk of regulation,
litigation, and reputation loss that can erode shareowner value, so product detoxification
represents prudent risk minimization.
For example, a 2003 resolution at General Electric
(ticker: GE)
calling for a report on site-specific annual expenditures in the 1990s related to polychlorinated
biphenyls (PCBs) and hazardous substance laws and regulations received 25.6 percent of votes.
Several other companies, including Avon (AVP), Baxter International (BXL), Cardinal
Health (CAH) JC
Penney (JCP),
and Kimberly-Clark (KMB) have complied with the terms of
product toxicity-related resolutions, prompting their withdrawal.
Near the end, the report
profiles successful chemical substitutions by companies in the electronics, consumer goods, and
retail sectors.
"In a fully operationalized benchmarking framework, SC Johnson and Son [SCJ] likely would
score quite high," writes Dr. Liroff. SC Johnson "launched its trade-marked Greenlist process in
2001 [ . . . which] builds on SC Johnson's reputation for being an early adopter of measures to
reduce environmental impact, even in the face of scientific uncertainty."
"For example,
in 1975, SC Johnson removed ozone-depleting chemicals from its aerosol cans, three years prior to a
government mandate to do so," he continues.
Such foresight would benefit companies
currently operating in Europe, where Registration, Evaluation, and Authorization of Chemicals (REACH)
regulations proposed in 2003 await imminent enactment by the European Parliament.
"REACH
is based on the idea of 'no data-no market'--companies must make public much more data than are
available now on the hazards of their products, or face the risk that they will not be able to
continue selling them," writes Dr. Liroff. Companies "that have attempted to purge the most toxic
chemicals from their product lines may be better positioned to be winners under the REACH process
than those companies that have not."
REACH also stands to benefit business-to-business
transparency, which currently represents a bigger liability for "chemical choosers" (or
manufacturers using chemicals in their products), who are held more accountable than chemical
producers.
"The new REACH initiative in Europe should help improve the availability of
information to the business purchasers of chemicals," Dr. Liroff told SocialFunds.com. "What also
seems clear to me is that environmentally preferable purchasing is gaining momentum, driven in part
by European regulations currently in place or anticipated."
The report concludes with
recommendations, some directed to the SRI community.
"Investment organizations employing
environmental screens may wish to add a product detoxification screen to their armamentarium,"
writes Dr. Liroff. "Organizations devising socially responsible investment indices may wish to add
product detoxification as a criterion when evaluating corporate performance and making judgments
about 'best in class.'"
"Investors concerned about enhancing corporate profits and
reducing future liabilities may want to press corporate management to launch chemical substitution
efforts and to increase disclosure about progress," he continues. "The converging pressures
outlined in this brief present sizeable risk, but they also represent substantial opportunity."
©
SRI World Group, Inc. All Rights Reserved.
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