Toxic Lockout “Environmental Teeth” Combating Warming

Profile: Beveridge & Diamond’s Benjamin F. Wilson

Volume 25, Number 3 • May/June 2008

Strange Bedfellows: Bush’s Surprising Record on Criminal Enforcement

Risky Business Reality Bites Economic Summit Avoiding Product Examining NAFTA’s Forum on the Cost of Toxic Lockout “Environmental Teeth” Combating Warming

The Policy Journal of the Environmental Law Institute® R i s k y Bu s i n e s s

Toxic Lockout

It is smart business practice for corporate managers to look beyond compliance with federal regulations — which badly lag state and foreign laws and many private sector programs — to strategically manage business risks from hazardous chemicals in the products they make and sell

Richard A. Liroff

ead in toys, jewelry, and cosmetics, an screening and testing program for hormone-disrupting anti-freeze ingredient in toothpaste, chemicals, but the agency’s programs to carry out that and an industrial chemical in pet foods mandate have been underfunded and it still is far from — these and other recent controversies clear when a robust program will begun. have highlighted the sad state of regu- This state of affairs is not limited to EPA. Last year, lation of toxic chemicals in products. in a report titled FDA Science and Mission at Risk, the Leadership is being exercised more by Food and Drug Administration’s Science Advisory states and public interest organizations than by federal Board said that the agency is so underfunded and Lagencies. For example, vinyl bibs were withdrawn from understaffed as to put American consumers at risk. Wal-Mart stores in an agreement with the attorneys The Consumer Product Safety Commission has also general of New York and Illinois, following tests by the been underfunded and understaffed for so long that California advocacy group Center for Environmental congressional expressions of dismay about the com- Health that showed elevated lead levels. Collaborative mission bring to mind the famous scene in Casablanca work by the center and state attorneys general the pre- when Captain Renault says he is “shocked, shocked” to vious year led to the withdrawal of lead-laced polyvinyl find gambling in Rick’s Café. chloride lunchboxes. Hazardous chemicals and products containing them Federal laws and regulations, and their enforcement, thus keep their place in supply chains and on store constitute a Potemkin village — a false front suggest- shelves because the federal government lacks sufficient ing that the U.S. government is effectively protecting authority, financial resources, and, especially in recent public health and the environment. The federal regula- years, the interest and willpower essential to remove tory system, including staffing and them. States are stepping forward to fill the void, lock- budgets, is grossly deficient and has ing toxic chemicals and products out of their markets. been for many years. Even though Retailers and consumer product companies similarly this situation has become acute are filling in, and locking out. There are multiple excel- recently, it was signaled as early as lent business reasons for their doing so, not the least of 1989, when the Environmental which is avoiding the reputational damage associated Protection Agency was overruled with making or selling products tainted by chemical by the courts in its effort to ban as- controversy. bestos products. In the late 1990s, The recent history of brominated flame retardants Richard A. Liroff is Environmental Defense Fund re- attests to the importance of state leadership. Back in founder and executive search, subsequently confirmed by 2003, the European Union outlawed two forms of director of the Investor the agency and industry, revealed brominated flame retardant, followed shortly thereaf- Environmental Health enormous deficiencies in knowl- ter by the state of California. In striking contrast, an Network in Arlington, edge about the highest-volume EPA official told the Wall Street Journal that more re- Virginia. chemicals in commerce. In 1996, search would be needed before national regulatory ac- Congress told EPA to establish a tion could be taken.

closure and restricting chemicals in consumer goods when safer alternatives are available and affordable. The recommendations from the Maine task force adopt con- cepts from the newly established EU regimen for chemicals management. REACH will require companies to provide unprec- edented amounts of toxicologi- cal information about chemicals and requires both authorization for sale and an analysis of less toxic alternatives for “substances of very high concern” — carcinogens, mutagens, reproductive toxicants, and persistent, bioaccumulative toxicants. In- vestment analysts believe that REACH’s greatest impact on the chemical industry will be at small to medium-size companies. For firms managing -sup ply chains, the most noteworthy and potentially worrisome near- term component of REACH is the publication in mid-2009 of chemicals whose characteristics make them substances of very high concern for potential sub- California is clearly the leader among the states, stitution. Regardless of how quickly EU regulators act inspired by numerous regulatory developments in Eu- on the list, there will be a tremendous incentive for so- rope over the last several years. California has adopted cially responsible retailers and other consumer-sensitive so many of Europe’s chemical regulations that it’s been companies to get ahead of the curve and to ask their jokingly suggested that it should consider becoming suppliers to eliminate these chemicals. the EU’s 28th nation. In addition to brominated flame retardants, California has adopted new laws on toxic Companies Step Up to the Plate chemicals in electronics goods, cosmetics safety, and phthalates in toys. A senior marketing vice president 2B (business to business) initiatives com- for a major retailer commented on this pattern at a plement those from the states in locking meeting with shareholders who had filed a resolution out products from the marketplace. Wal- on product safety: “We look over there in Europe be- Mart’s sustainability policies, including its cause what happens in Europe comes over to the States. precautionary preferred substances policy, We look at California and the East Coast because that’s Bhave drawn considerable attention. Wal-Mart and what’s going to shape the marketplace for us.” other companies are increasingly adopting safer chemi- Indeed, California’s not alone. Similar initiatives cals policies — a commitment to continual reduction have been launched in Maine, Massachusetts, New and elimination of toxic chemicals to reduce costs York, and Washington, among others. Last Decem- and lower reputational risk, and to avoid toxic lock- ber, Maine Governor John Baldacci announced he will out. The main themes woven through these policies incorporate into his 2008 legislative package some of include precaution, innovation, going beyond compli- the recommendations of a task force on reducing toxic ance, and doing all these things while serving customer chemicals in consumer products. He can select from wants and needs. Examples can be found at a mix of recommendations including publication of a list of U.K. and U.S. retailers and manufacturers, including chemicals of high and moderate concern requiring dis- such household names as Wal-Mart, Dell, and Nike in

Copyright © 2008, Environmental Law Institute®, Washington, D.C. www.eli.org. Reprinted by permission from The Environmental Forum®, May/June 2008 MAY/JUNE 2008 ❧ Page 29 the United States and The Body Shop (now owned by cautionary measures should be taken to avoid use of L’Oreal) and Boots (now taken private by the private the substance(s) in products unless there is convincing equity firm Kohlberg, Kravis, Roberts) in Europe. evidence that the risks are small and are outweighed by Wal-Mart has established a goal of providing its the benefits.” Dell, like other electronics manufactur- customers with “affordable and effective products in ers, must deal with a witch’s brew of heavy metals and which all chemicals are evaluated for potential health toxic flame retardants in computer boxes, displays, and and environmental impacts delivered in the most ef- peripheral equipment. The inappropriate disposal of ficient and effective way.” This summary goal is backed waste electronics has exposed people overseas to toxic up by a longer policy statement signaling that Wal- chemicals and, where the lead harvested from overseas Mart will take precautionary action against toxicants waste ends up in lead-laden jewelry sold in the United that cause cancer, build up in the environment, and States, the lead life cycle truly becomes a circle of poi- have other undesirable characteristics. Wal-Mart ex- son. plicitly embraces a precautionary approach, stating The health care sector, responsible for 16 percent that “when we suspect that an ingredient in a product of U.S. gross domestic product, is a hotbed of safer or the product itself is capable of causing harm to hu- chemical initiatives, observing the medical profession’s precept of “first, do no harm.” Consorta is a group purchasing organization representing 60 percent of all the Catholic health care systems in the United States. It has just launched Evergreen magazine, captioned “the magazine for healthcare environmentally preferred purchasing.” Focusing on such substances as mercury, flame retardants, phthalates and pesticides, the journal will go to at least 50,000 healthcare managers. Companies Share and Collaborate ompanies are exploring new collaborative mechanisms to address chemical challeng- es. The electronics industry has been under pressure for years to clean up its chemical practices. In addition to individual actions Clike Dell’s, it has a high level of responsive multi-com- man health and the environment, we will act to find pany collaborations. For example, the Joint Industry better alternatives.” Wal-Mart is in the process of devel- Guide for Electronics Products, developed by trade as- oping a screening tool for chemicals to spur innovation sociations, provides a standardized list of materials that by helping buyers and suppliers identify and reduce suppliers must disclose to equipment manufacturers to potential hazards. whom they are supplying components. One striking Wal-Mart has already told its computer and televi- example of the lengths to which cooperation and in- sion suppliers that it expects them to meet the stan- formation exchange can go was the invited presence dards of the European Union’s Reduction of Hazard- of several Hewlett-Packard sustainability managers at a ous Substances directive. It also targeted three chemicals recent sustainability stakeholder meeting convened by for phase-out. It has recently published a “packaging arch-rival Dell. scorecard” whose objective is to favor packing materials Companies are also sharing the intellectual capital having a smaller environmental footprint. And by be- they’ve invested in home-grown safer chemicals and coming one of the world’s largest purchasers of organic sustainability policies and processes. For example, SC cotton, which avoids the pesticides traditionally used Johnson and Son developed its patented Greenlist in growing this fiber, it has succeeded in selling organic process for systematically reviewing and reducing the cotton–based children’s clothing at prices competitive toxicity of its products. Greenlist is a simple 0–3 scor- with conventional cotton goods. ing system (where 0 rated materials are used on a very Dell’s corporate policy echoes Wal-Mart’s cautious restricted basis and 3 rated materials are judged best). approach: “To act responsibly, Dell believes that if Scores are based on both human and environmental reasonable scientific grounds indicate a substance (or toxicity criteria. SC Johnson strives to raise the scores group of substances) could pose significant environ- of its products through continual improvement. For mental or human health risks, even if the full extent example, Blue Windex was reformulated and, in the of harm has not yet been definitively established, pre- process of eliminating undesirable chemicals, its ef-

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fectiveness was increased 30 percent, leading to growth in sales and market Greenest Firms Will Thrive share. SC Johnson makes the system available in collaboration with Five he central assertion be- taking a chemical du jour approach Winds International, a sustainability hind the theory of evo- and follow through with plans to consulting firm. lution is that it is not systematically eliminate them in a Companies are also forging im- necessarily the strongest scientifically reasonable and eco- portant collaborative linkages with that survive, but the nomically viable manner. non-governmental organizations con- Tones most responsive to change. Companies should also es- cerned about safer chemicals policies, Darwin’s logic contains important tablish long-term goals that con- yet another reminder of the value of parallels for business that firms of sider the ever-changing regulatory stakeholder engagement. For exam- all sizes will need to mimic to stay landscape. A recent example of a ple, there is increasingly close tech- ahead of the environmental regu- regional-turned-global regulatory nical cooperation between advocate latory curve. directive is the European Union’s Health Care Without Harm on the First, companies that wish to Restriction of the Use of Certain one hand and health care leaders such survive and grow need to adopt Hazardous Substances policy, as Consorta and Kaiser-Permanente a lifecycle approach as which went into effect on the other. Likewise, the Lowell a fundamental compo- in 2006. Companies Center for Sustainable Production nent of their green pro- that chose to get ahead at the University of Massachusetts gram. This means that of similar directives Lowell campus has created a Green firms must adapt to cir- in California, China, Chemistry and Commerce Council cumstances by building Japan, and Korea ben- composed of corporate leaders from the environment into efited from lessons multiple sectors and environmental every stage of a prod- learned during compli- health NGOs, all engaged in shar- uct’s evolution — from Mark D. Newton ance with RoHS. ing innovations and generating use- research, development, Firms must chal- ful tools. Yet another example is the and design, to manufacturing and lenge their supply chains and Campaign for Safe Cosmetics, which operations, to customer use and competitors to embrace the life- works with the more than 750 cor- recycling. What’s environmentally cycle approach. A 2007 IDC porate signatories to its Compact sound for the design of the prod- Survey shows that approximately for Safe Cosmetics on useful tools to uct may not be the case during the four out of five executives say speed the elimination of carcinogens, recycling process, so it’s impor- that green information technol- mutagens, reproductive toxicants, and tant to establish firm, transparent, ogy is growing in importance other chemicals of concern from cos- and well thought out processes for their organization, a trend metics. Finally, Clean Production Ac- that will look at the full range of seen throughout other industries. tion has produced “The Green Screen a product’s impact. Regardless of Imagine what would happen if for Safer Chemicals” that it has shared internal and external pressures every company, regardless of in- with companies, including Wal-Mart, facing an organization, it’s smart dustry, committed to working as a tool for screening chemicals. to take a holistic approach rather with its suppliers and partners than a piecemeal one. to develop green products and Anticipating Lockout Adaptive environmental strat- services. Not only would this ad- egies also need a precautionary dress climate change and other o what’s a corporate strate- chemical use policy. A 2006 report environmental concerns, but it gic planner to do? Forget by the non-profit group Clean Pro- would lead to progress and col- about sales to Wal-Mart? duction Action profiled six lead- laboration on other fronts. Write off California? ing companies — Avalon Natural More than a century after Dar- Ignore the EU? There’s Products, Dell, H&M, Herman win, we have an opportunity to Scertainly a temptation to just hunker Miller, Interface, and Kaiser Perma- redefine how companies approach down and defend one’s products, ek- nente — singling out internal haz- and adapt to our ever-changing ing out additional sales till the curtain ard assessments, green engineering business environment, a compe- falls. All too many companies do this, principles, and supply chain col- tition in which only the greenest drawing support from their trade as- laboration as steps every company firms will thrive and survive. sociations and consulting firms spe- should embrace. Firms should take cializing in product defense. They steps to control “substance charac- Mark D. Newton is Environmental Policy may hit quarterly sales targets, but in teristics of concern” rather than just Manager at Dell Inc.

Copyright © 2008, Environmental Law Institute®, Washington, D.C. www.eli.org. Reprinted by permission from The Environmental Forum®, May/June 2008 MAY/JUNE 2008 ❧ Page 31 the long run this is not conducive to building share- Whole Foods Market hired consultants to explore holder value. issues around hormone disrupting chemicals in its Here’s an initial list of steps companies can take, al- products. When a shareholder resolution raised this though they’re not necessarily easy and this small num- issue and highlighted concerns about Bisphenol-A ber is far from exhaustive. in polycarbonate baby bottles, Whole Foods moved First, a company needs to systematically gather from investigation to action, pulled the bottles from information from its suppliers on the toxic chemicals its shelves, and began selling alternatives. Bisphenol- A has been gaining an increasingly high public profile since then, and the business of BPA-free bottles has been booming. In news coverage of the controversy, journalists point to Whole Foods as having acted on the issue two years ago, underscoring the reputational benefits to be gained by being first to market with safer alternatives. Finally, because the safer chemicals journey can be such a complex and intimidating process, companies should aggressively explore opportunities to partner with companies within and outside their businesses, and with those NGOs that have developed strong technical competencies, to speed their way. An out- standing model for this is Wal-Mart’s Sustainable Value Networks. These focus not only on chemicals, but on a host of other sustainability issues such as packaging, food, and agriculture. The networks draw in its supply chain. This is what Sony did beginning on the expertise of Wal-Mart’s suppliers and NGOs. in 2001, when it was banned from selling PlaySta- The template for the networks was provided by con- tions in the Netherlands during the holiday season sultant Chris Laszlo in his 2003 book The Sustainable because cadmium had been discovered in some con- Company: How to Create Lasting Value through Social necting cables. Getting chemical information can be and Environmental Performance. Wal-Mart’s experi- quite difficult where supply chains are quite extend- ence and that of other companies is described in the ed and local regulations and political cultures are not 2008 successor volume, Sustainable Value: How the supportive of disclosure. World’s Leading Companies are Doing Well by Doing Second, companies should establish suitable goals Good. and metrics for toxicity reduction to ensure success in potentially turbulent chemicals markets. This can Bringing the Case to Managers be done by establishing screening and scoring systems, and by creating restricted substances lists that nvestors have been bringing the business case are communicated to suppliers and the public. for safer chemicals policy to senior levels of cor- Third, companies must figure out the methods porate management through the Investor En- most appropriate to their corporate cultures to mobi- vironmental Health Network, which I direct. lize internal resources and provide incentives for in- IEHN is a collaboration of organizations, man- novations directed at reducing product toxicity. For Iaging more than $41 billion in assets, who promote example, Greenlist is a core strategy for SC Johnson, action through their inquiries to corporate manage- employees are introduced to it in their earliest train- ment and resolutions on proxy ballots. Investors are ing, and part of employee compensation is linked to concerned that companies face toxic lockouts, repu- raising Greenlist scores. tational damage, and litigation, all to the detriment Fourth, companies should develop strong chemi- of long-term shareholder value. IEHN frequently cal foresight mechanisms where appropriate — akin serves as a resource for companies seeking to address to the foresight mechanisms insurance companies these issues, providing case studies, strategic sugges- have evolved to flag emerging risks. Past a certain tions, and compilations of corporate policies at its point, issues shift from debates over science to mar- website — www.iehn.org — and identifying exper- ket closures by regulation or corporate action, as tise available in the NGO community. companies and consumers increasingly recognize RC2’s experience with recalls of its lead-tainted that definitive scientific answers on toxic hazards are Thomas the Tank Engine toys vividly underscores more the exception than the rule. As early as 2005, risks to shareholder value. In June 2007, RC2 re-

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called 1.5 million toys manufac- tured between January 2005 and Confront or Collaborate? June 2007. It estimated the cost of the recall would be $3–4 million, in- toxic lockout is a bright clear designating the first three substanc- cluding costs to defend class action line with one side labeled es. With cross-sectoral participation, lawsuits. RC2 initiated a second re- good, one side bad. In re- Wal-Mart is now developing an al- call later in the year, reported a quar- Asolving environmental problems, ternatives assessment screening tool. terly earnings drop of 44 percent, I sometimes find we automatically The tool will enable Wal-Mart buy- and raised estimated recall costs to line up positioned for or against, ers and vendors to compare product $13–14 million. The price of shares signs and brushes in hand, ready to chemistry as one of multiple attri- of its stock declined from above $40 paint our placards. Sometimes, you butes and foster informed discus- prior to the recall to below $30 in need to. sions on options. Weighting factors November 2007. By February 2008, When possible, I’d rather pursue a will raise the bar over time. when RC2 announced its full-year healthier, safer planet through multi- Another toxic lockout candidate financial results, recall costs totaled stakeholder collaboration. Take the is nanotechnology — the design $17.6 million and, in response to re- energy needed to ban something — and manipulation of materials at the call costs, rising production costs in arguing pro and con, lobbying and atomic and molecular scale. Environ- China, and slumping sales, the stock cajoling, threats of law- mental Defense Fund traded below $20 per share. suits focused on staying sees great potential in Stock prices don’t always reflect static — and refocus it on nanotechnology, for en- financial damage, but the business brainstorming, best sci- ergy efficiency, cleaner hit can be quantified in other ways. ence, and breakthrough energy production, wa- For example, Procter & Gamble ran innovations that move ter treatment, and envi- into controversy in China over al- society forward. ronmental remediation, legations of a tainted personal care One of the problems among other uses. We product. P&G doesn’t seem to have with locking something Michelle Harvey also acknowledge nano- done anything wrong, but its prod- out is that we often haven’t technology may pose uct was temporarily withdrawn from reckoned fully what we’re locking significant human and environmen- the Chinese market. It subsequently in. We stop the known to find it tal health risks. Partnering with Du- reported that it lost a full percent- replaced by the new unknown. Un- Pont, we developed a comprehensive age point off growth — 5 percent intended consequences can move us framework to help identify, manage, instead of 6 percent — in its beauty from the proverbial frying pan into and reduce potential risks of nano- business because of the withdrawal. the fire. scale materials across their lifecycle. In the 1970s, strong federal envi- This is not risk versus hazard. We We also advocate increased risk re- ronmental laws were enacted in the can’t wait until we see five legged search, improved regulatory policy, United States and the Environmen- critters to admit an exposure prob- and corporate standards of care. tal Protection Agency and Consum- lem. Nor should we draw a red “X” In light of significant proven er Product Safety Commission were prematurely across a possible solu- harm, a toxic lockout can be the established in large part to overcome tion. Collaboration gives us space for right step; strong purchasing policies concern that states were not up to reasoned judgment, reconsideration, can drive environmentally prefer- the challenge of regulating pollution continuous improvement, an impe- able behavior. But collaboration in and other chemical hazards. In con- tus to innovate, and comprehensive, addition to the lockout — to help sequence, corporate environmental balanced solutions. Two examples develop alternatives, for example — programs have historically focused from my world: would be even better. Collaborations heavily on federal compliance and Environmental Defense Fund’s take time, but people collaborate be- on compliance with state programs Corporate Partnerships Program cause they see benefit in the antici- delegated by the federal government. is one of multiple stakeholders in- pated outcome. Benefiting someone But it is becoming increasingly clear volved with Wal-Mart on sustain- you see as your adversary can create that a company having primarily a ability. Wal-Mart initially planned discomfort. But given the choice, I’ll federal compliance mindset will be to address “chemicals of concern” start with collaboration. ill-prepared for toxic lockouts of through a toxic lockout–style list of products from various marketplaces roughly two dozen chemicals to be Michelle Mauthe Harvey is a Project because of state regulations and oth- targeted for replacement in prod- Manager at Environmental Defense Fund in er companies’ environmentally pref- ucts. An inadvertent sort of chemi- Bentonville, Arkansas. The views expressed erable purchasing programs. • cals roulette, the listing stopped after are her own.