CONTENTS EdEvidence Newsletter

October 2007

IEHN—Making the Business Case for Corporations to Adopt Safer Chemicals Policies

Media attention in recent months to toxic toys, toothpaste and pet foods has added fuel to our argument that companies must pay serious attention to the toxic chemicals in their products. Though the issues have arisen in the context of imports from China, the material concerns raised about toxics in the supply chain are universal.

The potential for toxic lockout where a company has been barred from a market due to a product's toxicity is now all too real for suppliers of lead-contaminated PVC bibs to Wal-Mart, Toys-R-Us and other retailers. The same is the case for the suppliers of the many other products recalled in recent months. The stock of the Canadian owner of a pet food company hit a record low after the company said it lost a "significant" customer. Reputational risk is now a front and center issue for Mattel and other companies recalling toxic toys. These manufacturers surely would prefer to invest their resources in innovative products and marketing to boost sales, rather than buying full page advertisements in major newspapers to reassure the public that their products are safe. Retailers who may not have thought twice about where their toy products were sourced and how they were made, now share the costs of product recalls and cleared shelves. They also must ponder how consumer wariness of toxic chemicals in toys might affect customary Christmas sales.

From its beginning, the Investor Environmental Health Network (IEHN) has been making the business case for corporations to adopt safer chemicals policies. We've commissioned case studies of successful corporate innovators, developed a benchmarking framework for investors to differentiate corporate leaders from laggards, and sponsored a successful test application of the framework by Innovest Strategic Value Advisors. Our "Fiduciary Guide to Toxic Chemical Risk" provides institutional investors with a tool kit for examining how well trustees, portfolio managers, and investment consultants understand and address toxic risks in portfolios.

We've had gratifying results from our shareholder advocacy. Investment organizations participating in IEHN filed 13 resolutions in the 2007 proxy season and 12 in 2006. Dialogue with companies has in many cases yielded action without a need for formal votes.Resolutions were withdrawn where manufacturers agreed to change product formulations, retailers agreed to change marketing practices, or companies were willing to dialogue with investors on possible future actions. And we've received some significant votes where resolutions have remained on the proxy ballot.

I am deeply grateful to the 20 investment management groups formally comprising IEHN, the additional investment managers adding their voices, and expert advisors from public and environmental health organizations providing substantive assistance. We invite other investment managers to join us, to help companies both to reduce their business risks from toxic chemicals and to exploit the profit potential of growing markets for safer chemicals and products.