Indecent Exposure

Over the past year, the chemical bisphenol A (BPA) has received increasing scrutiny from consumers, scientists, regulators, the media and investors. You may have heard about it when Canada declared it unsafe. Or maybe when the water bottle manufacturer Nalgene (a brand of Thermo Fisher Scientific), announced it was phasing out its use of BPA. Or when Connecticut Attorney General Richard Blumenthal announced his office would investigate allegations that companies are using “fear tactics, political manipulation and misleading marketing” reminisent of Big Tobacco to fight regulation of BPA. Perhaps it was when California announced it might follow Connecticut, Minnesota, the city of Chicago and New York’s Suffolk County and ban many uses of BPA. BPA is indisputably under attack – and for good reason.
Without a doubt, BPA is attracting a great deal of attention these days. What is bisphenol A (pronounced “BIS-fe-noll A”)? BPA is a chemical used in a wide variety of very common products including CDs, DVDs, electrical and electronic equipment, automobiles, sports safety equipment, reusable food and drink containers, and dental sealants. It is also used as a protective liner in metal cans to maintain the quality of canned foods and beverages.
However, the chemical mimics estrogen in the body and studies have found links between BPA and a wide variety of health impacts such as developmental toxicity in children, cancer, infertility, neurotoxicity, obesity, heart disease and diabetes. Some researchers have found a relationship with behavioral disorders including hyperactivity, aggressiveness and impaired learning. As an editorial in the Journal of the American Medical Association summarized in January, BPA is linked to “some of the most significant and economically burdensome human diseases.”
This is particularly disturbing when you also consider that approximately 90 percent of Americans have at least some measurable level of BPA in their bodies. In May, researchers from the Harvard School of Public Health found study subjects who drank for a week from hard clear plastic water bottles increased the BPA concentration in their urine by 69 percent. Add to these facts the 100 experiments demonstrating that BPA causes permanent harm to lab animals even at the low exposure levels currently found in humans, and the concerns grow even larger.
Cause for Investor Concern
Fortunately, there are alternatives for plastic products and in some cases, for can linings. However, a recent report by As You Sow and Green Century Capital Management, Seeking Safer Packaging: Ranking Packaged Food Companies, found that companies are taking insufficient steps to move toward alternatives. Companies surveyed in the report included Hain Celestial, Heinz, Nestlé, Kellogg, ConAgra, General Mills, PepsiCo, Campbell Soup Company, Coca-Cola, McCormick & Company, Kraft, Hershey, J. M. Smucker, Del Monte, Chiquita, Dean Foods, Hormel, Sara Lee, SYSCO, and Unilever. As investors who incorporate environmental and social issues into our investment and management decisions, we question what this means for our portfolios and what it says about the practices of some of the companies we invest in. Are the companies that produce and use BPA acting in an ethical manner or in a sustainable fashion? In the United States only five companies produce BPA – Bayer, Dow, Hexion Specialty Chemicals, SABIC Innovative Plastics (formerly GE Plastics), and Sunoco. But beyond the producers of BPA, we also need to look at the companies using BPA in their own products. These include, to varying degrees, the companies in the Green Century report, but also companies like Kroger, Del Monte, Alcoa Inc., and Crown Holdings Inc. For that reason we seek to assess the risks that BPA presents to these companies.
One of the biggest concerns is the specter of regulation. In March, Representative Edward Markey (D-MA), Senator Dianne Feinstein (D-CA), and Senator Chuck Schumer (D-NY) announced they would introduce companion legislation to establish a federal ban on BPA in all food and beverage containers. Senator Schumer explained, “There have been enough warning signs about the dangers of BPA that we cannot wait to act. It’s better to be safe than sorry. Many manufacturers and retailers have already recognized the danger and have taken steps to get kids’ products containing BPA off store shelves.” Clearly, the companies are on notice that Congress is very interested in this issue.
Interest is not limited to Congress. Most recently, the Wall Street Journal reported that Food and Drug Administration (FDA) Commissioner Margaret Hamburg agreed to reconsider a decision that BPA was safe at levels currently found in products such as baby bottles. Specifically, the FDA has assigned the agency’s acting chief scientist to be in charge of the review and expects the review to be complete by the end of the summer or early fall.
BPA presents a litigation risk to companies as consumers of products like baby bottles and water bottles become the first plaintiffs to go to court. During the spring of 2008, at least six separate class action lawsuits were filed against manufacturers and distributors of plastic products containing BPA. As more is discovered about the health impacts of BPA in other products, additional lawsuits are considered likely. Possible defendants include companies that produce, use or sell BPA-containing products that come into contact with food or beverages.
Another concern, particularly for companies with valuable name brands that depend on the trust and goodwill of consumers, is rising public awareness of this issue. On the positive side, a recent report by the Investor Environmental Health Network noted, “Companies with the savvy to take advantage of this rise in awareness about bisphenol A in products are making BPA-free products that are flying off the shelves.”* Likewise, a failure to confront the challenges presented by public awareness of BPA has potential consequences for the bottom line.
Signs of Progress
Nalgene, the hard plastic water bottle maker, took a proactive approach and announced in 2008 that it was going to phase out its use of BPA. A spokesman for Nalgene explained, “Because we listened to our customers and were able to rapidly respond to these concerns, the market recognized that we were ahead of the curve on this issue and we were able to maintain our industry leading position.”
Sunoco will no longer sell the chemical to companies for use in food and water containers designed for children under three. By requiring its customers to guarantee that BPA will not be used in children’s food products, Sunoco has indicated it cannot be certain of the compound’s safety.
Shareholder Activism on BPA
In light of these growing risks, Trillium Asset Management Corporation (“Trillium”) is taking a number of actions. As an active member of the Investor Environmental Health Network, we joined in coordinated efforts to bring BPA concerns to a number of companies such as Kroger and Whole Foods Market. This year we co-filed a shareholder proposal at Macy‘s that asked the company to address concerns related to a number of toxic chemicals present in consumer products including BPA. We also co-signed a letter of inquiry that was sent to Sara Lee seeking greater disclosure on BPA. Most recently, we joined Green Century Capital Management and shareholders representing approximately $26 billion in assets in writing to the Food and Drug Administration to support for its decision to reconsider its previous assessment of the safety of BPA. Our letter discusses how “the FDA’s current assessment that BPA is safe is the fact most often cited by companies as the reason for the lack of market movement towards substitute materials.” We point out that “Some of us have heard from companies that they would prefer to move towards BPA alternatives, but they state that the lack of regulation by the federal government creates disincentives for companies to invest in the research, development and deployment of alternatives.”
One area that has not received much attention from the SRI community is the use of BPA in dental products. It is unclear how many dental products use BPA or its derivatives. To help plug that gap, we have written to Dentsply, the dental products company, inquiring about its past and present use of BPA. We also asked about its plans for potential future use of BPA, where they get information about BPA, and if they are directly or indirectly dedicating resources toward lobbying on the issue.
On this last point, there is a particularly interesting story. In late May, an article in the Milwaukee Journal Sentinel described a meeting of food packaging executives and chemical makers lobbyists in which they discussed a strategy to “protect industries that use BPA [and] prolong the life of BPA.” A memo of the meeting obtained by the paper included discussions about the use of fear tactics and a so-called “holy grail” spokesperson – a pregnant woman. According to the article, companies and organizations attending the meeting included the Coca Cola, Alcoa, Crown Holdings, the North American Metal Packaging Alliance, the Grocery Manufacturers Association, Del Monte and the American Chemistry Council.
Socially concerned investors provide an important voice in this public debate that helps to focus policy makers and companies to solve this problem. If companies act, they can help to eliminate a threat to public health and better position themselves for long term value creation, not only for shareholders, but for our entire economy.
* Public Awareness Drives Market for Safer Alternatives: Bisphenol A Market Analysis Report, September 2008.