Costco Wholesale Corporation – Chemical Management (2022)
Outcome: Successfully withdrawn following its actions to improve accountability to its chemical management program. Costco disclosed its Restricted Substance Lists (RSLs) to which suppliers across four product categories are to adhere to; disclosed a separate packaging materials RSL; began reporting supplier compliance (on a percentage basis) to its policy; and updated its Smart Screen Guide which among other things guides suppliers in choosing safer alternatives.
Resolved: Shareholders of Costco Wholesale Corporation (the “Company”) request that the board of directors’ report to shareholders, at reasonable expense and excluding proprietary information, on the outcomes of the Company’s chemical reduction efforts by publishing quantitative and qualitative data on progress to eliminate the use of chemicals of concern.
Shareholders leave the method of disclosure to management’s discretion, but recommended considerations include:
• Evaluation of vendor compliance with the Company’s chemical policies;
• Measure of chemical footprint in private label and third-party products;
• Set reduction goals, and track and disclose progress against a baseline; and
• Disclosure of a Restricted Substances List.
Whereas: Chemicals have been important drivers of economic growth, but the cost of poor management and the long-term impacts of chemicals raise significant concerns for investors.
The costs associated with environmental chemical exposures worldwide likely exceeds 10 percent of global GDP or $11 trillion.1 Researchers examining large-scale impacts that threaten the integrity of Earth’s system processes found that increases in chemical production and releases are not consistent with keeping humanity within a safe operating space. 2 As a result, the potential destabilizing impacts of synthetic chemicals to Earth and human health raise important concerns for a healthy economy.
In the United States Per- and Polyfluoroalkyl substances (PFAS), or “forever chemicals”, that scientists have linked to chronic disease and cancers have cost cities enormous sums. PFAS are widely used in consumer goods, including outdoor clothing and linens.3 Investors know the short-term impacts – stockholders of PFAS producers lost $82 billion in value between January 2018 and September 2020, but the long-term costs to producers and throughout the value chain are still mostly unknown.4
Costco’s current policies principally relate to activities around education and testing for chemicals of concern, including encouraging suppliers to assess chemicals through its Smart Screening Program.5 There is minimal disclosure on the progress and outcomes of these programs.
In contrast, the Company’s peers are seeking to improve product safety and reduce liability by reducing chemicals and disclosing progress:
• Walmart set a 2020 goal to reduce “priority chemicals” in its formulated products by 10 percent from a 2017 baseline. In 2022, Walmart exceeded this goal, reducing harmful chemicals in products 17 percent or by 37 million pounds.6
• Dollar Tree, Target, and Walmart, among other retailers and manufacturers participate in the annual Chemical Footprint Project Survey – a tool which benchmarks corporate reduction of the use of chemicals of high concern. Front-runners in the Survey are top performers in all aspects of proactive chemicals management.7
7 The commitment to “reduce potential chemical harm to humans and the environment” is important, but the Company should provide clear data on its chemical reduction efforts. Demonstrating such progress can reduce risk for shareholders and the Company.
2 Environ. Sci. Technol. 2022, 56, 3, 1510–1521Publication Date: January 18, 2022 https://doi.org/10.1021/acs.est.1c04158
4 V. Zainzinger, “What difference does green investing make?”; Chemical &Engineering News, November 16, 2020
6 https://corporate.walmart.com/esgreport/reporting-data/esg-commitments-progress; https://toxicfreefuture.org/success-walmart-announces-a-reduction-of-37-million-pounds-of-toxic-priority-chemicals-in-its-products-surpassing-original-goal