On December 15th New York-based investment research firm RiskMetrics released their new report “REACH: Strategic Risks and Opportunities,” which used the SIN List 1.1 update to highlight corporate exposure to potential regulatory action, management readiness, and strategic profit opportunities that may arise from REACH.

Noran Eid, Senior Analyst with RiskMetrics , and Seb Beloe, Head of SRI Research at Henderson Global Investors, hosted a webcast for the launch called "Navigating Chemical Product Liability: Risks and Opportunities for Investors." The webcast presented the findings of research – employing the SIN List as a key element – designed to help investors identify those companies that will be positively and negatively affected by this issue.

“A key value of the SIN List here is that it provides companies, be they Substance of Very High Concern (SVHC) producers or SVHC users or alternatives providers, a peek into the future,” said Ms. Eid.  “What we did with this list of unpronounceable chemicals is map them to the different product categories where they are currently used and then mapped those categories to companies within our rating universe to come up with estimates of company exposure.”

Reflecting the growing interest in toxics within the investment community, Seb Beloe outlined the results of research conducted in early 2009 by Henderson in cooperation with Goldman Sachs (“Chemical Safety in Consumer Products Industries”) on how chemical risks are increasingly being addressed by downstream consumer product companies.

Added Ms. Eid, “It has been surprising to note the range of approaches to REACH, especially within the chemicals sector itself. We’ve seen everything from a wait and see approach to sector leaders that have developed long term strategies geared towards the development of viable alternatives and identifying the market gaps that REACH may provide.”  

Among other conclusions, it is noted that 16 percent of the companies analysed could experience significant impact, while for others the potential impact appears to be less than two percent of sales. The webcast also featured findings released in early 2009 by Henderson in cooperation with Goldman Sachs on how chemical risks are increasingly being addressed by downstream consumer product companies. The UK-focused research assessed companies’ ability to manage risks and exploit opportunities associated with chemical and product safety, noting a clear differentiation in sophistication.

Chemical liability issues can pose significant risks to an investor’s portfolio performance. Increasingly, regulatory scenarios like REACH will perform their function and undertake to alter the market for chemicals for the good. This may require companies to reformulate products, a costly process which can have significant implications for company performance. At the same time, we can see opportunities for winners to seize, in the form of both preparedness and innovation, such as filling the gap for alternative substances.

Link to Risk Metrics website

Report "REACH: Strategic Risks and Opportunities"

Henderson Briefing Paper: "Chemical safety in consumer products industries"