Planet Tracker, a non-profit financial think tank, released a new report titled Toxic Fog – Known Unknowns (Toxic Fog). The report uncovered a vulnerability in the reporting standards for toxic releases, finding that toxic emissions are hidden from investors and the public despite clear health hazards.
The primary issue is that the US Environmental Protection Agency (EPA) is not permitted to reveal chemical compounds that companies classify as “trade secrets.” Two other issues are that acute human and environmental toxicity are not included in the calculation of Risk-Screening Environmental Indicators (RSEI), which focus instead on chronic toxicity impacts. Additionally, non-production waste is excluded from permitted emissions release thresholds because it usually comes from one-off events or accidents.
Toxic Fog is a follow up to the July report titled Toxic Footprints, which revealed the prevalence, toxicity, and effect on human health of chemical pollutants, and the facilities most accountable for them.
ESG Review sat down with Thalia Bofiliou, senior investment analyst at Planet Tracker, to dive into Toxic Fog, its impact on ESG reporting, standards, and procedures, and potential outcomes and use cases for the information found in the report.
Toxic Fog Overview
“The report highlights 10 major failings regarding toxic emissions,” said Bofiliou. “These are split into two categories: data hidden from view, but which is still allowed under current regulations, and areas where data transparency can be improved.”
The key failings include:
- Companies can classify their chemical compounds as ‘trade secrets,’ which allows them to hide these substances’ names and keep them from scrutiny.
- Acute (when the effect is produced within a short period of time) human and environmental toxicity are not included in the calculation of RSEI metrics, which focus instead on chronic toxicity impacts.
- Because it usually comes from one-off events or accidents and is infrequent, non-production waste is excluded from permitted emissions release thresholds.
- Adding geographic information to the end destination for Toxic Release Inventory (TRI) Basic files, which are the quickest and easiest for companies to use and understand.
- Ensuring that TRI self-reported metrics include when a facility has breached its legal limit of releases.
Legal Spotlight On Manufacturing And Chemicals Companies
3M and other companies have been in the legal spotlight for their malfunctioning earplugs. Aside from the earplug issue, 3M has also received flak for using per- and polyfluoroalkyl substances (PFAS) — known as forever chemicals — in its end products. The Center for Disease Control and Prevention (CDC) has identified rising levels of PFAS in the US population due to PFAS strains in food, water, and products containing PFAS. Some estimates say that 3M could face up to US$30 billion in legal liabilities for its use of PFAS in end products and for infecting ground water with PFAS.
3M’s legal woes are just one of the many examples of companies receiving flak for years of environmentally harmful behavior. “During our research in the Toxic Fog and Toxic Footprints reports, we found that since the creation of the RSEI dataset and up until reporting year 2019, 36 chemicals had been added to the TRI list,” said Bofiliou. “For the reporting year 2020, the EPA added 172 PFAS to the toxic chemicals list. The EPA is setting a reporting threshold of 100 lb. (45 kg) for each PFAS added to the list. Before 2020, these PFAS releases would not have appeared in the datasets as they were not requested by EPA. Therefore, it is possible that a lot of ‘forever chemicals’ have been released and may have harmed the environment, but no one will ever be accountable for them as there isn’t available data.”
ESG’s Impact On Reporting And Regulations
Given the rise of ESG standards and reporting, we have seen instances where companies have been more proactive about their disclosures and environmental goals. The issue, now, is the legitimacy of that reporting, and the steps that companies are taking to ensure information is presented in the best way possible for their businesses, investor perception, and ESG scores. “In order to promote a favorable business environment, chemical companies lobby to minimize environmental regulations,” said Bofiliou. “We found out that lobby disclosures show that the American Chemistry Council, an industry trade association for American chemical companies, has spent US$39.6 million since 2020. During the same period, the top four toxic polluters in the US Gulf of Mexico, which own the five most polluting facilities in the region and account for 75.5% of total toxic pollution — Olin Corp, Covestro, Valero, BASF — together spent US$10.5 million. This toxic fog is deliberate. We urge the companies to stop hiding behind a toxic curtain and avoid scrutiny of their toxic releases.”
The concentration of the US oil and gas and petrochemical industries along the Gulf Coast is undeniable. However, many of these companies, either directly or through their parent companies, are focused on reducing emissions and publishing accurate ESG Reports. While the findings in Toxic Fog may jeopardize the accuracy of the information of these ESG Reports, there appears to be little legal action that can be taken if companies were simply interpreting and acting upon the existing reporting framework to appease their self-interests. Even if the reporting is fair in the eyes of regulators, the value of these reports could decline for individuals, investors, and other entities if they knew the loopholes that were being exploited. “In Toxic Footprints, which we published in July, we revealed the prevalence, toxicity, and effect on human health of chemical pollutants, and the facilities most accountable for them,” said Bofiliou. “The findings of Toxic Fog reveal the regulatory weaknesses around the toxic releases that are currently hidden from view. When the 10 aforementioned failings are corrected, and the EPA rules stop allowing the petrochemical companies to pollute local environments and communities with their toxic waste, then the ESG reports will be more transparent as well.”
The findings in Toxic Footprints and Toxic Fog can be used to propel industries toward improving their ESG profiles, instead of merely punishing companies — which doesn’t lead to lasting improvements. “As mentioned, EPA rules need to stop allowing petrochemical companies to continue polluting the environment,” said Bofiliou. “More user-friendly datasets are needed for that. The companies should provide clear and accurate information and financial institutions should demand transparency for toxic emissions so they can conduct a thorough risk assessment of their investments.”
The EPA’s Role In Toxic Fog
If the toxic fog is deliberate, then the incentive of quality ESG reporting and environmental stewardship may not be strong enough for companies to independently act in a way that favors all stakeholders. This begs the question, is new EPA regulation the solution for exposing the loopholes being used to hide toxic releases? “We believe that some EPA rules and their current complex datasets allow for opaqueness and fogginess by operators of these facilities,” said Bofiliou. “For example, petrochemical facility operators can classify their chemicals as ‘trade secrets’ which prevents public disclosure of their toxicity data. Assumptions on toxic releases include the supposition that chemical releases, which are sent offsite to Class ‘C’ landfills and incur no chemical escape in the RSEI calculations. Furthermore, the TRI metric does not include when a facility has breached its legal limit of releases. We believe that a revised EPA regulation and more user-friendly dataset is necessary to put a stop to hazardous releases and pollutants that are highly toxic to human health and environment.”
The EPA dataset is used by many companies and contains a lot of useful information. Planet Tracker clarified that the dataset isn’t all bad, but rather, is flawed and its weaknesses need to be readily understood and shared so it can be improved. “Our report does not advise that the EPA dataset is not correct, but we highlight 10 failings for it,” said Bofiliou. “We reveal the regulatory weaknesses around toxic releases that are currently hidden from both investors and the public — despite the clear health hazards — which the EPA is not permitted to reveal, and we are calling for financial institutions to demand transparency on toxic emissions so they can conduct a thorough risk assessment of their investments.”
Where To Go From Here
Regulation and better reporting are drivers for change, but so are financial incentives. One of the primary catalysts of the ESG movement is the idea that economic and environmental paradigms lead to long-term growth and position a business to adapt and be flexible to change. In this vein, financial institutions have the opportunity for advocacy when it comes to real results from the findings in Toxic Fog and other reports like it. “Planet Tracker believes that financial institutions have a duty to put a stop to this fogginess,” said Bofiliou. “It’s time for some proper due diligence on the petrochemical industry. By informing, enabling, and mobilizing the transformative power of capital markets Planet Tracker aims to deliver a financial system that is fully aligned with a net-zero, nature-positive economy. We believe that financial institutions and of course regulators have a great power to affect decision making. Specifically for financial institutions, when they know exactly what risk is built into their investments, they can undertake a fully informed and accurate risk/reward assessment for themselves and for their clients which in turn will lead to the creation of more sustainable environment and the reduction of the toxic pollution.”
