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The true cost of toxic chemical substances is not captured by a GDP-driven economy
The mass usage of toxic chemicals has led chemical pollution to stand as one of the three planetary crises confronting humanity. But our traditional economic model, the output economy, is not fit for purpose to solve these challenges. We therefore need to change our old ways of measuring economic success where simply pursuing more and more goods to the detriment of the environment and our wellbeing was acceptable and embrace an impact economy approach.
Our output driven economy depends on chemicals. They are quite literally everywhere; in our furniture, our electronics, our cleaning products… and even in our medications and food.
In many instances chemicals have been a boon for human health, productivity, and economic growth. But increasingly their heavy usage has begun to threaten the health of people and the planet. Indeed, the threat of chemical pollution now stands on a par with climate change and biodiversity loss as one of our greatest challenges.
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Environmental scientists have concluded that we have crossed the planetary boundary for “novel entities” – the point at which new industrial chemicals have begun to alter the “vital Earth system processes on which human life depends.”1 A 2017 study published in the journal Environmental Health concluded that exposure to toxic substances in the water, air and soil has had a marked human and economic cost.2
The authors noted that exposure to air pollution, endocrine disrupting chemicals, flame retardants and pesticides increases rates of chronic diseases, which leads to higher health care bills, lost wages, and lower employee productivity. They concluded that the cost of harmful chemical and heavy metal exposures surpasses 10% of global GDP.
But the worst may be yet to come. The production of chemicals is predicted to only increase in the coming decades, as the world’s population keeps growing.
Why GDP has its limitations
Currently, the full costs of chemical pollution are not being tallied. Global economists tend to use gross domestic product as the key metric of success, but it pays scant attention to the long-term damage done by mass production.
UBS has advocated for a new form of economic calculus that combines traditional production output metrics with analysis about their impact on people and the planet. We call this the impact economy.
The consequences of the current use of toxic chemicals demonstrate why this approach is needed. It can take years or decades for the damage done by chemical exposure to human health and the environment to reveal itself, but once it does, it can be severe and long-lasting.
Seeking less harmful alternatives
The good news is that the chemicals industry can begin utilizing more sustainable forms of chemistry. In that way it can still cater to growing demand but do so in a manner that minimizes the adverse impacts of its products.
The Lowell Center for Sustainable Production and Beyond Benign jointly define sustainable chemistry as “the development and application of chemicals, chemical processes, and products that benefit current and future generations without harmful impacts to humans or ecosystems.”3 In essence they involve forms of production that have far less of an impact on human health or the environment.
Chemical companies may balk at the costs of turning to sustainable chemistry, but from an economic point of view it makes sense to do so as quickly as possible. As the costs of unrestricted toxic chemical production become increasingly well understood, failures to address them will only cause more health problems and environmental damage. That in turn will likely lead to increased regulatory oversight, greater penalties and larger cleanup costs.
Making the transition work
It will take the active collaboration of many actors to make the transition to sustainable chemistry. Consumers, research organizations, companies, policymakers and investors all have a role to play.
However, we are beginning to see the trends that will facilitate this transition.
For a start, consumers are increasingly becoming aware of the health costs of harmful chemicals. That is leading them to demand sustainable products. Similarly, policymakers are also looking to respond, to demonstrate they have the public’s wellbeing uppermost in their minds. This trend of well-being increasing in importance over material goods in society for example is one of the reasons why, as mentioned earlier, the impact economy is now perhaps more relevant and better suited to as an economic model than the output economy.
Regulations related to toxic chemicals are also increasing globally, particularly among European Nations and 31 states in the US.
As public pressure mounts and new rules are introduced, chemical companies will face increased legal exposure from any harm caused by their products and processes. Several recent high-profile examples involving polyfluoroalkyl substances (PFAS), commonly known as forever chemicals, that had been used to make the original Teflon for example, demonstrate how expensive it can be to be reactive instead of proactively managing avoidable chemical pollution risk. Take 3M and Wolverine Worldwide, for example, who in March 2023, agreed to pay $54 million to property owners whose water was contaminated by PFAS.4
As the world increasingly shifts towards a more sustainable form of living, and some are calling for a paradigm shift to embrace the impact economy, chemical companies that proactively embrace sustainable chemistry may be able to benefit from scaling opportunities.
In an impact economy, investors have a key role to play, particularly when it comes to their engagement with chemical companies. For a start, they can act as active owners, using their engagement and voting rights to encourage companies to transition to sustainable chemistry practices. They can also seek to finance innovation through blended finance or venture capital, while shifting their capital away from companies which aren’t transitioning to safer alternatives or failing to invest sufficiently into sustainable chemistry solutions.
Investors can also signal the importance of sustainable progress by joining industry initiatives and investor collaborations, and by contributing to frameworks to enhance disclosure. Doing so will help more companies and financial institutions to integrate chemical pollution into decision making, which would put even more pressure on the chemical companies to change their behavior for the better.
Meeting the challenge of chemical pollution will require a very different mindset. But the mounting scientific evidence of the damage already done and recognition of the need for a more sustainable economy is beginning to make the financial community understand the scale of the risks of not doing so, and the opportunities that such a shift may offer.
For decades, companies have enjoyed success by satisfying the unlimited needs of our output economy by selling chemicals that are useful, but often harmful, and are helping to deplete the finite resources of our planet. Everyone in the global goods supply chain has a responsibility to find ways to meet the needs of our society in a manner that will not continue to endanger our health and the environment.
This will require that companies alter the use of chemicals in the production process, that consumers become better informed and more selective in what they consume, and that financial intermediaries channel capital to the technologies and business approaches that facilitate both. This is the only way to make the necessary transition work in a sustainable way.
1 Persson L. et al. Outside the Safe Operating Space of the Planetary Boundary for Novel Entities. Environmental Science & Technology. 2022.
2 Grandjean, P. and Bellanger, M. Calculation of the disease burden associated with environmental chemical exposures: application of toxicological information in health economic estimation. Environ Health. 2017.
3 Lowell Center for Sustainable Production and Beyond Benign
The author is grateful for feedback from: Francis Condon, Aarti Ramachandran, Christiana Tsiligianni, Nalini Tarakeshwar, Jackie Bauer, Mike Ryan, Richard Morrow.
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By: Karianne Lancee
Originally published at: UBS