The Looming Challenge of Chemical Disclosures

New and emerging rules in the U.S. and Europe that make companies responsible for the environmental impacts of products through their entire life cycles are forcing brands to confront a striking knowledge gap: their often inadequate understanding of the chemicals found in their supply chains.

The European Green Deal’s Circular Economy Action Plan, which was adopted in March 2020; newly proposed eco-design rules affecting fashion and textiles; and the proposed Corporate Sustainability Due Diligence Directive will require companies to disclose any risks to human rights and the environment. They apply throughout the product life cycle, from the formulation of ingredients and materials to product manufacturing, packaging and distribution, and recycling and disposal. In the U.S., four states — California, Colorado, Maine, and Oregon — have adopted extended producer responsibility laws aimed at packaging materials, and the issue will be a focal point of the U.S. Securities and Exchange Commission’s eventual Scope 3 supply chain requirements. On top of such legislation, a host of new regulatory actions focused on materials sourcing and disposal, safety in global supply chains, and the protection of employee safety and human rights are rolling out in jurisdictions around the world.

These rules pose a challenge for many of the brands that manufacture, market, and sell the clothes we wear, the cosmetics we apply, and the toys our kids play with, because their companies have very little visibility into the detailed chemical composition of their products.

In the face of regulatory developments, fashion brands have had to reconsider their use of materials, dyes, and a host of chemicals that have been linked to deforestation and pollution. They also need to be able to trace these compounds through every link in the supply chain.

Tracing the chemical composition of a piece of clothing is no easy task, given that the many dozens of substances and materials that go into a single garment are sourced from various suppliers and are incorporated into the product at different stages. A basic clothing item like a pair of jeans will be made up of fabric combinations, dyes, softeners, fading enzymes, biocides, and preservatives from dozens of different suppliers in different formulations that need to be applied using different techniques. All of these elements can create environmental hazards at various points in the supply chain and the full product life cycle.

Beyond Safety Data Sheets

Marquee brands that sell consumer products face the greatest pressure from regulators to clean up their supply chains. While many have made public commitments to improve their sustainability, gaining needed cooperation from suppliers and partners has been a challenge. Most brands have relied on safety data sheets (SDSs) provided by their suppliers for information on product chemical composition. However, these documents are designed primarily to disclose information on chemicals and chemical compounds that could harm workers or others in the supply chain. They don’t provide detailed information on the chemical composition of every material used in a product or offer any meaningful insight into its impact on recycling and disposal.

In our work conducting chemical hazard assessments and product toxicology analyses for some of the world’s largest brands, approximately one-third of the SDSs we reviewed contained incomplete or inaccurate information on the chemical makeup of the products and materials they covered. Whether that is a result of suppliers intentionally omitting information or a reflection of the limitations of the SDS as a disclosure tool, the end result is that the brands responsible for these products are often in the dark about what’s inside them.

Filling in the gap between the basic information provided in SDSs and the detailed disclosures that will soon be required by global authorities has become a source of conflict and confusion for many brands. Some suppliers are reluctant to share detailed chemical formulations to protect trade secrets, and many brands have been unwilling (or unable) to invest in costly chemistry assessments.

We expect that this problem will be addressed in two ways. First, the market will likely shift to suppliers that can attest to the safety of their products and processes. We’ve already begun to see this in the fashion industry: Brands like Gucci, H&M, Stella McCartney, and Zara recently committed to buying more recycled materials from sustainable textile mills. Second, companies will have to invest in detailed chemical screening to provide more comprehensive hazard assessments and full formulation disclosures. This approach has also been gaining in popularity as brands seek certainty and an objective means of evaluating their suppliers.

In both cases, the key objective for the big brands at the center of this shift to sustainability will be transparency. Brands need to start having candid conversations with suppliers about what exactly is in their products and what’s expected in terms of regular reporting and disclosures. They might need to staff up in order to have sufficient resources to engage with suppliers, especially in seeking to extend working relationships beyond the first tier. Brands might also have to coordinate requests for information across multiple parts of the organization to get buy-in. Engaging the full supply chain can be tedious and hard work.

And these are not always easy conversations. The most common communication roadblocks we see here are confidentiality concerns, suppliers saying they are just too busy to deal with a litany of chemical composition questions from customers, and misunderstandings over what’s being asked and why. Brands don’t necessarily know what to ask for from their suppliers. They also don’t know how to assess the impact of chemicals when they do get the information. Brands might also have to manage multiple internal chemical inventory systems and harmonize data from suppliers across different platforms.

To get to a place where all parties are on the same page, brands need to standardize a process for determining what questions to ask, whom to ask, and how to manage the information gathered. Brands also need to explain to suppliers why this information is important to the business and how they will use it, to allay privacy concerns.

Evaluating Chemical Risk by the Numbers

As we’ve noted, we expect more brands to produce their own hard evidence of the chemical composition of their products when they are unable to get reliable information from their supply chain partners.

The only way to deliver objective certainty on the chemical risk of products is by performing chemical hazard assessments, which identify the specific chemical components used in the production of a product and screen them against comprehensive lists of known toxins to provide a hazard score. They are not cheap, though. Companies can expect to spend anywhere from $3,000 to $10,000 per substance for each assessment; the cost is at the higher end of that range for substances on which there is a great deal of scientific literature that must be carefully reviewed. Because even the most basic apparel, cosmetics, toys, and consumer products contain dozens of individual chemicals, the costs can mount quickly.

Add to those costs the challenges of retooling and replacing toxic substances in the production process once they’re found, and it starts to become clear how looming deadlines like the European Green Deal’s Net Zero by 2050 target are much closer than they appear.

The critical first step in the process of removing toxic substances from a supply chain is systematically identifying them. For example, we recently worked on a project with a global footwear brand that had a companywide mission to make its rubber supply chain more environmentally sustainable. It began by building a comprehensive database of its current chemical inventory and checking all entries against a list of known toxins and regulated chemicals in each jurisdiction in which it operates. Only then could it start the process of transitioning to safer chemicals.

As they make progress, brands need to build this institutional knowledge into their sourcing and product development processes to mitigate or eliminate the harmful chemical impacts of future products throughout their life cycles.

In the long run, these initiatives will result in safer, more sustainable consumer products. In the near term, however, expect to see a great deal of disruption and reshuffling of supply chains as more brands start to recognize that the tried-and-true methods of manufacturing and distribution are no longer sufficient in today’s sustainability-oriented economy.