No one knows how many of the 84,000-plus chemicals used in the U.S. are lurking in the goods we purchase, or how safe they are. Federal law hasn't required most of them to be tested or many to even be publicly identified. But the onus is quickly growing for producers and retailers of consumer products to find some answers.

Strengthening legislation in various states and around the globe-plus increasing litigation-is making it important for these companies to monitor, report and replace or reformulate toxic chemicals.

"I think companies owe it to themselves and their investors to know the chemical risks in their products and supply chains and work to eliminate them," says Richard Liroff, executive director of the Investor Environmental Health Network (IEHN) in Falls Church, Va. Its members, who collectively manage $30 billion to $35 billion in assets, encourage companies to adopt policies that reduce and eliminate toxic chemicals from their products and activities.

The toughest law is the European Union's REACH regulation, which controls the registration, evaluation and authorization of chemicals. Now being phased in, it requires companies to meet certain obligations if they use chemicals from a REACH watch list. Called "substances of very high concern" as defined in the regulation, they include things that are carcinogenic, mutagenic or toxic to reproduction.

Under a consumer "right to know" provision, companies must respond within 45 days to customer inquiries about these chemicals in products or packaging. "If you're invested in a company marketing in Europe, you need to be very concerned about REACH," says Liroff, "because REACH will over time generate a list of chemicals that cannot be marketed."

REACH-like regulations are also being prepared in emerging countries such as China and India, though they aren't as stringent, says Amandine Marques, a Paris-based environmental, social and governance (ESG) analyst with MSCI Inc.

Meanwhile, individual states in the U.S. are taking action, in the absence of updates to the Toxic Substances Control Act of 1976 (TSCA). They've passed more than 80 chemical safety laws over the past nine years, and nearly 30 states are considering toxic chemicals legislation in 2012, according to Safer States, a network of environmental health coalitions and organizations.

Companies also face negative publicity and legal risk as consumers press harder for safer ingredients in personal and household items. Case in point, says Liroff, is Sigg Switzerland USA, the U.S. distributor of Swiss-made Sigg aluminum bottles. Company sales plummeted after trace amounts of Bisphenol A (BPA), an endocrine-disrupting chemical that mimics estrogen, were found in the plastic linings of supposedly BPA-free bottles. It filed for Chapter 11 bankruptcy last year.

What about the U.S. Food and Drug Administration's March rejection of a petition calling for the ban of BPA in food packaging? "At least in terms of what moves markets, by this point the FDA is largely irrelevant," says Liroff, who notes there are major efforts to move away from BPA.

In another high-profile case, the maker of the popular Brazilian Blowout hair-straightening product line agreed in March to settle a class-action lawsuit for about $4.5 million, the New York Times reported. GIB LLC, which marketed these products as formaldehyde-free even though some emit a gas form of this known carcinogen, separately agreed to a $600,000 settlement with California's attorney general for deceptive advertising. It must now include warning labels on its products.

You may also recall U.S. toymaker RC2, which faced $17.6 million in recall costs in 2007 and settled a class-action lawsuit for $30 million in 2008 after lead paint was found in its wooden railway toys. The company was purchased last year by Japanese toymaker Tomy Co.

Marques expects consumer awareness of unsafe chemicals to expand as information is easier to access through product rankings and reviews (from GoodGuide, Campaign for Safe Cosmetics, etc.) and awareness campaigns from Greenpeace and other NGOs.
Liroff also notes that portable X-ray fluorescence (XRF) devices are making it easier to detect chemicals in some products.

Put On Your Safety Goggles
So what's the best way to navigate chemical hazards?

"Understanding how the various regulations work is key to identifying where the risks and opportunities are," says Marques, a frequent speaker on the topic. "Potential upside can be large for a company that would find a safer and economically viable alternative to [the preservatives] parabens, for instance." 

It's also important to pay attention to the SIN List (which stands for "Substitute It Now!"), developed by the International Chemical Secretariat (ChemSec) using REACH guidelines. The list now includes 378 substances that can cause cancer, alter DNA, damage reproductive systems, harm the environment or cause other problems-in essence giving companies advance notice about the chemicals likely to be most restricted by the EU, says Liroff.