Things could get ugly for investors who ignore glaring health risks in the cosmetics industry, warns a new report from the Investor Environmental Health Network (IEHN), which represents 20 investment organizations with $22 billion in assets under management. A powerful convergence of forces including shareholder resolutions, improved health risk information, European and U.S. regulatory changes, and growing consumer pressure could drive sweeping changes in the U.S. personal care and cosmetics industry.
The release of the IEHN report caps a flurry of developments this year exposing the risks associated with toxic-bearing cosmetics and the retailers who provide them to the public. Investors are now weighing two related shareholder resolutions at CVS (which holds its annual meeting next month) and Bed, Bath & Beyond (where shareholders meet at the end of June). Earlier this year, Innovest Strategic Value Advisors, a financial research firm, released a report that the risk of "toxic lockouts" could result in a loss of market share and loss of market access for four major industries including cosmetics. In January, it was announced that 500 cosmetics companies including the Body Shop and Burt's Bees had signed the Compact for Safe Cosmetics, a pledge to eliminate toxic ingredients from their products nationwide.
Titled "Beneath the Skin: Hidden Liabilities, Market Risk, and Drivers of Change in the Cosmetics and Personal Care Products Industry," the new IEHN report describes a ticking time bomb scenario of a largely self-policed industry in which regulatory action by the FDA typically is triggered only by reporting from the companies themselves. "The result is a system that permits significant consumer exposure to occur before sufficiently rigorous safety testing is conducted ultimately, a game of roulette which places consumers, manufacturers, and investors at risk," said Sanford Lewis, an attorney specializing in corporate accountability and one of the report's authors.
The U.S. cosmetics industry, which is dominated by 10 large companies, accounts for the use of nearly one in seven of the 75,000 chemicals registered for use in the U.S. However, the FDA bans or restricts only nine of those substances, the report states. The weak U.S. regulatory structure limits product marketability in the 457-million person European market. In 2005, the European Union banned more than 1,000 chemicals for use in cosmetics, the report notes. Closer to home, both California, the world's sixth-largest economy, and Canada have tightened their regulations of personal-care products.