The lucrative business of cleaning up ‘forever chemicals’

Hello from New York.

Two important climate stories to start: First, the Science Based Targets initiative announced yesterday that chief executive Luiz Amaral would step down for personal reasons. Moral Money readers will remember SBTi and Amaral recently came in for fierce criticism — including from staff members — after the group’s board said companies could use carbon offsets to hit decarbonisation goals.

Separately, BlackRock on Tuesday said its funds with climate-specific investment requirements would vote differently on shareholder proposals, as it wrestles with competing demands from within its vast investor base.

But for today’s newsletter, I’m taking a step away from the climate conversation to investigate another environmental issue: clean water. The fight over “forever chemicals” in drinking water has prompted investors to take a closer look at water companies offering treatment solutions — a growing, multibillion-dollar market. — Patrick Temple-West

pollution

The fast growing opportunity for water treatment companies

“Forever chemicals” are ubiquitous in humans and the environment.

Technically known as perfluoroalkyl and polyfluoroalkyl substances, or PFAS, these chemicals do not break down naturally and are increasingly found in people, animals and at the bottom of oceans. They have been found to lower immune responses to vaccinations, and damage liver functions and fertility. 

The chemical companies that make PFAS may have played a role in covering up the risks. An article in the New Yorker in May tells the story of how the chemicals company 3M, one of the world’s first PFAS makers, allegedly hid the dangers of the toxic compounds. Last year, 3M agreed to pay a massive $10.3bn settlement to public water suppliers that had detected PFAS in drinking water.

As governments around the world race to adopt regulations to reduce PFAS, investors are eyeing opportunities for water treatment companies.

In an interview with me and FT colleagues in New York last week, Estelle Brachlianoff, the chief executive of French water company Veolia, said PFAS removal in the US was a big opportunity for the company “and is growing fast.” In April, the US Environmental Protection Agency adopted the first US standards for PFAS in drinking water.

Veolia, she said, wanted to be a “one-stop shop” from the diagnosis of PFAS in drinking water to the treatment solution. In the US, PFAS removal had been estimated to have a $250bn market potential, she said.

Veolia is the world’s largest water company, according to Morningstar. But as a constituent of France’s large-cap Cac 40 index, Veolia’s share price was knocked in June amid the political upheaval triggered by President Emmanuel Macron’s call for snap elections. 

Undeterred by France’s political gyrations, Wall Street is paying close attention to Veolia’s PFAS potential. Water treatment accounts for nearly half of Veolia’s earnings, Morgan Stanley noted in a June 28 report. The company was “ideally positioned” to win business “in PFAS pollution mitigation,” the bank said.

The EPA’s new regulations impose drastically lower PFAS limits on public and private water utilities. They mandate that PFAS levels are no higher than four parts per trillion. To put that in perspective, Veolia has said one part per trillion is equivalent to one grain of sand in an Olympic-sized swimming pool.

“These stringent new standards will require many utilities to install treatment to come into compliance,” Carsten Prasse, an assistant professor for environmental health and engineering at Johns Hopkins University, told me. “And while the technologies to remediate PFAS exist, the costs can be incredibly high.”

Private sector estimates suggest complying with the PFAS rules could cost utilities up to $3bn annually. Up to 6,000 public drinking water providers in the US might not meet the PFAS requirements, the EPA has estimated.

“The new regulations are incredibly important for public health, but who will pay and how much it will cost is likely to be a heated topic in the coming decade,” Prasse said.

Veolia’s Brachlianoff said the company was working to ensure its customers got an appropriate price, and that they were not stung with costs for more than what was needed.

But Veolia is not the only company trying to profit from PFAS clean up. Massachusetts-based Clean Harbors is the largest hazardous waste disposal company in North America, according to Jefferies. The company’s share price was up 36 per cent over the past 12 months, and its PFAS remediation business had grown to $78mn-$80mn, in part because of the EPA’s regulations, Jefferies said in a March report.

AqueoUS Vets, a California-based water treatment company, had already built the world’s largest PFAS treatment initiative to date at California’s Orange County Water District, Mirka Wilderer, the company’s chief executive, told me.

The company’s biggest challenge, she said, “will be scaling our team and manufacturing capabilities to keep up with the fervent demand for our systems.”

As with many federal regulations these days, the EPA’s PFAS rules were immediately attacked in court by corporate lobbying groups. The American Chemistry Council and National Association of Manufacturers, which represents Chevron, ExxonMobil, Honeywell and other big businesses, sued the EPA in June. 

But PFAS litigation does not fit neatly into political buckets. In April, Indiana’s Republican attorney-general Todd Rokita sued 3M and other companies for alleged PFAS contamination.

“I know the media doesn’t always cover conservatives speaking out about the environment, but hopefully they will have no option to spin this legal action,” he said at a press conference that month. “You can’t truly be a conservative unless you are willing to reasonably conserve God’s green earth based on known facts, not ideology,” he said. “And what we know as fact is that PFAS are dangerous.”

Rokita’s comments underscore how the PFAS problem opens a small window of bipartisanship. Clean water is something that companies can’t bank on partisan political fighting to save them from. A rare political consensus suggests that PFAS removal will present an opportunity for investors who are increasingly buffeted by political risks in their portfolios.

Smart read

Shell has paused construction at one of its biggest energy transition projects, a huge plant in Rotterdam that was intended to convert waste into jet fuel and biodiesel, our colleague Malcolm Moore reports. The news comes as Europe’s biofuels markets have come under pressure from oversupply.