Dr. Patrick Kolb
Senior portfolio manager, Thematic Equities

In 2020, the German Environmental Agency tested more than 1,000 children and found per and polyfluoroalkyl substances (PFAS) in every single one. One in five children between the ages of 3 and 17 had concentrations so high that damage to their health could no longer be ruled out.1

Environmental protection authorities around the world are starting to impose stricter regulation on the usage of these substances. As investors, we see opportunities in the field of testing and surveillance of the environment and public health as well as in cleanup, decontamination, and remediation of polluted sites.

What are PFAS?

PFAS are a family of manmade fluorinated organic chemicals, including PFOA perfluorooctanoic acid (PFOA) and (perfluorooctanesulfonic acid (PFOS). They are also known by the older abbreviation PFC (perfluorinated chemicals). These substances comprise a group of more than 4,700 industrial chemicals used in numerous industrial processes and consumer products since the 1940s. Since they are resistant to oil, water, dirt, and heat, they are found in a range of consumer and industrial products.2

Because PFAS are very stable and durable, these compounds are persistent in the environment and do not break down in typical environmental degradation processes. Since they can only be destroyed at temperatures exceeding 1,000 degrees Celsius, they are referred to as “forever chemicals”. Their wide use in products such as water and stainrepellants, teflon, nonstick cookware, pizza boxes, lithiumion batteries, ski waxes3, firefighting foam and outdoor gears, to name a few,4 is of concern because PFAS can accumulate in wildlife and in human bodies.

While long chain PFAS are absorbed in soils and sediments and can accumulate in organisms, shortchain PFAS are highly water soluble and very mobile.5 They can contaminate food, soil and drinking water sites. Some PFASs are so volatile that they can even be transported over long distances and thus accumulate in remote and pristine areas such as the Arctic.6

Why are PFAS a concern for humans?

According to the US Environmental Protection Agency (EPA), there is scientific evidence that exposure to PFAS can lead to adverse health outcomes. People can get exposed to PFAS in different ways, such as through drinking water or food. These chemical substances can accumulate and stay in the body for a long time. PFAS are generally rapidly absorbed into the organism, especially via the intestine and the respiratory tract, are placental and pass into breast milk.

People most at risk of adverse health impacts are those exposed to high levels of PFAS and vulnerable population groups such as children and the elderly. Throughout life, people and animals accumulate PFAS in their bodies. Its level may increase up to the point where they start to suffer from adverse health effects.7 Figure 1 summarizes current knowledge of the impact of PFAS on human health.

Figure 1: Effects of PFAS on human health

Harmful effects of PFAS on human health (thyroid disease, liver damage, kidney cancer etc)
Source: European Environmental Agency (2020): Emerging chemical risks in Europe — PFAS, 23.11.2020; https://www.eea.europa.eu/themes/human/chemicals/emerging-chemical-risks-in-europe, retrieved on 14.02.2021.

Harmful effects of PFAS on human health (thyroid disease, liver damage, kidney cancer etc).

Case studies: Switzerland and the US

Several research projects are being conducted worldwide on the occurrence, analysis, and remediation of PFAS. Residues of these substances are widely spread in the environment,8 as shown in the two examples below: Switzerland and the US.

Figure 2: Concentration of PFAS in groundwater and wastewater content in various watercourses

Map: Concentration of PFAS in groundwater and wastewater content in various watercourses in Switzerland
Source: Bundesamt für Umwelt (2019): Perfluorierte Chemikalien im Grundwasser, 13.09.2019, https://www.bafu.admin.ch/bafu/de/home/themen/wasser/fachinformationen/zustand-der-gewaesser/zustand-des-grundwassers/grundwasser-qualitaet/perfluorierte-chemikalien-im-grundwasser.html, retrieved on 15.02.2021.

Concentration of PFAS in groundwater and wastewater content in various watercourses in Switzerland.

More than 80% of drinking water in Switzerland is obtained from the groundwater. The National Groundwater Monitoring project NAQUA of the Bundesamt für Umwelt (Federal Office for the Environment) provides a nationally representative picture of groundwater quality.

PFAS were detected at 21 of the 49 monitoring sites sampled, most of which are recharged in large part by the infiltration of river water. PFAS concentrations never exceeded 100 nanogram per liter, except at one site (see Figure 2).9 The researchers concluded that according to the current state of knowledge, such concentrations do not constrain the use of groundwater as a drinking water resource.10

According to the Swiss chemicals industry, no PFAS containing substances are manufactured in Switzerland, but they are imported from abroad and are further processed.11 This would explain why major sources of PFAS in Swiss groundwaters come mainly from the urban drainage system. From there they enter the rivers and lakes via wastewater treatment plants and finally get into the groundwater.12

In the US, researchers from the Environmental Working Group (EWG) and North eastern University found locations contaminated with PFAS, including some drinking water sites, in 49 states. Figure 3 shows that the drinking water sites in the states of California, Michigan, and New York are particularly affected.

Figure 3: PFAS contamination in the US

Map: PFAS contamination in the US
Source: EWG, Northeastern University (2021): Mapping the PFAS Contamination Crisis, https://pfasproject.com/2020/04/23/mapping-the-pfas-contamination-crisis/, retrieved on 17.02.2021.

Map: PFAS contamination in the US.

To address this challenge and protect public health, the US Environmental Protection Agency (EPA) announced in 2019 a PFAS Action Plan, which comprised four main steps:13

  • Groundwater cleanup guidance,
  • New testing methods,
  • Updates to the Toxics Release Inventory (TRI) and
  • Updating the regulations for drinking water standards.14

We believe that with the Democratic Party taking control of the US Senate, the EPA will likely accelerate the legislation and regulation around PFAS contamination. PFAS manufacturers may face potential personal injury and cleanup lawsuits. Analysts from Bank of America Merrill Lynch use historical analogies to the asbestos claims over 20 years ago: in the second half of 1998, many asbestos manufacturers started publiclly announcing the issue and settling claims. The liabilities of the accused companies were up to 30% of their respective market capitalizations. Between the initial asbestos liabilities (the second half of 1998) and peak asbestos liabilities (end of 2001), their share prices fell between 70% and 90%. Beneficial factors such as state law developments and shift in corporate strategies reduced the companies’ asbestos payments in the later 2000s.15

In Europe, the use of PFOS has been severely restricted since 2006, PFOA has also been largely banned since June 2020. However, due to their longevity, these substances are still regularly detected in our environment. European regulators are making efforts to address the problem:16

  • In 2018, the European Commission proposed a limit value of 0.1 microgram per liter for 16 specific PFAS in its revision of the EU Drinking Water Directive. In addition, a "group limit" for PFAS of 0.5 microgram per liter is under consideration.
  • In September 2020, the European Food Safety Authority (EFSA) set a new safety threshold for a group of perfluoroalkyl substances that accumulate in the body. The threshold is a group tolerable weekly intake (TWI) of 4.4 nanograms per kilogram of body weight per week.

Toward a PFAS free future

The enormous number of known PFAS makes the risk assessment of individual substances and the environmental monitoring very challenging. We expect that stricter PFAS regulation is going to be implemented in almost every country in the world, based on 1) new scientific discoveries, 2) sophisticated testing and surveillance capabilities and 3) rising public awareness about PFAS contamination of food, soil, and water. We also believe that new or additional regulations will focus on further limiting PFAS use by e.g. restricting PFAS in products, banning PFAS in firefighting foam, addressing PFAS in drinking water, surface water and groundwater, restricting use of bio solids and restricting disposal. Finally, we expect detailed specifications for the production within the manufacturing industry and further guidelines for cleanup, remediation, and decommissioning of polluted sites.

In our opinion, PFAS are an important topic within the security and safety theme, affecting also health protection and environmental security areas. In the near term, we think the dynamics on the regulatory level will intensify, which will lead to stricter environmental protection regulation. Based on these underlying trends, we are shareholders of leading companies in the environmental and health testing, environmental surveillance and in the field of cleanup and decontamination of polluted sites as well as disposal and remediation of hazardous waste.

About the author
  • Dr. Patrick Kolb

    Senior portfolio manager, Thematic Equities

    Patrick Kolb (PhD), Managing Director, has been a Senior Portfolio Manager for the Security Equity strategy since 2007. In 2005, he joined Credit Suisse Asset Management, now part of UBS Group, where he initially focused on the industrials and technology sectors. Patrick graduated from the University of Zurich with a major in Finance and then worked as a research assistant at the Institute of Banking and Finance at the University of Zurich before earning his PhD in Financial Economics.

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