Banning PFAS in Europe: a transition risk

In recent years, long lasting chemicals (per and polyfluoroalkyl) called PFAS have been of growing concern due to their harmfulness. In 2023, several PFAS-producing companies were sued and fined record amounts in the US^[1],^[2]. Faced with these risks, regulators are gradually tightening the rules governing the use of PFAS; the objective being their ban. However, a total ban on these chemicals could undermine the energy transition and should be carefully considered.

PFAS are a large family of synthetic chemical compounds with unique properties such as resistance to heat, water, oil and many solvents. They are used in a wide variety of industrial and consumer products: food packaging, cosmetics, firefighting foams etc. However, PFAS pose threats to the environment and to public health^[3]. They are nicknamed “forever chemicals”, because they almost never degrade and can accumulate in living organisms. Exposure to PFAS has been found to cause health issues such as cancer, high cholesterol and weakened immune systems^[4].

In this context, regulations restricting the use of PFAS are being put in place all around the world. France, for example, approved a bill in April 2024 prohibiting the manufacture, import, export and marketing of products containing PFAS^[5]. New Zealand has banned PFAS in cosmetics starting in 2026^[6] while in the United States, the first ever national, legally enforceable drinking water standard to protect communities from exposure to harmful PFAS came into force in April 2024^[7]. Finally, pushed by a number of countries (Denmark, Germany, the Netherlands, Norway and Sweden), the EU is studying the possibility of banning over 10,000 PFAS^[8]. In doing so, the EU hopes to eventually phase out the use of PFAS. This action would be part of the overarching European Green Deal^[9] which aims to achieve carbon neutrality by 2050 while promoting a circular and sustainable economy.

The ban on PFAS, although essential to protect the environment and public health, could have unforeseen consequences on the economy and relative to supporting a just transition. Indeed, some sectors are still very dependent on PFAS. This applies, for example, to the textile and medical sectors. Although alternatives already exist, most are still in the early stages of development or underperform PFAS. A total ban could, for example, undermine the medical sector where PFAS are used in the production of implants or catheters. To go further, some PFAS are used in batteries for electric vehicles, in solar panel membranes and in wind turbines. These technologies require chemicals that can withstand harsh conditions. Without PFAS, it may be difficult to maintain the level of performance necessary for these technologies to continue to evolve and to make an effective contribution to reducing carbon emissions, as expected by the EU by 2050^[10].

Faced with the dual challenge of PFAS, we must be more nuanced in associated restrictions and regulations. The European Chemicals Agency (ECHA) is, for example, studying the possibility of making exceptions for critical sectors such as medical or electronic components. For these sectors, the proposal would be to postpone the application of the regulation by 5 or 12 years^[11], giving them more time to find viable alternatives.

Until ECHA’s final decision is made, it nevertheless remains important to anticipate the transition to a PFAS-free world. As such, investors can play a key role by engaging in dialogue with companies about the risks involved and alternative options. The objective is greater transparency from companies and a commitment to developing sustainable alternatives while gradually phasing out PFAS. Those that can adapt quickly to new regulatory constraints will not only limit legal and financial risks but will also strengthen their market position. They will be able to meet rising consumer sustainability demands and stand out in an increasingly competitive landscape, where environmental considerations are taking on more importance in the decision-making process. 

The dangers associated with PFAS require rapid action, but hasty decisions could have more consequences than expected, since there are currently very few viable alternatives, particularly to accompany the energy transition. Faced with this risk, companies producing or relying on these “forever chemicals” will have to innovate and adapt their processes, which could generate high initial costs and short-term disruptions. Thus, it becomes essential to strike a balance between the protection of public health and the need to support sustainable innovation. Policymakers need to engage in constructive dialogue with the industry and stakeholders in order to promote viable alternatives, paving the way for successful environmental and energy transitions.

This comment is for information purposes only. The views expressed by Crédit Mutuel Asset Management are based on current market conditions and are subject to change without notice. These views may differ from those of other investment professionals. Published by La Française AM Finance Services, registered office at 128 boulevard Raspail, 75006 Paris, France, a company regulated by the Autorité de Contrôle Prudentiel as an investment services provider, n° 18673 X, a subsidiary of La Française. Crédit Mutuel Asset Management: 4, rue Gaillon 75002 Paris is a management company approved by the Autorité des marchés financiers under number GP 97,138. Société Anonyme with a capital of €3871680, RCS Paris n° 388,555,021, Crédit Mutuel Asset Management is a subsidiary of Groupe La Française, the asset management holding company of Crédit Mutuel Alliance Fédérale. 

Footnotes

1. ^{^} [1] New PFAS lawsuit cites EPA's 'forever chemicals' drinking water rules | Reuters
2. ^{^} [2] Court approves 3M multi-billion dollar settlement over PFAS in public drinking water systems - CBS Minnesota (cbsnews.com)
3. ^{^} [3] What are PFAS and how are they dangerous to my health? - European Environment Agency (europa.eu)
4. ^{^} [4] Our Current Understanding of the Human Health and Environmental Risks of PFAS | US EPA
5. ^{^} [5] Members vote for a first ban on ‘eternal pollutants,’ but save kitchen utensils (lemonde.fr)
6. ^{^} [6] https://www.epa.govt.nz/news-and-alerts/latest-news/epa-bans-forever-chemicals-in-cosmetic-products/
7. ^{^} [7] Key EPA Actions to Address PFAS | US EPA
8. ^{^} [8] All news - ECHA (europa.eu)
9. ^{^} [9] Zero Pollution Action Plan - European Commission (europa.eu)
10. ^{^} [10] The European Green Deal (europa.eu)
11. ^{^} [11] 57812f19-8c98-e67-b70f-6e8a51fe77e5 (europa.eu)