How will tightening 'forever chemicals' (PFAS) regulation impact the manufacturing sector?

Products and processes where water and oil-repellent properties are needed, especially in high temperature, high pressure, or acidic environments. Some examples include waterproof textiles, plastics, paint, cookware, cosmetics, fire extinguishers and electronic equipment. Public awareness and concern are likely rising due to media reporting on PFAS in freshwater fish, food packaging, dental floss, and contact lenses.

Tightening Per- and Polyfluoroalkyl Substances (PFAS) regulation globally has the potential to impact not only PFAS producers, but the majority of manufacturing industry categories. While the fluorochemical market is estimated at only USD 20-28bn/yr, roughly half of all industries include companies that use PFAS, amounting to a total market cap of USD 30trn. The EU is considering a ban of the PFAS group altogether, the US is considering stringent PFAS level limits for water, and Japan and the UK are considering regulations as well. In this report we integrate insights from 13 industries across North America, Europe, and Asia on PFAS risks and opportunities. 

Although countries are in various stages of regulating PFAS, the most important developments to follow in order to gauge impact on companies are:

1. water quality regulations in the US, and
2. production/sale regulations in the EU. 

Our global base case for regulation is that water quality rules tighten significantly in developed countries, and these not only cover the historical pollutants PFOS and PFOA but several other types that are currently in use. Apart from the EU, we think it is unlikely that countries would ban all PFAS production/use/sales at once given the language of current strategies. It would be more likely that several types of PFAS where associations with negative health impacts have been made would be banned in developed countries first and eventually added to the UN list of Persistent Organic Pollutants.

Although PFAS risk is recognized for EU/US producers, it is less recognized in Asia, and less understood for PFAS user industries, substitute producers, and removal & clean-up services. Potential catalysts for pricing in PFAS risks/ opportunities are new PFAS toxicity research results and news on regulatory developments (expected towards late 2023 to early 2024). In a tail risk scenario, these catalysts could trigger consumer boycotts or litigation.

Chemicals, multi-industry, and the Heating, Ventilation, and Air Conditioning sector face lower sales, but more importantly ongoing litigation risks. Some chemicals firms are more favourably positioned since they offer substitutes. Semiconductor and tech hardware sectors have the potential to be most negatively impacted among PFAS users due to the lack of PFAS alternatives for semiconductor manufacturing. Other PFAS users such as apparel, cosmetics, food and food packaging will likely face limited impacts overall, but relative positioning within the sector could be impacted as regulations or consumer awareness come into play. Among companies removing and testing for PFAS such as water utilities and environmental services, the largest companies in the sector are favourably positioned due to the regulatory tailwind for industry consolidation. Water treatment companies and filter manufacturers also stand to benefit.