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PFAS is emerging as the next major financial liability for investors, drawing comparisons with the pushback against tobacco and asbestos, as litigation mounts and stricter regulations across jurisdictions are under consideration. This shift reflects a growing recognition that PFAS-related risks extend far beyond litigation, with concern over broader financial consequences.
While litigation risks remain a primary issue for asset managers, the problem is not just the court cases grabbing the headlines. The persistence of PFAS in the environment and the human body means that the costs associated with their use, from cleanup and compliance to reputational damage, can surface decades after the manufacture and/or use of the chemicals.
As a result, investors are increasingly treating PFAS as a systemic, long-term risk embedded across portfolios while navigating the challenge of assessing liabilities despite data gaps. This has led asset managers, including some involved with NGO ChemSec’s Investor Initiative on Hazardous Chemicals (IIHC), to adopt PFAS-exclusion policies for their portfolios.
Litigation risks
In a report earlier this year, financial think tank Planet Tracker said PFAS litigation has become one of the largest mass tort litigations in the US, with more than 15,000 active lawsuits grouped together in federal court, hence posing a "multibillion-dollar" material risk to companies with potential impacts on cash flow, balance sheets and credit profiles.
Thalia Bofiliou, senior investment analyst at Planet Tracker, told Chemical Watch News & Insight that because PFAS persist in the environment and build up in the human body, the associated liabilities can outlast the original commercial benefit. The pattern, she said, resembles asbestos and tobacco, in which costs continued to emerge long after the products were sold and used.
Cecilia Fryklöf, head of active ownership at Nordea Asset Management (Nordea AM), said PFAS-related litigation has become a matter of concern for institutional investors. The Australian government’s recent decision to launch legal proceedings against multinational manufacturing company 3M for more than $1.4bn in damages related to PFAS contamination is a good example of how risk is broadening, said Fryklöf.
3M announced earlier this year that it had halted PFAS production despite the substances remaining in its supply chain, but it is still facing significant litigation costs due to its historical manufacture and use of PFAS. The company previously agreed to pay up to $10.3bn to resolve a lawsuit alleging that its PFAS-containing firefighting foam products contributed to contamination of the public water supply in the US.
"We now see legal action and cost recovery across geographies and plaintiff types, not just repetitions of the pattern of US class actions," said Fryklöf.
Excluding PFAS
Camille Bisconte de Saint Julien, human rights and social lead with LBP Asset Management (LBP AM), said the financial industry’s reliance on controversy-based exclusions is "inherently backwards-looking" because they are only triggered after issues or litigation materialise.
Nonetheless, while imperfect, this approach has "played an important role in raising awareness within the financial sphere of the potentially systemic consequences of insufficient transparency and lack of long-term strategy regarding PFAS exposure", said Bisconte de Saint Julien.
To address these concerns, LBP AM conducted enhanced human rights and environmental due diligence of PFAS producers, building on publicly available data and research from ChemSec, including the ChemScore tool.
Following this due diligence, Bisconte de Saint Julien said LBP AM adopted a norm-based exclusion framework for PFAS producers aligned with the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct.
"Within this framework, companies may be excluded where there is an unacceptable risk of severe impacts on people or the environment, or where they are involved in serious, repeated and substantiated controversies," she said.
Companies with limited but improvable practices are placed under enhanced monitoring, with environmental, social and governance (ESG) rating adjustments, said Bisconte de Saint Julien. Companies further along in their PFAS process become the focus of intensified engagement to support and accelerate their transition away from the substance group.
But Bisconte de Saint Julien said exclusion is not automatic, and engagement with the companies is seen as a first lever to drive meaningful change. This approach, she said, ensures that LBP AM’s investment decisions remain aligned with its fiduciary responsibilities, while actively contributing to reducing PFAS-associated risks to the environment and the human body.
Investors have also highlighted the data gaps as an explanation for why only a few have specific PFAS-exclusion policies. "As of today, ESG data providers do not provide quantitative data about PFAS production or consumption, which could allow the exclusion of companies based on a specific threshold," said Léonie Ségala, ESG strategist at Ostrum Asset Management (Ostrum AM).
In an effort to mitigate this, Ostrum AM has its own qualitative approach for the largest PFAS producers, based on four criteria:
- proven facts, which are validated if judicial and/or institutional health investigations confirm PFAS production or the company acknowledges its PFAS production;
- severity, which is validated only if there are proven violations and multiple stakeholder groups are affected;
- systemic nature, which is validated if two out of three sub-criteria are met, including significant geographic scope, persistence of the issue over several years, and the company continuing its PFAS use despite awareness of the harm; and
- remediation, which depends on whether the company has compensated affected stakeholders, has a plan to phase out PFAS or at least has credible research and development in place to eliminate the persistent chemicals.
Ségala said if companies meet the proven facts, severity and systemic nature criteria with insufficient or non-existent remediation, they are excluded. If companies meet only some of the criteria, they are either monitored or flagged for monitoring, depending on the scale of the issue and ongoing remediation.
Downstream companies
While the focus has largely been on PFAS producers, investors are increasingly engaging with downstream companies as well. "We are progressively extending our engagement to downstream sectors where PFAS-related risks to human rights, human health and the environment may be particularly significant, including food packaging and cookware, cosmetics and personal care, and apparel and textiles," said Bisconte de Saint Julien.
The main gap for downstream companies, according to LBP AM, is in supply chain vigilance, with a heavy reliance on chemicals regulation. That means companies may overlook emerging risks like PFAS if they are not yet fully regulated and may not use their leverage to monitor issues like PFAS emissions, push for safer alternatives and track progress.
"Overall, it is really about shifting from a purely regulatory mindset to a more proactive, risk-based approach, and ensuring alignment between producers and downstream users," said Bisconte de Saint Julien.
But engagement remains a key component for downstream companies. Kate Monahan, director of shareholder advocacy at Trillium Asset Management, said the organisation already screens out many of the primary PFAS producers. "But for downstream companies we do hold – such as in consumer products – we engage to better understand the pace and scope of phase-outs and encourage clear goals and public commitments."
Stricter regulations
Investors remain alert to companies’ preparedness to transition away from PFAS in light of upcoming restrictions on the chemical class, while drinking water standards are becoming stricter across multiple jurisdictions.
For Nordea AM, there is a transition risk, with companies heavily reliant on PFAS facing mounting challenges in identifying viable alternatives and sustaining competitiveness. "Commercial risk is significant: automotive, electronics and packaging customers are increasingly facing their own regulatory constraints and dropping PFAS-containing inputs from supply chains ahead of formal restrictions," said Fryklöf.
Victoria Lidén, sustainability analyst at Storebrand Asset Management (Storebrand AM), said companies that are not prepared for these developments could face higher costs due to product reformulation requirements and operational challenges.
The stricter regulations might also open new doors for companies and investors. Lidén said that, despite the significant risks associated with PFAS, stricter water quality standards and PFAS regulations are also driving demand for water treatment technologies, remediation services and other solutions to address contamination.
Several companies in Storebrand AM’s portfolios that address persistent chemicals have highlighted PFAS-related water treatment as a growing business area, said Lidén.
ChemSec said many companies "are too slow for their own good" by defending their position on PFAS use at all costs rather than investing in safer PFAS-free alternatives.
On the other hand, more responsible companies "understood which way the wind was blowing years ago and have since taken good steps towards phase-out, including giants like BASF", said Jerker Ligthart, senior chemicals expert with ChemSec.
While uncertainty remains over the scale of future liabilities and which companies are most exposed, many investors see the direction of travel as clear: businesses that fail to reduce PFAS dependence and improve transparency may face growing legal, regulatory and commercial pressures in the years ahead.