Shareholder Engagement Update: Lead beyond Flint
Lead exposure is endemic in our society, and not just in water. It's in our food, in our soil, and in our homes. This fall we'll ask home-improvement giants Home Depot and Lowe's how they can help reduce their customers' exposure to this pernicious and widespread hazard.
The water crisis in Flint, Michigan, catapulted the issue of human lead exposure into the headlines this spring. As described by Michigan’s governor, the crisis was “a failure of government at all levels” to protect the community. And while all citizens were put at risk, it was a catastrophe for Flint’s most vulnerable population—children. In the months following the city’s transition to what was to be a cheaper water source, the number of children with elevated lead levels almost doubled and nearly 8,000 children under five were exposed.
To be clear, no level of lead exposure is considered safe at any age. But for children with developing brains, early exposure to this “cumulative toxicant” can cause severe neurological problems, decrease IQ rates, and produce poor behavioral outcomes.
Such impacts not only affect children’s lives, they carry a cost to society—increasing healthcare costs, special education costs, and crime rates, while reducing lifetime earnings and tax revenue.
A recent study released by the Columbia University Mailman School of Public Health pegs the social cost of the Flint crisis’ effect on children’s health at $395 million, nearly $50,000 per child. Far more than the $5 million the city was trying to save by cutting corners.
Flint is not the only community that warrants scrutiny. In the United States alone, the loss of economic productivity due to childhood lead exposure is estimated to be over $50 billion annually. Preventing such exposures would result in $1.2 trillion in savings.
Unfortunately, lead exposure is endemic in our society, and not just in water. It’s in our houses, in our food, and in our soil. It can be invisible and incredibly persistent. The Center for Disease Control (CDC) estimates half a million U.S. children have elevated blood levels—a level at which remedial actions should be taken—and that one-third of Americans under the age of 18 have had an elevated level in their lifetimes.
Today, most sources of lead contamination have been regulated or banned, but lead persists in the natural and built environment. Over the decades, it has been used in numerous legacy applications—as a primary ingredient in paint (banned in 1978), an additive in gasoline (banned in 1996), and an element of soldering and plumbing components (banned in pipes in 1986). Today, nearly 35% of U.S. homes have lead paint—the leading cause of poisoning.
So why should investors care? For one, the huge societal costs of lead exposure are borne not only by the victims but by the economy at large. Most investors today are “universal owners”—investors with highly diversified long-term portfolios whose returns reflect the success or failure of the broad economy. The societal costs resulting from lead exposure hurt those returns.
Individual companies are also placed at risk. Following negligent decision making in Flint, two firms face litigation, including the environmental services company Veolia. And just this year, retailers are facing legal action for failing to warn customers about high lead levels in chocolate. Numerous other companies should be evaluating how they are either reducing or increasing customers’ and employees’ risk of toxic exposures.
As key suppliers to the construction industry, home improvement retailers such as Home Depot and Lowe’s could be on the front lines of promoting lead-safety awareness. So far, their record isn’t encouraging. Lowe’s paid out a record-setting civil penalty for failing to certify its contractors in lead-safe practices—the largest fine ever imposed for violating the federal “Lead Renovation, Repair, and Painting” (RRP) rule.
Just this January, Home Depot paid a first-time penalty to the EPA for similar RRP violations. Such non-compliance with lead regulations poses not only a legal threat, it places the companies’ reputations at serious risk. With consumer awareness elevated post-Flint, a proactive approach to lead risk is more than warranted.
But risk management is only one side of the equation. The retailers also face an opportunity to be proactive by building trust and brand value through customer education.
As suppliers to homeowners and landlords conducting Do-It-Yourself (DIY) renovations, Home Depot and Lowe’s have a unique contribution to make in reducing lead exposure. Unlike professional contractors, DIY customers are not subject to lead-safety regulation and are unlikely to understand the dangers. As such, simply making customers aware of lead testing and lead-safe practices could prevent countless exposures.
This fall we will ask Home Depot and Lowe’s to fully account for the business risks and opportunities presented by this pernicious and widespread hazard. Promoting lead-safety awareness would not only protect the companies, it could help protect a generation of children.
Natasha Lamb, Director of Equity Research & Shareholder Engagement
The opinions expressed herein are those of Arjuna Capital, LLC (“Arjuna Capital”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. Arjuna Capital reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Arjuna Capital is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Arjuna Capital including our investment strategies, fees and objectives can be found in our ADV Part 2, which is available upon request. AJC 16-09