More than 30 funds with ESG, sustainability, low-carbon or responsible investing branding have exposure to a plastic producer that has been criticised by UN human rights investigators for perpetuating “environmental racism” in the US.
Formosa Plastics is included in ETFs that track ESG indices published by Solactive, MSCI and FTSE, and funds managed by ESG investor Robeco and Swedish pension fund AP7, among others.
Last week, the UN Human Rights Council’s fact-finding body concluded that Louisiana’s Mississippi river oil and petrochemical hub – known since the 90s as ‘Cancer Alley’ – had “subjected its mostly African American residents to cancer, respiratory diseases and other adverse health effects”. Investigators said that nearby communities reported up to 105 cases of cancer per million residents, compared to 60 to 75 cases per million residents in predominantly white areas.
“The African American descendants of the enslaved people who once worked the land are today the primary victims of deadly environmental pollution that these petrochemical plants in their neighbourhoods have caused,” it said.
The UN group’s findings corroborate reports stretching back decades alleging that local communities experienced elevated miscarriage rates, chronic air and water pollution, and the destruction of flora and fauna as a result of toxic waste from the hub. Industry trade groups have disputed these accounts.
Taiwan-listed Formosa Plastics was singled out by the UN panel over its plans to build a giant $9.4bn petrochemical complex, which the panel said would “double the cancer risks” in the local area. Construction on the facility, named the Sunshine Project, has begun but is currently on hold after opponents to the project challenged the validity of permits issued by state regulators.
UN investigators have now said that the planned Sunshine Project would result in a “disproportionate adverse effect on the rights to life…and the right to health of African American communities”.
In 2019, it emerged that the project was being built on land that experts believed was home to historic slave burial grounds. The investigators said the destruction of such sites would constitute “possible violations of the cultural rights” of local communities.
When contacted, Solactive and FTSE – which each published two ESG-labelled indices with exposure to Formosa – said that assessments from third-party data providers had noted the controversies but concluded that they did not warrant exclusion
Formosa is also included in two indices within Morningstar’s Global Sustainability Index Family which are not currently tracked by any funds.
A spokesperson for ISS ESG – which provided ESG data to Solactive – said to RI: “For a controversy to receive the most problematic ‘Red’ classification under our methodology, verification of an ongoing, severe failure to respect international norms that remains unaddressed by the company is required”.
A spokesperson for ESG research house Sustainalytics – whose data underpin the FTSE and Morningstar products – told RI that Formosa had already been flagged for controversies relating to the alleged mishandling of effluent discharge and community opposition, but that it retained a position in ‘category 2’ (low risk) for community relations and ‘category 3’ (medium risk) for waste management.
Besides Formosa, which operates three existing plants in the Louisiana hub, petrochemical companies like Shell, Koch, Denka, DuPont and ExxonMobil have been fixtures in the area since the second World War.
The Sunshine Project is not the only Formosa Plastics operation mired in controversy. In Taiwan, the company is battling a lawsuit over a 2016 toxic spill which killed an estimated 115 tons of fish and left fishermen and tourism workers jobless in four of Vietnam’s central provinces.
More broadly, the planned Formosa plant has been criticised for being a poor investment, at a time when the world is moving away from plastics. According to a Bloomberg analysis, usage of single-use plastic bags will likely be restricted for most US shoppers by the time the plant commences its operations.
A detailed breakdown of each fund’s shareholding in Formosa Plastics can be found below, based on data provided by Morningstar.
MSCI, Robeco and AP7 did not respond to requests for comment.