Financial disclosure and toxic products: encouraging wall street to anticipate product risk and exercise precaution

Our plain-English summary of Financial disclosure and toxic products: encouraging wall street to anticipate product risk and exercise precaution, by S. Lewis, M. Byrne (New Solutions, 2009).

The study

• Authors: S. Lewis, M. Byrne
• Journal: New Solutions
• Published: 2009;19(1):31-58
• Read it: PubMed · Publisher

Abstract

Amidst discussion by policymakers about how regulators' failure to ensure disclosure of risks contributed to the current financial crisis, we assess how emerging product toxicity risks are addressed in companies' financial reports. Will corporations blindside investors with "the next asbestos?" Existing disclosures are found lacking in the specificity needed to forewarn of liabilities and reputational damage from the use of potentially harmful materials-from nanotechnologies, to asthmagens, to perfluorinated compounds. Improved standards could protect investors while also enhancing corporate incentives to use safer materials. Reforms by the Securities and Exchange Commission and the Financial Accounting Standards Board are recommended.

In plain English

This article was a policy analysis, not a medical study of asbestos. The authors examined how companies' financial reports handled early evidence that products might be harmful, asking whether companies would blindside investors with “the next asbestos.” The main example was nanotechnology, including carbon nanotubes, which the authors described as similar in shape and rigidity to asbestos fibers. Shorter case studies covered chemicals linked to asthma, DuPont's chemical PFOA, and bisphenol A. The authors reported that many carbon nanotube producers and developers gave similar “boilerplate” risk statements. The most detailed producer filing they found left out two studies reporting lung damage similar to asbestos in laboratory animals. In Securities and Exchange Commission (SEC) filings, companies adding nanomaterials to products made few, if any, disclosures of those uses or their possible health and financial risks. Chemical links to asthma got no coverage in financial reports; the only mention found was a shareholder proposal in a Dow Chemical proxy. None of the four largest bisphenol A producers discussed the science on its risks in their SEC disclosures. The authors concluded that the SEC and the Financial Accounting Standards Board should improve disclosure guidelines.

We wrote this plain-English summary from the full article with the help of AI, and a second AI model checked each sentence against the article. It is not the authors' wording; the abstract and the article are their own account.

What the study did and found

• Design: Policy analysis of corporate financial disclosure, built on a review of SEC filings and other corporate documents, with case studies
• Who was studied: Corporate financial reports and SEC filings, roughly 2005 to 2008. Companies covered included makers and developers of carbon nanotube products (for example Arrowhead Research, CVD Equipment, NanoAsia), companies using nanomaterials (Procter & Gamble, Avon), Dow Chemical, DuPont, and producers and users of bisphenol A. No people were studied.
• Exposure: No asbestos exposure was studied; asbestos appears only as a comparison. The product risks examined were nanomaterials (especially carbon nanotubes), pesticides and other chemicals linked to asthma, PFOA (perfluorooctanoic acid), and bisphenol A.
• Main results:
  • Producers and developers of carbon nanotube products: many gave similar boilerplate disclosures, and few referred specifically to health concerns about carbon nanotubes.
  • The most detailed producer disclosure the authors found did not mention two studies from the prior year reporting lung damage similar to asbestos in laboratory animals.
  • Companies adding nanomaterials to their products (for example Procter & Gamble and Avon): SEC filings showed few, if any, disclosures of the uses, the potential health risks or the financial risks.
  • Chemical exposure and asthma: the issue got no coverage in companies' financial reports. The authors' database search turned up only a shareholder proposal in a Dow Chemical proxy.
  • DuPont: the 2006 and 2007 annual reports still left out many key developments about PFOA, even after the SEC wrote to the company about disclosure.
  • Bisphenol A: none of the four largest producers (Sunoco, General Electric, Bayer and Dow Chemical) discussed the scientific issues about its risks in their SEC disclosures.
• The authors' conclusion: The authors concluded that the SEC and the Financial Accounting Standards Board should improve their disclosure guidelines so that companies disclose credible new scientific findings that suggest potential product hazards.

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