Sizing Up an Environmental Liability for 3M and Others

Source:, August 1, 2019
By: Al Root

An environmental liability appears to be keeping a lid on gains in several stocks, including 3M and DuPont .
PFAS, short for per- and polyfluoroalkyl substances, are a group of chemicals, manufactured in the U.S. from the 1940s through roughly the turn of the century, that can harm people’s health, according to the Environmental Protection Agency. States and municipalities are cleaning up sites involved in the manufacture of the chemicals, while governments are pursuing liability suits seeking money from producers.

“3M voluntarily phased out of the production of [PFAS chemicals] in the early 2000s and was the first company to do so,” said 3M CEO Mike Roman. The company has made “voluntary agreements” with states and communities to clean up sites where it produced the chemicals, he said.
Yet the trouble continues. Gordon Haskett analyst John Inch wrote on Friday about disclosures that appeared in 3M’s second-quarter filing with the Securities and Exchange Commission. In June, he noted, the Vermont attorney general filed two lawsuits alleging contamination of drinking water and other natural resources, while in May, New Hampshire filed two suits of its own.
3M told Barron’s that the new lawsuits disclosed in the filing aren’t covered by the $235 million already set aside. 3M also referred Barron’s to the website for more information about the chemicals.
Chemours (CC), DuPont (DD), and Corteva (CTVA) are other firms that have discussed PFAS in 2019. All three entities were once part of E.I. Dupont de Nemours, a maker of PFAS chemicals, before the company broke apart in a series of transactions.
The agreement underpinning the spinoff of Chemours from E.I. DuPont, in 2015, said that Chemours would indemnify its former owner from PFAS litigation. Now, Chemours is contesting that.
DuPont and Corteva put out a joint statement on June 28 defending the original agreement. Chemours and DuPont declined to comment on their dispute, or on the status of PFAS litigation more broadly, noting both are in their quiet periods before reporting earnings. Corteva didn’t respond to a request for comment.
The problem for investors, of course, is sizing up the potential liability. Inch wrote that the industry could face costs ranging from $25 billion to as much as $40 billion. The four companies involved have an aggregate market value of about $180 billion.
Environmental considerations appear to be part of the reason all four stocks have lagged behind the market. DuPont shares are down 3.7% year to date, worse than the 15.2% gain of the Dow Jones Industrial Average. 3M has fallen 8.3%, and Chemours share are down 32% year to date. Corteva stock is up 1.7% since it began trading on May 24, prior to its official separation from DuPont on June 1. The Dow has risen 5% since May 24.

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