Controversies Over ‘Forever Chemicals’: Navigating the US Landscape of PFAS Regulations

Key Insights:

• New Environmental Protection Agency (EPA) drinking water standards and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) designation of PFOA and PFOS as hazardous substances show increased US regulation and an expanding scope of potential liabilities across the supply chain.

• Initially, PFAS litigation targeted manufacturers, such as 3M, Chemours, and DuPont, for historical and extensive pollution, though more recently, it has expanded to include companies across the entire PFAS supply chain, such as clothing and shoe manufacturers.

• Companies must intensify efforts to identify and mitigate PFAS-related risks, as investor pressure is mounting for businesses to demonstrate robust PFAS risk management and set clear phase-out plans.

Per- and polyfluoroalkyl substances, commonly referred to as PFAS, is the umbrella term for over 10,000 synthetic chemicals known for their non-stick, stain-repellent, and waterproof properties.¹ Among this group of chemicals, perfluorooctanoic acid (PFOA) and perfluorooctanesulfonic acid (PFOS) are, historically, the most widely used and researched. One of the significant concerns with PFAS is their ability to accumulate and remain in the human body for an extended period of time, which can lead to severe health risks. Scientific studies have documented the health hazards associated with PFOA and PFOS, such as cancer, liver damage, and negative effects on the immune system.²

PFOA and PFOS have become the primary focus of regulatory efforts, rather than the entire PFAS group. Yet many additional PFAS substances are likely to be subject to similar regulation. This is already the case in Europe through the PFAS restriction proposal,³ which aims to ban PFAS as a category, rather than on an individual, per-chemical basis. In the US, the new Environmental Protection Agency (EPA) drinking water standards and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) designation of PFOA and PFOS as hazardous substances demonstrate this increased oversight and the expanding scope of potential liabilities across the supply chain (see Figure 1 below). 

Figure 1. Understanding the PFAS Family: Differentiating Between PFAS, PFOA and PFOS

Regulatory scrutiny, coupled with the potential for financially material fines, settlements and cleanup costs, poses considerable corporate risk. However, it also offers opportunities for innovation, particularly in creating PFAS-free products. For investors, this shift requires more detailed due diligence to ensure that risks are managed effectively, and potential financial implications are thoroughly considered. Building on the insights from our coverage on the regulation of so-called forever chemicals,⁴ this article explores the latest regulatory developments concerning PFAS in the United States.

PFAS Litigation Risks and Controversies

Morningstar Sustainalytics assesses companies’ risks from PFAS-related incidents through our controversies research, which informs part of the ESG Risk Rating. Controversies are rated on a scale of one to five: a rating of one represents the lowest risk to the company, as well as minimal impact on the environment and society; while a rating of five reflects the most severe incidents, posing significant business risks and impacts on the  environment and society. The differences between the controversy ratings reflect the varying levels of contamination, the extent and magnitude of litigation, and the financial materiality of the litigation, settlements and fines for companies.

As shown in Table 1 below, initially, PFAS litigation targeted manufacturers, such as 3M, Chemours, and DuPont, for historical and extensive pollution.⁵ More recently, it has expanded to include companies across the entire PFAS supply chain, such as clothing and shoe manufacturers (e.g., Wolverine Worldwide), carpet manufacturers (e.g., Mohawk Industries), fire safety product makers (e.g., Johnson Controls International), and building products companies (e.g., Daikin Industries).^6,7

The environmental remediation controversies include large multidistrict lawsuits related to PFAS contamination, concerning the pollution of drinking water and soil. Whereas the personal liability controversies relate to individuals seeking compensation for a variety of long-term health issues caused by exposure to PFAS. Although monetary values vary significantly depending on the specifics of each case, environmental remediation lawsuits represent the bulk of monetary penalties.

Table 1. Select Companies Involved in PFAS-Related Controversies

_{Source: Morningstar Sustainalytics⁸}

Key PFAS Regulatory Developments in the US

CERCLA Designation of PFAS 

CERCLA, commonly referred to as a superfund,⁹ is a federal law that enables the EPA to hold polluters accountable for the costs associated with cleaning up sites that pose a threat to human health and the environment. CERCLA targets current owners of polluted sites and any party who formerly owned or operated a site.

On April 17, 2024, the EPA classified PFOA and PFOS as hazardous substances under CERCLA. This classification is significant, as it allows the EPA to pursue those responsible for PFOA and PFOS pollution. Companies from the following categories are liable:¹⁰

• Current owners and operators of a facility where hazardous substances are located.
• Owners and operators of a facility at the time that hazardous substances were disposed at the facility.
• Generators and parties that arranged for the disposal or transport of the hazardous substances.
• Transporters of hazardous waste that selected and brought hazardous substances to the site.

PFOA and PFOS have been in production since the 1940s, leading to widespread contamination due to their extensive use in industrial and consumer products, poor waste management practices, and their bioaccumulative properties. As a result, the liabilities are likely to extend to more companies than previously thought and into supply chains. 

New EPA Drinking Water Standards 

On April 10, 2024, the EPA announced limits for six types of PFAS in drinking water, under its National Primary Drinking Water Regulation (NPDWR). Under this regulation, the EPA established legally enforceable levels (i.e., Maximum Contaminant Levels) for six PFAS in drinking water.