Global Supply Chain under the Paris Agreement: The Relevance of Chemical & Product Regulations

(Published in: Natural Resources & Environment, Volume 31, Number 3, Winter 2017 [Article PDF])

By Catherine K. Lin and Philip A. Moffat


The Paris Agreement commits all parties to make “nationally determined contributions” (NDCs) via domestic laws to limit “the increase in the global average temperature to well below 2 °C above pre-industrial levels.” This article considers how this “bottom up” approach to limiting greenhouse gases (GHG) emissions can interact with the operations of global supply chains, as the latter can exert profound effect on local and national development.

Aided by the theory of Transnational Legal Process, we propose that resilient global supply chains can be had under NDCs, if the scope of certain existing chemical- and product-oriented environmental regulations that already apply to global supply chains can be expanded to cover, as appropriate, GHG emissions, energy use, water conservation, and/or use of natural resources key to mitigating climate change impacts. This could include: (a) the principles of “no data, no market,” mandated supply chain communication, and the authorization for or restriction of the placing of deleterious substances or products on the market as exemplified by the EU Regulation on Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH);(b) the restriction of certain raw materials from finished products as is under RoHS; and/or (c) the requirement that due diligence be performed to trace the source of certain problematic raw material as exemplified by Section 1502 of the Dodd-Frank Act.

If so enacted, enterprises and their suppliers may be encouraged to shore up environmental compliance up and down the supply chain, strengthening its resilience even in the absence of formal legal requirements to do so by all DNCs. As such, we would be less concerned that the bottom-up approach under the Paris Agreement could lead to a “race to the bottom” by countries seeking to implement NDCs that favor development over environmental protection or be a “free rider” by delaying their own NDC implementation while awaiting for other countries to curb GHG emissions. Instead, resilient, self-governing global supply chains could become fora for a transnational process where global norms for domestic laws on GHG reduction could emerge from the Paris Agreement.

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New chemical footprint tool released.

Clean Production Action, an environmental nonprofit, and the Lowell Center for Sustainable Production at the University of Massachusetts Lowell yesterday announced the launch of a new tool for companies and investment firms to measure suppliers’ use of safer chemicals and evaluate their own progress towards sustainability. The Chemical Footprint Project (CFP) is a third-party benchmark facilitating the comparison of corporate chemical use practices, conceptually similar to carbon footprint metrics.

The CFP defines “chemical footprint” as “the total mass of chemicals of high concern (CoHCs) in products sold by a company and used in its manufacturing operations.” The CFP identifies chemicals of high concern as all chemicals on California’s Safer Consumer Products list of Candidate Chemicals.

The CFP’s Steering Committee and Technical Committee members are drawn from several major corporate and nonprofit stakeholders, including Target, Staples, Kaiser Permanente, Hewlett-Packard, Seagate Technology, ChemSec, Environmental Defense Fund, and the U.S. Green Building Council.

According to the Project’s press release, the CFP is “the first initiative to publicly measure overall corporate chemicals management performance by evaluating:

  • Management Strategy
  • Chemical Inventory
  • Progress Measurement
  • Public Disclosure.”

The Project is expected to be fully operational in early 2015. The CFP is only the latest initiative to measure and manage the environmental and health impacts of products based on chemicals in supply chains. In October, the World Business Council for Sustainable Development released a guidance document on life cycle assessment (LCA) methods for chemical products. Last year, retailers Target and Walmart both announced sustainable chemical products programs which were both based on private standards.

Partnering with EPA's Design for Environment at Walmart Sustainable Products Expo.

EPA is a significant partner to companies leading innovation efforts in the arena of safer consumer products, according to Assistant Administrator Jim Jones, of EPA’s Office of Chemical Safety and Pollution Prevention. In a blog post yesterday, Jones describes how EPA’s Design for Environment (DfE) program recently participated in a “Supplier Panel on Sustainable Chemistry” at Walmart’s first ever Sustainable Products Expo, which brought together leaders from EPA, NGOs, and product manufacturers.

As we have previously discussed, EPA’s DfE program – which establishes voluntary sustainability-related standards for consumer products like household cleaners – plays a major role in Walmart’s Sustainable Chemistry Initiative. Jones writes that EPA’s contribution is “providing scientific expertise and understanding of health and environmental impacts throughout the supply chain, educating consumers and companies alike, and bringing people to the table to stimulate dialogue and partnerships.” Jones notes that with “growing consumer recognition” and trust for the DfE’s “Safer Products” label and program criteria, EPA’s partnerships with companies like Walmart and its participating suppliers can promote sustainability, health, and the environment while meeting consumer demand and growing their business.

The Expo also featured announcements from Walmart and its suppliers of various new sustainability commitments and initiatives. One such initiative is the Closed Loop Fund, which will invest $100 million seeded from suppliers including Coca-Cola, Pepsico, and Johnson & Johnson in recycling infrastructure with the goal of “transforming the recycling system in the United States.” Cargill made commitments to increase supply chain transparency in beef and Procter & Gamble pledged to reduce water use for liquid laundry detergent. Together, the suppliers participating across all of these voluntary sustainability efforts account for over $100 billion in sales at Walmart.

Walmart’s sustainable chemicals policy promotes transparency and DfE.

Last month, Walmart released the details of how its sustainable chemicals policy will be implemented, a move that will likely push suppliers to use safer chemicals in reformulating consumer products like cosmetics and cleaners. Walmart’s chemicals policy was first announced in September, and was quickly followed by the announcement of a “Sustainable Product Standard” developed by rival retail chain Target.

Walmart’s Sustainable Chemistry Implementation Guide is aimed at suppliers and provides details, resources, and metrics by which suppliers will be evaluated in their efforts to meet each element of the policy. The policy draws on various preexisting governmental, private sector, and voluntary programs addressing various aspects related to safer chemicals in products, particularly U.S. EPA’s Design for Environment (DfE) program.

The policy identifies “Walmart Priority Chemicals,” which are compiled from a list of authoritative and regulatory lists, including the EU’s endocrine disruptors priority list, various REACH lists, IARC’s and the U.S. NTP’s carcinogens lists, and California’s Proposition 65 developmental and reproductive toxicants list. From that compilation, the company has selected a subset of “approximately ten” “Walmart High Priority Chemicals,” which have not been publicly identified because of “business reasons.” Suppliers will learn whether a product contains a Walmart High Priority Chemical through The Wercs, a company whose WERCSmart platform facilitates the submission of product formulation information and lets retailers access and compile regulatory compliance and hazard communication data. The list of Walmart High Priority Chemicals is described in the Guide as “proprietary to Walmart,” and suppliers who are notified that their product contains a Walmart High Priority Chemical are asked not to disclose or use that information outside the supplier’s organization.

The Implementation Guide organizes the policy’s elements into three categories: (1) transparency; (2) advancing safer formulation of products; and (3) DfE in private brands.

Transparency: Suppliers will be measured based on, for example, the percentage of products (“by number of UPCs and sales”) for which formulation information has been fully disclosed to The Wercs. Walmart expects its suppliers to disclose product ingredients on their own websites, on a product-by-product basis, by January 2015; priority chemicals are to be disclosed on product packaging by January 2018. The Guide refers to EPA’s DfE Standard for Safer Products as well as the Consumer Specialty Products Association’s Ingredient Communication Initiative for guidance on how suppliers should disclose ingredients.

Safer formulation: Suppliers will be asked to complete the Sustainability Index, a questionnaire-based program developed by the Sustainability Consortium, to report progress on chemical disclosure, risk assessment, and hazard avoidance. Walmart has been using the Sustainability Index to assess suppliers and their products since 2009, and has built the resulting scorecards into the way Walmart’s buyers work. Walmart will also evaluate suppliers based on their performance in reducing, restricting, and eliminating priority chemicals and Walmart High Priority Chemicals “using informed substitution principles.” The Guide recommends the tenets of the Commons Principles of Alternatives Assessments, and recommends certain Alternatives Assessment ingredient lists and methodologies. Suppliers’ performance will be quantified based on metrics including: the aggregate weight volume of priority chemicals; number of UPCs and sales volume of products with priority chemicals; and number of products formulated with only DfE-approved ingredients. Progress on the initiatives in this category will be compared to a 2012 baseline.

DfE in private brands: Starting this year, Walmart and Sam’s Club’s own brand of cleaning products will be reformulated and relabeled to meet the criteria of EPA’s DfE program. This program will be expanded to other product categories in the future, although the Guide did not specify further details. Progress on this initiative will be measured by the percentage of private brand products which are DfE-certified.

Walmart will begin monitoring progress of all the initiatives this year, and aggregate progress will be reported publicly starting in 2016.

U.S. retailer Target introduces sustainable product standard.

On October 7, 2013, Target announced a new Sustainable Product Standard that it will begin using this month to evaluate the sustainability and environmental impact of products sold in its stores.

Target said that it will ask “vendors representing 7,500 products in household cleaners, personal care and beauty and baby care” to provide product ingredients and information about various environmental attributes so that the company can assess products using GoodGuide’s UL Transparency Platform, a business-to-business screening tool that allows a company to evaluate ingredient information provided by suppliers. The Platform’s assessment tool will compare the product data to hazard trait and regulatory and other environmental criteria lists.

After being evaluated, each product will be assigned up to 100 points based on the sustainability of ingredients, ingredient transparency and overall environmental impact. Target’s announcement explains that the standard was developed “over the last two years in partnership with industry experts, vendors and NGOs.” The standard “will help establish a common language and definition for qualifying what makes a product more sustainable.”

According to Target spokesperson Jessica Stevens, the Sustainable Product Standard “does not have a direct guest-facing, in-store component,” so consumers will not see product assessment scores displayed in stores. Stevens explained that “products that pass a minimum threshold to be set by Target” will have access to special merchandising and marketing support.

Many environmental advocates like the Campaign for Safe Cosmetics and Breast Cancer Fund and Campaign for Safe Cosmetics were enthusiastic about the new standard. However, BizNGO chair and Clean Production Action co-director Mark Rossi expressed concern that the UL Transparency Platform is designed for information sharing between businesses and does not require any public disclosure; the platform’s proprietary nature means consumers and safety advocates have no access to the criteria used in its assessments. Although Target has not released any details on its scoring or standard benchmarks, it is expected to do so in the near future.

Target’s new Sustainable Product Standard follows its competitor Walmart’s announcement of its own “Policy on Sustainable Chemistry in Consumables,” which we discussed last month. Walmart’s policy is based on GreenWERCS, its own proprietary tool that assesses products’ chemical composition and screens for potential adverse human and environmental effects. Both retailers are taking steps to increase transparency and eliminate potentially hazardous chemical ingredients in their supply chains, although Target’s policy focuses on incentivizing safer products through its point-based standard, while Walmart’s approach is to eliminate certain chemical ingredients from products in their stores altogether.

Verdant Proudly Sponsors Prop.65 Clearinghouse's Green Chemistry Conference

Green Chemistry:

Verdant is pleased to announce its sponsorship of the Prop.65 Clearinghouse Green Chemistry Annual Conference.  This year’s conference will be held on Tuesday, April 9, 2013, at the The City Club of San Francisco, 155 Sansome Street.

  • Verdant attorney, Philip Moffat, will present on “REACH 2013.”
  • Verdant attorney, Catherine Lin, will present on “Supply Chain Management.”

More information about the conference is available here and an agenda is available here.   A copy of Mr. Moffat’s presentation is available here [PDF].

Beyond Compliance: New Chinese Pharmaceutical Excipient Regulation is No Substitute for Taking Common Sense Steps to Protect Supply Chain (Part Two)

This is the second in a two-part analysis on China’s new Pharmaceutical Excipient Measures. Part One is available here.

On February 5, 2013, SFDA circulated for comment the first batch of 28 excipients that are subject to registration. This list covers gel capsules as well as excipients used in sterile injectable formulations — those derived from natural sources and those with specific toxicological concerns.  It is not known if and when additional excipients will be added to this list or what set of risk characteristics might be considered in making such a decision.   Also unknown are the general criteria SFDA will use to determine “high risk” for excipients.  It is likely that SFDA will continue to add excipients it deems to be high risk to this list on a case-by-case basis; notwithstanding that, absent a clear definition of risk, such an approach could discourage the development of new excipients.

Arguably, before detailed compliance steps can be taken, further clarification from the SDFA is needed.  For example, in terms of procedures and data requirements, does the SFDA envision that the documentation required to be submitted to register a new or listed excipient will be the same as those set out in the (heretofore unmentioned) “Pharmaceutical Excipients Registration Data reporting Requirements” (SFDA Notice No. 61, 2005)? Or will new, and as yet unidentified, data requirements be imposed by the SFDA at the later date?  Likewise, the Measure does not set out what specific issues must be addressed by the quality agreement before it is considered to meet the new obligations placed on the parties by the Measure.  Perhaps parties may consider using model quality agreements currently available from a number of US or EU based trade associations in lieu of clear guidance from SFDA.

Still, the commercial implications of the Pharmaceutical Excipient Measure can be far-reaching.  First, the e-GMP and registration requirements may drive the excipient market towards consolidation, as the larger and more technically advanced suppliers are likely to be better positioned to meet such obligations.  Thus, for drug makers – particularly, those relying on a single supplier, it will be critical to ensure the continued availability of supply while the excipient industry transitions towards compliance with the Measure.  Second, the new excipient registration regime may favor the existing domestic excipients that are not considered to be high risk over the development or importation of innovative excipients that must be registered.  If so, this could discourage entry into the Chinese market (and possibly the global pharmaceutical supply chain) of new excipients which may better preserve the efficacy, safety, and/or stability of active pharmaceutical ingredients in the finished drug.  Should these trends occur, it may be necessary to re-examine the common belief of China as a source of low-cost excipients.

Beyond the larger industry trends, drug makers — whether operating within or outside of China — who obtain their excipients from distributors should be aware that the Pharmaceutical Excipient Measures is silent with respect to the obligation of distributors.   When distributors are not required to ascertain the source of the excipient, the quality and safety of their supply, or to otherwise follow good distribution practices (GDP), then the quality protection established by the Measure is unlikely to inure to the drug maker.   Instead, rigorous vetting of the distributor, periodic and rigorous audits, and a program of sampling and analyses as well as the GDP requirement will be necessary to protect the drug maker, as will the involvement of the drug makers’ legal departments to fashion contractual protection.

For drug makers that source their excipients directly from Chinese producers, the principle that the excipient users bear the ultimate responsibility for all excipients used governs.  If drug makers are to be held accountable, they need to approve any changes made throughout the supply chain, all the way down to the supplier of raw materials and excipients.   This means, beyond simple compliance with the Pharmaceutical Excipient Measures, drug makers must establish a supplier qualification and oversight program.  In addition, they should consider involving both their quality and legal departments to review supply agreements with their excipient producers.  Supply and quality agreements are often neither drafted nor executed at the same time nor by the same team of people.  Thus, involvement by both departments will help to align both documents.  Further, the supply agreement can be used to provide for commercial protections and remedies in the event of a breach in supply quality.

For drug makers located outside of China, it is paramount to employ a feet-on-the-ground approach to ensure the quality of raw material.  They should consider engaging those who are American-trained and who understand the high level of GMP guidelines issued by the U.S. FDA to conduct audits of Chinese excipient facilities, rather than relying on the regulatory authorities of the SFDA (and its provincial counterparts) under the Pharmaceutical Excipient Measures.  The recent tragedy of Heparin contamination [PDF] is illustrative:  The drug maker Baxter sourced Heparin from Wisconsin-based Scientific Protean Laboratories.  The latter makes the active ingredient for Heparin at a plant in China, which it co-owned with a Chinese joint venture partner.  Prior to the 2007 outbreak of contamination, Baxter did not audit the Chinese facility, as its supply contract is only with the Wisconsin-based entity.  The U.S. FDA also approved the Chinese plant as a supplier for Baxter without conducting a pre-approval inspection, in part because it confused this plant with another site in its database.  In fact, the Chinese plant was classified as a chemical plant and, therefore, unlikely to be registered with and subject to the oversight of SFDA.  Baxter stopped making Heparin in 2008 after it was linked to 350 illnesses and four deaths.

In recent years, concern for the quality of finished drugs has increased with the global spread of the supply chain.  Compliance with the Pharmaceutical Excipient Measures, therefore, should be seen as the necessary first steps for drug makers and excipient producers to forge stronger links in their supply chain – not only to ensure the quality and safety of the finished product, but also to improve the traceability of raw material further up the chain, so they can truly know the origin, production and handling of each batch of each excipient used.

China’s New Pharmaceutical Excipient Regulation Stresses Responsibility for Quality Assurance, Supply Chain Management (Part One)

This is the first of a two-part analysis on China’s new Pharmaceutical Excipient Measures. Part Two is available here.

On February 1, 2013, China’s “Measures to Strengthen the Supervision of Pharmaceutical Excipients” (Notice No. 212, 2012) (“Pharmaceutical Excipient Measures” or the “Measure”) came into force.  This Measure was issued by the State Food and Drug Administration (SFDA) in the wake of a recent drug contamination incident that began with the March 2012 discovery of 77 million medicinal gel capsules made from industrial gel containing chromium, a carcinogenic heavy metal.  The ensuing investigations led to the official announcement in May that 254 pharmaceutical suppliers, constituting 12.7% of capsule makers, were producing tainted products.  Ultimately, the authorities ordered 42 capsule makers to stop production, closed 84 production lines, revoked the licenses of seven companies, and referred 13 company officials for criminal prosecution..

The SFDA issued the Pharmaceutical Excipient Measures in August 2012, imposing new obligations on both pharmaceutical preparation producers (i.e., finished drug makers [“drug makers”] as distinguished from producers of active pharmaceutical ingredients) and excipient manufacturers.  The Measures place the responsibility for the quality of excipients directly on drug makers by requiring that they:  (1) audit suppliers both at the start of the business relationship and periodically throughout its duration, in accordance with the 2011 revision of pharmaceutical good manufacturing practice (GMP); (2) test batches of excipients according to relevant quality specifications; and (3) check the control records of each supplier.  Central to the drug maker/excipient producer relationship is the use of quality agreements: legally binding agreements negotiated by the parties to define mutual responsibilities for quality activities and how quality issues will be resolved, so as to ensure that the excipients produced under the agreement will be safe and are suitable for the drug maker’s intended use.

Likewise, excipient producers are responsible for taking measures to ensure the quality of their products, including:  implementing and adhering to excipient good manufacturing practices (e-GMP), as issued by the SFDA in 2006; auditing their own raw material suppliers; conducting testing on each batch of excipient produced; and notifying their customers of changes that may affect product quality.

In addition, the Pharmaceutical Excipient Measures set out an enhanced regulatory regime; namely, for drug makers, registration of their products will now include information identifying the types of pharmaceutical excipients used, suppliers, quality standards, and results of supplier audit.  Further, a supplemental application must be filed in connection with changes in excipient use and must include analytical data on the excipient as well as an audit of its supplier.

For excipients that are new to the (Chinese) market or considered high risk, prior registration and approval are required and their manufacturers must obtain a Drug Production License.  Excipient registration requirements include submission of certain requested documents and on-site inspection, in accordance with e-GMP, by provincial-level FDA (PFDA).  As for all other excipients, records of the product and its manufacturer must be established and maintained with the PFDA.  Again, appropriate documents must be provided, although on-site inspections and random testing will be conducted only as necessary.  Imported excipients will be regulated under this bifurcated scheme as well.  In addition, the SFDA will set up a national database to monitor the production and application of all pharmaceutical excipients, plus a credit reporting system for excipient producers.

For more on the Pharmaceutical Excipient Measures, read Part Two of our analysis.

DTSC Requests Public Comment on Another Draft of the Green Chemistry Regulations

California Green Chemistry Regulations:

The saga of California’s nascent Green Chemistry program continues. Last week, the Department of Toxic Substances Control (DTSC) released the revised text (PDF) of its proposed Safer Consumer Product Regulations. The comment period for the revisions started on January 29 and closes on February 28, 2013.

Notably, the revised rules significantly pare down the list of potential Chemicals of Concern (COCs), which are now referred to as “Candidate Chemicals,” from over 3,000 to approximately 1,200. The Candidate Chemicals  are drawn from lists of substances which exhibit one or more hazard trait. The revisions also clarify that the list of Priority Products to be regulated will be developed and updated through the Administrative Procedure Act rulemaking process.

In addition, DTSC modified the applicability of upfront exemptions for certain products, providing an exemption for products already regulated by other laws that provide comparable health and environmental protections. However, products which are manufactured, stored, or transported through California solely for use outside of the state, or used in California solely for the manufacture of non-consumer products will no longer be exempted, although these factors will be considered in the product prioritization process.

Requirements for the certification and accreditation of assessors involved in developing Alternatives Analyses (AA) have been relaxed in favor of a public review and comment process for AA reports, a choice that seems likely to increase the administrative burden and place confidential business information at greater risk. The scope of evaluating economic impacts for AA reports has also been limited to “a monetized comparison of public health and environmental costs, and costs to governmental agencies and nonprofit organizations that manage waste, oversee environmental cleanup and restoration efforts, and/or are charged with protecting natural resources, water quality, and wildlife.”

Finally, DTSC’s ability to make regulatory responses has been further refined and clarified. For example, the revised proposal requires DTSC to provide notice (with accompanying public comment period) of its proposed regulatory response determination no later than 90 days after it issues a notice of compliance or disapproval for a submitted AA report. The revised proposal also limits the agency’s ability to impose certain regulatory responses on manufacturers only, and not on retailers or importers.

More details on the revised proposed regulations, including how to submit comments and a comprehensive summary of changes from the agency’s last proposal, are available on the DTSC’s website.

China’s Ministry of Environmental Protection (MEP) Releases Regular Reporting Requirements for Four New Substances


On January 4, 2013, China’s Ministry of Environmental Protection (MEP) released regular reporting requirements for four new substances under its chemical registration regime. Two of the newly certified compounds are classified as hazardous and the other two as dangerous.  Under China’s new chemical registration regime, the “Provisions on the Environmental Administration of New Chemical Substances (MEP Decree No. 7),” companies with certificates must file annual reports to the Chemical Registration Center (CRC) of the MEP.  The reports detail activities that occurred with the registered chemicals.

This announcement marks the sixth set of chemicals to be certified under China’s registration program for new chemical substances. More details on the affected chemicals, as well as reporting deadlines and contact information with the Chemical Registration Center of the MEP, are available in the MEP’s original notice (in Chinese).