ESG Focus: PFAS Mean Serious Damage

ESG Focus | May 19 2020

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
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PFAS Mean Serious Damage

A landmark legal case has raised questions of liability around the presence of contaminants in soil as landowners face costly remediation that may devalue contaminated land, including ASX-listed companies.

-Evolving understanding of chemical hazard presents a risk to investors in effected sites
-Investors in select projects may expect remediation costs to devalue their investments

By Danielle Austin

Mandated remediation of land contaminated by perfluorinated alkylated substances (PFAS) is likely to devalue the investment potential of affected property, as well as produce a multi-million clean-up bill for ASX-listed companies.

As State Environmental Protection Authorities (EPAs) enforce stricter regulations to control the contamination of the potentially carcinogenic chemicals, many landowners or potential investors in land which has historic use of PFAS, or is located near land with historic use of PFAS, may face a devaluation of their investment.

Owners, as well as prospective purchasers and developers, face the potential of contamination risks, uncertain health impacts of PFAS, and extensive remediation costs. Each of these factors can contribute to a devaluation of the land, as well as potential redevelopment returns as EPAs could enforce extensive remediation programs as a condition of redevelopment approval.

PFAS are a group of chemicals widely used since the 1950s, including in household and industrial products that resist heat, oil, stains, grease and water. PFAS have been used in firefighting foams since the 1970s, thanks to their effectiveness in fighting liquid fuel fires.

These foams were used extensively in both firefighting training and real firefighting occasions around Australia until 2007. This included being used for training drills on concrete or bare soil, which are routine practice at fire-risk sites including defence facilities, airports, fire training facilities, fuel storage facilities and major hazard facilities.

While updates have been made to these foams to remove types of PFAS, the replacements, still containing some strains of PFAS, continue to be used at primary fire-risk sites. This means PFAS contamination from these sites and disposal of wastage will continue to be an issue in the future.

The compounds in PFAS have been found to be highly persistent in the environment and to bio-accumulate in human and animal tissue. They also have the ability to travel distances through soil and water to contaminate groundwater.

On top of this they are known to be potentially carcinogenic and have been linked to elevated cholesterol, thyroid disease, liver and kidney damage, and effects on fertility and low birth weight.

Many of these chemicals have been banned since 2004 under the Stockholm Convention on Persistent Organic Pollutants. By Australian government estimates more than 8,000 kilotonnes of land across the country is likely to need some form of remediation due to PFAS contamination.

Australia has seen significant growth in hazardous waste over the last eight years, with national contaminated soil tonnages almost doubling in three years, and 80% of the increase in contaminated soil occurring in the last two years.

As understanding of these chemicals has increased in recent years, state-level regulators have increased actions to reduce potential environmental and health risks, adopting stronger precautionary measures.

These measures have raised questions around the legal accountability for contaminated land as the chosen liable party looks likely to foot the bill for remediation processes.

Landmark Class Action Suit

A landmark class action suit was announced in 2019 involving 40,000 individuals suing the Australian Government for financial compensation for property value losses due to PFAS contamination.

The class action relates to eight locations near several Defence sites. With settlement having been reached in cases brought by property owners near military bases in Katherine in the Northern Territory, Williamtown in New South Wales, and Oakley in Queensland, it appears that liability is being placed with the entity that originally made use of the chemicals, although it is still early on in the litigation process to draw firm conclusions.

This class action, the largest in Australia, involves individuals who live near or on, or work on, eight military bases that include Darwin (NT), Wagga Wagga (NSW), two in Townsville (QLD), Bullsbrook (WA), Edinburgh (SA) and Wodonga (VIC). Lawyers continue to investigate a further 17 military sites across the country.

On top of this a number of companies have already identified exposure to PFAS contamination at various project sites. This includes Transurban ((TCL)) and Cimic Group’s ((CIM)) West Gate tunnel project, Qube Holdings’ ((QUB)) Moorebank Logistics Park, Orica’s ((ORI)) Botany Industrial Park, Caltex Australia’s ((CTX)) Kurnell conversion project, Orora’s ((ORA)) ex-Petrie Mill site remediation costs, Qantas’ ((QAN)) Brisbane Airport PFAS spill, as well as ongoing investigations at Bankstown, Mackay, Gold Coast and Brisbane airports.

The presence of PFAS in land has already caused significant disturbance to the $6.7bn West Gate Tunnel project, with road toll operator Transurban and the State Government unable to agree on how to treat and dispose of contaminated soil.

The Melbourne project is expected to be delayed by at least a year despite the State Government saying they will hold the company to its contracted 2022 completion date.

According to the contract, Transurban could stand to lose millions of dollars if the project is not completed on time, as well as a loss in road roll charge revenue.

Despite Transurban hiding data on PFAS contamination from investors for a year, results from three soil samples found PFAS levels were between 110 and 2000 times the set trigger point – the point where the level of PFAS contamination presents a concern to the EPA.

Points Of Consideration

What does this mean for potential investors? The presence of PFAS in soil should be a consideration for investors looking at property that has a history of PFAS use, or is nearby land with historic PFAS use.

There are several risks that investors should take into consideration:

  • Land redevelopment: PFAS land contamination may be a roadblock to receiving consent to redevelop land and developers may have to foot the bill for extensive land remediation before redevelopment can begin.
  • Changes in EPA rules: While existing EPA rules apply, as more information around the management of hazardous chemicals is understood, the EPA holds the power to control the management and maintenance of contaminated land. Landowners may be subject to future mandates and be responsible for costs from clean-up and prevention notices issues by the EPA, despite not having caused the initial contamination.
  • Liability for damage: It is possible that landowners will be liable for PFAS contamination of third-party land or groundwater, where their property was the initially source of contamination. This could include potential negligence or nuisance claims.

FNArena's dedicated ESG Focus news section zooms in on matters Environmental, Social & Governance (ESG) that are increasingly guiding investors preferences and decisions globally. For more news updates, past and future: 
https://www.fnarena.com/index.php/financial-news/daily-financial-news/category/esg-focus/

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