Dow Chemical - Issue Analysis

Financial Concerns:

Special Report - Dow Chemical: Risks for Investors Are Major

 Investor Risks Under the Radar at Dow Chemical?

On April 19th, 2004 - Innovest Strategic Value Advisors Inc., the global leader in analyzing “non-traditional” drivers of investment risk and out-performance and higher corporate social responsibility standards announced the release of “Dow Chemical: Risks for Investors.” 

The 103 page report details the significant unreported, or underreported environmental risks facing the company.  Some Key Findings of the report include:

•    Bhopal: The Bhopal disaster is an ongoing concern with significant potential to harm the company’s reputation or pose material liabilities, as well as constrain the company’s investment in Asia. Continuing and heated controversy over reparations to victims, deaths and birth defects related to methyl isocyanate exposure, and pollution of the city’s water supply could result in potential legal liability.  Dow’s wholly owned subsidiary, Union Carbide has been deemed an “absconder from justice” for failing to appear before the courts in India to face criminal charges stemming from the disaster.  Efforts are underway in India to have the courts place responsibility on Dow to require Union Carbide to appear as a defendant in the criminal case.  On March 17, 2004 an Appeals Court in New York ordered that US courts consider requests for remediation of contaminated soil and groundwater by Dow/Union Carbide.  The Appeals Court’s decision would allow some residents to sue for loss of property value and clean-up of contamination.  Further, the Court upheld the plaintiffs' right to seek medical monitoring from Dow for injuries and symptoms related to exposure to contaminated groundwater.  Between 15,000 – 20,000 are estimated to have died as a direct result of the disaster or from health problems related to it.  The $2.18 trillion market currently under SRI management world-wide may remove Dow as a potential investment as a result of these controversies.   

For a printable pdf version of the Bhopal chapter please click here.

•    Dow Faces Market Risk from Organochlorine Investments: Dow could be pressed by markets and regulations to reduce its production and marketing focus on organochlorine chemicals as a result of mounting scientific findings regarding ecological and human health impacts of organochlorine toxins, dioxins & furans in particular. 

•   Agent Orange: The company is involved in multiple suits resulting from past involvement in Agent Orange manufacturing.  U.S. Vietnam veterans are again seeking restitution for exposure related health problems.  Numerous foreign veterans groups and Vietnamese citizens affected by Agent Orange exposure are also seeking compensation from manufacturers.

•   Contamination in Michigan: Dow may incur potentially material liability related to dioxin contamination of more than 22 miles of the Tittabawassee River as well as sections of the Saginaw River and Saginaw Bay in Michigan. A class-action lawsuit involving more than 300 plaintiffs is currently in discovery.

•   Semi-conductor Worker Liability: Union Carbide, a wholly owned subsidiary of Dow since 2001, is currently involved in litigation stemming from the semiconductor industry, to which it is a supplier, involving claims of worker exposure to hazardous chemicals.

Current Financial Obligations: The above issues, added to Dow’s well known obligations under asbestos and breast implant litigation, and a  $10.7  billion in debt and a debt-to-capital ratio of 53%, point to further strain on company reserves and thus increase the potential financial risks associated with Dow’s overall product and environmental liability scenario.
 
For a printable pdf version of the complete report please click here.
 
 
Dow Investor and Analyst Briefing
 
The chemical industry has long had significant environmental risks associated with its operations.  But are investors getting the full story? This year Dow chemical will face a shareholder challenge regarding its liabilities relating to the chemical plant disaster in Bhopal, India - the worst industrial accident in history. Proxy analysts, investors and media attended an expert briefing at the Harvard Club on April 21, 2004.  
 
Speakers included:

• Marc Brammer, Innovest Senior Analyst,  Author - Dow Chemical Report

•Dr. Joe Thornton, Professor, Center for Ecology and Evolutionary Biology, University of Oregon

•Lauren Compere Chief Administrative Officer Boston Common Asset Management

•Sanford Lewis, the lead attorney filing the Bhopal Resolution for Dow’s 2004 Proxy Statement 
 
The expert briefing primarily focused on potential liabilities related to Bhopal but also cover other issues facing Dow that were not reported on, or were under reported, including Agent Orange liability, contamination in Midland, MI., and general environmental risks associated with organochlorine chemicals, a product group central to Dow’s business strategy.
 
To hear an audio recording of this briefing please click here.
 
To view the power point presentation shown at the briefing please click here.
  
 
Legal Concerns:
 
Legal Summary
 

• Dow asserts that legal liability for Union Carbides role in the Bhopal disaster has already been settled. Shareholders assert that this is not the case and as Union Carbide is a wholly owned subsidiary of Dow that this presents potentially significant legal risk.
 

• In 1989, Union Carbide made an out of court settlement with the Indian government to pay $470 million as compensation to the victims of the gas tragedy. The Supreme Court of India in 1996 ruled that the out of court settlement did not mean that Union Carbide and its officials could not be criminally charged. To date, Union Carbide and Warren Anderson, the long retired CEO of Union Carbide Corporation are considered absconders or fugitives from justice, in the criminal charges of culpable homicide filed against them by the survivors of the tragedy. 
 

• Victims had filed a case against Union Carbide and its former executives in U.S. courts asking for the case to be revived with new claims of health impacts from contamination of ground water around the factory complex in Bhopal. This case was thrown out of the court on grounds that claims should have been filed within three years of becoming ill. The Appeals Court in March 2004 upturned this decision allowing litigation in American courts for cases of property damage of the plant’s neighbors and also for personal injuries relating to environmental contamination arising from the factory complex. The Indian Government has been invited by the Appeals Court to seek remediation of the site addressed in U.S. courts.
 
 
New York Court of Appeals Decision
 
To view the text of the March 2004 decision please click here.
 
 
 
Health and Environmental Concerns:
 
Health Impact Summary

The Bhopal disaster though it occurred nearly twenty years ago, poses a continuing crisis for the residents of Bhopal. Many of the survivors and their children continue to suffer serious health effects.

Epidemiological findings from 1996-2002 carried out by the Government of India, conclusively show that rates of respiratory, eye and gastrointestinal diseases are many times higher in gas-affected areas. Pregnancy outcome studies on women who were pregnant at the time of the disaster have shown that the spontaneous abortion rate was almost three times that of the national average.

There is also reportedly a rise in cancers, tuberculosis, reproductive system problems and other problems such as growth retardation among children born after the disaster. A study on growth and development of children whose mothers were exposed to the gases during pregnancy revealed that majority of children had delayed gross motor and language sector development.

It is estimated that of the over half a million people exposed to Union Carbide’s toxic gases, close to 150,000 people continue to suffer from exposure induced chronic illnesses. Breathlessness, persistent cough, diminished vision early age cataracts, loss
of appetite, menstrual irregularities, recurrent fever, back and body aches, loss of sensation in limbs, fatigues, weakness, anxiety and depression are the most common symptoms among survivors.

The toxic contamination of ground water is also likely to lead to increased health problems in the future.

Environmental Impact Summary

The environmental contamination of the site – much of it created prior to the chemical disaster has rendered the city a dangerous place to live. Thousands of tons of toxic wastes, including obsolete pesticides such as the persistent and bio-accumulative poison HCH and persistent metals such as mercury, have been abandoned at the factory site. Mercury levels in some areas are 6 million times the background values. The groundwater carries high loads of heavy metals, persistent chemicals and solvents, and chlorinated chemicals.

Although a portion of the residents have access to overhead tanks of clean water,
many of the nearly 20,000 people living in the vicinity are routinely exposed to
these chemicals in their drinking water from local wells. The economy, environment and public health of the city of Bhopal remains devastated by the chemical disaster.

US Congress Letter to Dow
To view the view the letter from US Congress representatives to Dow's CEO please click here.

For a printable pdf version of the complete report please click here.