Moving Risk Management to the Nano-scale (Literally and Figuratively)

One problem with the implementation of risk management (the identification, reduction, and allocation of negative contingencies) as a process is size. Let’s face it, broad-based risk management takes a back seat in small organizations for which the narrow risks of short term sustainability and future profitability drive virtually every move. While that may be understandable, in our increasingly connected world it can also be tragic, and extraordinarily wasteful for society. A looming and ominous example is the nascent (or perhaps adolescent) field of nanotechnology.

A few facts are in order to illustrate the point. Nano-scale refers to materials whose individual unit size is in the range of one billionth of a meter. Initial research noted that certain materials engineered at this scale demonstrated extraordinary properties, including electrical conductivity, data storage, and tensile strength to name a few. From a national research initiative announced by President Clinton in 2000 to the present, the field has grown exponentially, and nanomaterials are well entrenched in the stream of commerce, representing $229 billion in product sales in 2009, $159 billion of which were consumer product sales. Engineered Nanomaterials (ENM’s) are currently found in more than 1,000 products including drug delivery systems, stain resistant clothing, paints, building materials, solar cells, cosmetics, and food additives. Not only are ENM’s very small, but so are the firms that make them. At present, there are at least 1,000 nanotechnology businesses in the U.S. that employ fewer than 25 employees. So small is beautiful, and small firms are having a big impact, and the world is a better place for it, right? Maybe not.

In a recent (Nov. 2011) white paper by insurer and reinsurer Gen Re titled “Nanotechnology – The Smallest and Biggest Emerging Issue Facing Casualty Insurers?” available here, it was noted that more than a dozen animal studies have concluded that ENM’s can cause pulmonary fibrosis (lung scarring similar to asbestosis), while other studies have linked exposure to pulmonary inflammation or neurological changes. The potential risks of ENM are (and were) easy to contemplate even without these studies. Nanoscale materials because of their size are (or at least conceptually are likely to be) able to impact subcellular structures (i.e. DNA strands), and cells, and accumulate in areas within the body, because they are smaller than the size of particles the body is able to filter. With known transport mechanisms, anything humans or animals ingest or otherwise interact with are also likely to impact the environment. Notwithstanding these obvious risks, nanotechnology is largely, if not completely, unregulated at present. Even at the occupational or manufacturing exposure level, initial surveys by National Institute for Occupational Safety and Health (NIOSH) found many employees routinely exposed to airborne nanomaterials with useless or non-existent protection. For consumers, there are at present no nano-specific labeling requirements, and no maximum exposure levels for ingestion. Yet with more than a $100 billion in consumer product sales per year, exposure to ENM’s is not a potential, but a well-established and growing fact. Is this cause for alarm? The next mass tort nightmare?

The problem is, when it comes to the environmental, health, and safety effects of ENMs, we don’t know what we don’t know. We also don’t know how to measure what we don’t know, or even how to talk about what we don’t know. This dearth of knowledge, together with a plan to address it, is the subject of an extensive 2012 paper by the National Academies of Science titled “A Research Strategy for Environmental, Health and Safety Aspects of Engineered Nanomaterials” available here. How did this happen? Why is no one effectively managing this 10+ year old risk?

New technologies frequently emerge from small research-based enterprises, and with the global economy these technologies can substantially impact millions of people and the environment in a short period of time – yet because society does not mandate risk management for all, the potential for global consequences before risks are even identified is increased. The current regulatory regime that focuses regulations by product type, e.g., food and drugs, which applies different safety standards for each (e.g. food additive vs. prescription drug) and avoids obvious human exposure pathways (e.g. cosmetics), will never be up to the challenge of protecting the public from new risks. What is needed instead is the adoption of risk management as a process, by individuals, by start-ups, by mature enterprises, and by governments that crosses all product lines and all technologies, existing, and to be imagined. What would such a regulation look like? How could it be implemented? I will leave the fine points to others, but here is a template:

“Before engaging in the research, development, manufacture, distribution and/or sale of a new material, application, or process, a person or entity must consider the risks to human health, safety, and the environment, and take reasonable measures to identify, reduce, and allocate such risks.”

On some levels this is nothing more than the codification of the reasonable man standard in negligence law. But if this, or something like it, was enacted into law, with consequences for the failure to engage in the risk management process, we just might universalize risk management and get a jump on the next big thing – before it gets to be the next big thing.

If you have questions, please contact Joseph S. Sano, a partner in Prince Lobel’s Insurance and Reinsurance Practice. You can reach Joe at 617 456 8000 or jsano@PrinceLobel.com.