Entitled, Beneath the Skin and published by the Investor Environmental Health Network (IEHN), the report states that growing pressure over health risk information, European and US regulatory changes and consumer pressure, could in turn lead to 'significant implications for investors'.
The report also hits a pertinent note, having been published in the wake of a spate of news reports highlighting irregularities in the way personal care products are regulated in the US.
Indeed, in recent weeks a flurry of reports have been written on the back of a report published by the Environmental Working Group highlighting the fact that many cosmetics currently on sale in the US have levels of toxins in them that might result in a potentially harmful cumulative effect.
In view of this, financial researchers Innovest Strategic Value Advisors released a report on February 8 highlighting how such toxins in personal care products might result in a loss of market share and loss of market access for cosmetic players.
The report also followed publicity at the end of January concerning the 500 cosmetic and personal care players that have signed up to the Campaign For Safe Cosmetics, including prominent companies such as The Body Shop.
Describing the current scenario as 'a ticking time bomb', the IEHN report claims that currently action by the FDA to combat this type of problem is only triggered by the publication of damning research, often by lobby groups or personal care companies.
"The result is a system that permits significant consumer exposure to occur before sufficiently rigorous safety testing is conducted - ultimately, a game of roulette which places consumers, manufacturers and investors at risk," said Sanford Lewis, an attorney specializing in corporate accountability and one of the report's authors.
According to the report the US cosmetics industry currently uses around 15 per cent of the 75,000 chemicals legally registered in the US, but the FDA bans or restricts a total of just nine chemicals on that list.
Both the use of nanotechnology and phthalates have come under particular scrutiny, but many other ingredients and chemicals linked to cancer have also given rise to concern.
"Once they surface, health hazards may pose a serious threat to brand loyalty with significant implications for profitability and market share, " said Lauren Compere, a director at Boston Common Asset Management, an investment company that has already introduced shareholder resolutions on safer cosmetics.
The report also highlights the fact that weak regulation within the US industry could also hold back the marketing of US cosmetic and personal care products in Europe, because often formulations do not comply with stricter regulations there.
At the end of 2006 the European Commission introduced REACH, a regulation that banned more than 1,000 chemicals for use in cosmetic products - action that made entry for many US-based personal care players evern more difficult.
Likewise the first signs of tighter regulation in North America are starting show. Recently tighter regulation of cosmetic products by the state of California and Canada came into being, putting further pressure on the FDA to rethink its regulation.
But as long as the US market continues to remain under the current regulations, the report suggests that it is going to be the responsibility of personal care players to ensure that they are implementing policies that reassure both consumers and investors over health issues.
"Companies that proactively reformulate their products based upon emerging concerns about chemical safety will enhance their competitive positioning and position themselves to avoid future regulatory costs," said Karen Shapiro, shareholder advocacy associate with Domini Social Investments, a company that has helped to introduce resolutions at Avon.
"A cosmetics company that explores less toxic reformulations, embraces a greater degree of pre-market testing for health impacts, and expands its positioning in the use of natural ingredients stands to gain," the report concludes.
