3M Company (MMM) Earnings Call Transcript & Summary

It's very important it's a sustainable solution. And both sustainability, the way Steve just described it in terms of reuse and regeneration, but also sustainable over long term. So when you think about, and Vijay kind of mentioned, the state of the regulations and where things are going, you're getting literally product bans in a whole class of different PFAS. You're getting things of reporting requirements if you're manufacturing or using a PFAS that how you're using it. But as a manufacturer or as a mediator, if you want, you're also having regulations that are driving essentially to 0, as I mentioned, part per trillion sorts of levels in the past. And so we're looking for a solution that not only is sustainable in terms of reuse, but also we know will be effective over time and we can use it over time. The economics, obviously, we're doing it because this is the most economic view. I mean it does take time, money and resources in order to do this, but it's not about economics necessarily just for us. I mean, we want to be a leader in sustainability. It's important for us, for our communities, our customers, our employees how we lead in sustainability. It's also one of those things that -- we're exiting manufacturing of PFAS by the end of 2025. So it's not a business decision. This almost fundamentally and very quickly will become about how we treat and the footprint of our factories and our facilities and how we remediate. Not necessarily about our production. We're exiting -- I mean we're out of the PFAS business by the end of 2025 and manufacturing the materials. And so this isn't an economics of production or ongoing business operations for 3M. It's about how are we showing up and how is our footprint and sustainability footprint happening in our communities and in our factories. So...

maybe, John, it does sound like 3M has been quite active in products and in addressing PFAS over the years. And I think part of the issue is that you don't really have this regulatory framework yet. But there has been some recent activity on the regulatory front regarding PFAS. Maybe, Vijay, a question for you. Could you outline the significant regulatory actions and new guidelines that have recently emerged concerning PFAS? Because it's been a moving target.

Yes, yes, yes. And I think the first part of that question is tied into what John and Steve were just talking about. So 3M has been really proactive. And I think as it relates to where the regulations have gone and what the technology now enables, let me frame it kind of in both context. So we work -- for those of you that don't know us, Montrose works a lot with many of the Fortune 500 companies. And as a result, we have the privilege and pleasure of spending time with the management teams of a lot of these companies. And I would say -- and this is my personal view, so please take it as such. But John and the 3M team are some of the most forward-leaning and stewardship-oriented management teams that we've met. And I'm not just saying that. I will reflect on kind of the first meeting that we had, where John spent, I think, a substantive part. And Steve, correct me if your recollection is different of the meetings speaking about 3M's commitment to water sustainability, stewardship, reducing the footprint, reducing waste. And the reason that's important in the context of where regulations have gone and what we've created together is, if you go back and look at why that was important to us and where the questions and challenges came up, when the ECT2, Montrose and 3M teams were thinking about how to solve these problems, sustainability weighed in heavily, right? And as a result, the byproduct of that innovation and that technology development is that the solution delivers a lot less waste, as Steve talked about, uses a lot less media, has a smaller footprint, uses less energy, is arguably safer for workers. And either John or Steve alluded to this, it's able to remove compounds to levels that are way ahead of regulation. And so I just want to make sure that, that point is clear. The question, Andrew, is around regulation, but a lot of the innovation was driven by stewardship decisions less than what the regulatory mandates were. And the reason that matters is now fast forward to today and what we knew 4 years ago and what we know now are quite materially different in terms of how the regulations have evolved. So if you think about the recent drinking water limits in the United States, or what's happened in Europe where they're regulating molecules like PFBA, the technology, because it was developed focusing on a broader removal and stewardship goals, can be dialed up and is very effective at removing them. Because it generates a lot less waste, if certain molecules get designated as CERCLA hazardous substances, like they have here in the U.S. with the 2 that John referenced, because you're able to concentrate the waste, you have less to dispose of, you have less -- your optionality for potential destruction is higher. And so what's been really compelling for us in this partnership is that the joint innovation is now enabling the application of the technology in broad ways beyond just what Montrose and 3M are working on. I'll give you kind of 2 discrete examples. There was a situation that we were involved in a couple of months ago in the western part of the United States, where there was a substantive PFAS bill. And our client and the regulators were quite worried about what the implication of that was going to be, and it wasn't quite clear exactly what the magnitude was and what was going to get accepted. And what we were all surprised by is that despite what the current limits are, the regulatory agency said they want all 40 compounds that are currently measurable under Method 1633 to be brought down to non-detect levels. So this is, to John's point, even below the part per trillion levels. Before they would allow us to discharge it. And what's really cool is this community benefited from the innovations that John and Steve and their teams developed, we achieved it. So we were able to effectively dial up, to my earlier point, the way this technology is applied. And because of that, we were able to remove all 40 compounds to non-detect levels, the water gets discharged, and we were able to help the community and help our client because of the innovation that came out of this, right? As another example, we're working with an ex-U.S. defense department that's really worried about some of these really hard to remove short chains like PFBA, and the technology is applicable there as well. And that's a large part of why we're getting pulled into the European market to help address some of those issues independent of what's happened with 3M. And so what's really compelling about this is the regulations have kind of shifted, Andrew, to your point, and to your question, at levels that were unexpected at very, very low thresholds. The hazard index includes kind of 4 additional ones, right? Those limits came out in April. You've got the CERCLA designation. You've got RCRA designations that are potentially on the horizon. But what's amazing, and I just want to make sure I hammer this point home, is because of the mindset that innovation was developed under, which is really more future forward-looking, it's applicable to what's happening in the regulatory environment, and it's helpful to a broader subset of constituents and communities, which is kind of ultimately what the mission and stewardship is all about. Does that...

No, that's a very comprehensive answer. So maybe given this regulatory portion, availability of technology that can effectively manage -- potentially can effectively manage even short-chain PFAS. What is the syndicate, sort of both 3M and Montrose, capacity to handle future regulatory standards?

Well, just building on what Vijay said, I think we're putting in the state-of-the-art technologies and capabilities. And so we feel confident that we're able to address ahead of and be proactive in addressing these, again, based on the technology, the innovations, and the systems that we're putting in place for our manufacturing sites, particularly here in the U.S. And so it was done under a view of trying to anticipate or just understanding the trends and where things were going. And so we're confident. It's one of those questions, I don't know how you get better than the best when you start putting it in place. So...

Right. And I would add to that. One of the tremendous benefits of this technology is that if regulations get ratcheted down, which they tend to do over time, it's not a question of using more media and creating more waste, it's a question of turning up the dial of how frequently you regenerate the resin, how frequently you clean and reuse that regenerant solution. So that's state-of-the-art. And 3M is not going to benefit from this, but the collaboration will benefit the world, because we plan to deploy this type of technology. We've already been deploying it as far across the globe as Australia. But we're going to benefit a lot of industries and communities and governments, and then generally, the health and welfare of the people by being able to take the state-of-the-art technology and adjust it to and fine-tune it to meet differing regulations and objectives.

And John, maybe a question for you. So what are the key takeaways you can share for perhaps other companies, who are just now working to address this challenge? Yes, I'd say, probably start consulting.

It's a complex issue. There's a lot going on. And so I think if I were to sit down with any other company, I'd say you really have to understand the use of PFAS in your products and particularly in your supply chain and how people are using it. Like I said, PFAS, by definition, is a broad set of materials. And so you really have to understand where it sits and how you use it in your company. And I got to tell you, a lot of companies don't understand their exposure or not to PFAS in general, to the broad set of materials, and then especially in the supply chains. And then as you're dealing with remediation or different parts, they're complex, almost -- you guys can come to remind, everything is almost unique. We're designing systems for 3M, which are incredibly high volume and low concentrations. That may or may not be the same for wastewater treatment plant or a DoD facility or something like that. And so you need experts and you need partners in order to be able to address your unique situation in that. And then last I would say it has to -- just building on that, it has to be a partnership with partners like Montrose, who are leading the edge, as well as discussions with government regulators too as to what the endpoint needs to be.

And I guess the last question for me. You guys have been quite efficient. Look, you've demonstrated the capability of these technologies to address PFAS in complex water streams. So what are the next challenges for 3M and Montrose?

You want to go first or you want me to go?

I'll go first. So for us, what's next is really deploying and scaling the technologies that we're putting into our facilities and then optimizing those. So there's a lot of work left to do on how we deploy, implement and optimize the systems. And so that's really our focus right now with where we're going. I would say the other pieces are, we're trying to advance the science around all of this as well, jokingly, as a consultant. So if there's -- not as a business practice, we're not interested necessarily in that, but we are interested in helping expand the technology and the use of technology and the science. So if there's things that we've learned, and again, they're all the unique situations, so I don't know how applicable it may or may not be, but we're happy to share and talk about our experiences and our technology and what we've done as a company. And then I'd say, from a technology standpoint, the next step is actually how you deal with the concentrate. So like on-site destruction, what's the next level of technology, and that's actually where I'm looking forward to and anxious to continue the partnership with companies like Montrose.

Yes, I can, Steve, jump in for sure. I think we have, as we kind of step back, Andrew, kind of 2 macro challenges or maybe even opportunities. This is a global set of discussions, right? So every country is thinking about this a little differently. As an operating entity, you may operate in 4 or 5 different jurisdictions, and states all have different thresholds and levels. And so the regulatory regime is complex. And so whatever we create has to be applicable across many different needs and dynamics. And there is no one size fits all, right? So totally agree with John's view, but navigating that is really hard. And I think the second challenge, and this is really more of a Montrose-specific issue, folks don't know we exist, right? And so I'll cite an example in Europe recently where we ran a pilot, the technology worked incredibly well. The results were much better than anything else. So kind of they tested it against 3, 4 other technologies. And when we kind of went to talk about the results and us moving forward with doing more work for this specific entity that's got kind of needs across Northern Europe, the first comment was, "Who are you guys? We had no idea you existed. This is really great." And so we have kind of, I think, a broader awareness challenge, especially ex-U.S., but even here in the United States. So one of the challenges for us is going to be increasing awareness and talking about. I think this theme and thesis that this is an addressable, solvable set of opportunities, and the technology does exist. Now it's just a question of how we go about doing it. And that's really on us to execute over the next couple of years. But look, you started with it, but I'll thank you. We wouldn't be here on the stage if it wasn't for the fact that you connected the dots, right? And I think many communities have already benefited from it and hopefully more will. So thank you for that, Andrew.

Thank you.

Thank you. This is great. Really appreciate it. Thanks so much.

Thanks a lot.

Thank you.