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ESG Newsletter published on January 7, 2022

PFAS—Forever Chemicals: Implications for Municipal and Corporate Bond Market Participants


  • PFAS are forever chemicals that are the subject of growing concerns regarding adverse public health and environmental effects.
  • Bond market participants are still developing perspectives on PFAS risks, but Breckinridge believes these risks are manageable for most issuers.
  • Many well-resourced cities are thinking about PFAS treatment, even if they do not have an active problem.

Erika Smull is completing an internship with the Breckinridge Municipal Bond Research team while finishing her PhD at Duke University. This article is based on Erika’s current research about PFAS. Director, Municipal Research Andrew Teras and Senior Research Analyst Joshua Perez, CFA, also contributed to this report.


Much like the science and health implications that surround them, municipal bond issuers and investors are still developing their perspectives on risks associated with PFAS. PFAS are the family of forever chemicals that are the subject of growing local, national, and global concerns, even as understanding of them continues to develop.

First produced in the 1930s,1 PFAS collectively refer to per- and polyfluoroalkyl substances widely used in industrial and consumer products. PFAS are used in Teflon and other nonstick cookware, food packaging, stain-resistant carpeting, waterproof products such as rain jackets, cosmetics, and in fire-fighting foam used at airports and military bases.

PFAS and Implications for Human Health

Although PFAS are often used to keep substances from sticking, they tend to stick around.

PFAS are called forever chemicals because they persist rather than degrade.

Because of their prevalence, PFAS can also be termed “everywhere chemicals”. PFAS are found in water, air, soil, and in animals such as fish. Over 95 percent of Americans have PFAS in their blood.

The accumulation and persistence of PFAS in the blood can affect human growth and development. Risks include issues with fertility and increased blood pressure in pregnant woman, lower birth weights and behavioral changes in children, higher risk of certain cancers, and hormonal impacts.

PFAs and Regulatory Considerations

The regulatory environment around PFAS is evolving. Unlike other chemicals dangerous or potentially dangerous for human health such as lead, there is no national maximum contaminant level (MCL) for PFAS. A national MCL is planned for Fall 2023. This standard will be promulgated by the Environmental Protection Agency (EPA) with assistance from other federal agencies focused on human health.

Currently, a nonregulatory and non-enforceable health advisory exists for some PFAS chemicals. This includes levels for drinking water at 70 parts per trillion (PPT) for PFOA (perfluorooctanoic acid) and PFOS (perfluorooctane sulfonate). The EPA believes these are safe thresholds for human consumption.

States can implement their own PFAS regulations in the absence of (or in addition to) federal regulations. Many have started this process, with some states drafting tougher standards than the federal government. Currently, 21 states have implemented a MCL regulation or notification requirement for certain PFAS or plan to do so within the next year. The Northeast leads the way in regulating PFAS in drinking water. Some states regulate PFAS in consumer products.

States could also move to regulate PFAS in biosolids, which could be regulated at the federal level beginning in 2024. Biosolids are organic solids that are a byproduct of wastewater treatment. They are removed from wastewater before it leaves the treatment plant and flows back out into the environment. Biosolids are a waste product that must be managed.

PFAS and Credit Implications for Municipal and Corporate Bond Investors

PFAS create modest credit risks for municipal and corporate bond investors. In the municipal space, PFAS remediation and management costs may crowd out spending on other priorities in municipal and utility operating budgets. The presence of PFAS also has implications for the future attractiveness, livability, and financial health of communities. For corporate investors, liability concerns are an emerging, albeit manageable, risk.

Municipal Credit

Cost and reputation risks are the most obvious credit risks for municipal investors. Both seem modest, for now.

Take drinking water, as an example. Municipalities may face the cost of building ion exchange/activated carbon treatment facilities to protect drinking water quality. Some of our conversations with issuers suggest that many water systems throughout the country face limited immediate risk to their drinking water systems. Where PFAS in drinking water are a material issue, issuers believe costs are manageable and will not be a major hit to operations. None of the issuers engaged are concerned with PFAS drinking water regulations. This is a positive development insofar as it suggests few communities will suffer tax base or economic decline on account of burgeoning PFAS-related drinking water risks.

The larger credit concern involves wastewater biosolids (Read more about biosolids here). Issuers estimate much larger potential costs related to wastewater management operations relative to drinking water. That’s because removing PFAS from wastewater may require incineration under the strictest regulatory guidance. Incineration is a common but expensive solution, and it is also carbon intensive. Burning biosolids adds to a utility’s CO2 footprint; by contrast, when they are spread across farm fields and soil, they are used as fertilizer. Looming biosolids regulations are an example of disparate objectives that can exist across different government departments; public health officials generally focus on public health outcomes while water management professionals must balance public health goals and infrastructure cost ramifications.

Whether for drinking water or wastewater systems, all issuers expect PFAS to increase operating and capital costs. New federal funding in the Infrastructure Investment and Jobs Act (IIJA) may help to pay for some of the clean-up costs. Litigation and settlements with chemical companies are also an option. But there is a high likelihood that PFAS costs will eventually impact ratepayers.

Right now, PFAS treatment seems unlikely to be a major driver of new issuance for municipal bonds but further regulatory pressure in coming years could change that.

Corporate Credit

The near-term impact for most companies with liability exposure for PFAS is relatively modest. Some companies are more exposed than others and significant adverse judgements against them can negatively impact credit metrics, but for most companies the financial impact will be manageable. Companies with exposure often have shared liability agreements that help to insulate them from significant balance sheet strain. Also, most chemical companies have reduced their use of PFAS compounds. Nonetheless, Breckinridge continues to monitor the issue closely. So long as PFAS compounds remain in production, they present risks.

PFAS is an evolving environmental issue that is likely to prove more salient for investors, ratepayers, and corporations in the years to come. While risks appear manageable for now, it is an important policy area to monitor. The credit implications of PFAS could change in the future.


[1] “What are PFAS?,” Rachel Ross, April 30, 2019
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DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

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