Conflict free

29th September 2015


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Author

Richard Bladon

Alex Martin offers advice on how businesses can eradicate conflict minerals from the supply chain

It is a sad fact, but precious metals and minerals used in products from jewellery to laptops can be traced back to mines controlled by armed groups in the Democratic Republic of the Congo (DRC) during the country's civil wars and turbulent aftermath. Trade in these resources perpetuated the conflicts, as the sale of the metals and minerals from the mines funded the purchase of weapons.

However, with a US law now in place and EU regulation forthcoming, conflict minerals are in the legislative spotlight and companies are embarking on the transition to conflict-free supply.

Human cost

Conflict minerals are derived under duress and traded to keep armed groups funded. To date, conflict minerals have been most closely associated with the DRC and neighbouring countries where the extraction of wolframite (for tungsten), cassiterite (for tin), coltan (for tantalum) and gold is a key economic activity. These are known collectively as the "3TGs" - tungsten, tin and tantalum plus gold - and the metals and minerals have many uses (see panel, below).

During the Congo wars both the Congolese national army and rebel groups sought control over mining. Conditions in artisanal-type or small-scale mining, which persist today, are harsh, with miners working up to 48 hours at a time and risking life and limb in an environment of mudslides and tunnel collapses. As well as the human cost associated with this type of mining, the wars in the DRC region have caused the deaths of more than five million people, many due to disease and starvation. Although progress has been made towards a lasting peace since the wars ended, armed groups retain control over some mines, and the trade in conflict minerals persists.

Legal remedies?

Governments have increasingly recognised and highlighted concerns to industry over the use of conflict minerals in the manufacture of products. In 2010, the US congress passed the Dodd-Frank Act (DFA), in which section 1502 sets requirements for companies whose products incorporate 3TGs derived from the DRC and neighbouring countries (see map, below).

The DFA was implemented in a rule passed by the US Securities and Exchange Commission (SEC) in August 2012. This requires "issuers" - major US stock market-listed companies required to make regular SEC filings under existing law - to report on efforts to eliminate conflict-implicated 3TGs from supply chains if they are used in their products. Companies covered by the rule must take these steps:

  • determine applicability;
  • conduct country of origin inquiry;
  • establish a due diligence process;
  • determine status; and
  • file a report.

The legislation does not prescribe a due diligence process, but the OECD's Due diligence guidance for responsible supply chains is cited as a suitable framework (see panel, below). It is also referred to in the draft EU regulation on conflict minerals published in March 2014. The draft European legislation is similar to the DFA in so far as it focuses on the 3TGs. However, to address the problem of companies potentially withdrawing from the DRC and its neighbours and moving elsewhere, its geographical scope is not limited to this region but the more widespread "conflict-affected and high-risk areas".

Another crucial difference is that the European commission has not proposed any mandatory requirements. Instead it is targeting EU importers of the 3TGs rather than manufacturers of finished products. The rationale for focusing on importers was that they were, in supply terms, the ones in closest contact with the few hundred 3TG smelters and refiners and were seen as best placed to effect change as a supply chain "pinch point".

In the commission's proposal, importers of the 3TGs into the EU would be encouraged to self-certify against the OECD guidance, provide information to downstream users, and report yearly to their relevant national market surveillance authority. The commission, meanwhile, would maintain an approved list of smelters and refiners. The proposal has since been considered by the European parliament, but opinions are divided. Parliament's foreign affairs committee declined to give a view, but the development committee suggested more than 500 amendments.

In May 2015, a plenary vote on amendments to the commission-proposed legal text was held in parliament. MEPs rejected the voluntary approach favoured by the commission, preferring mandatory compliance by all importers of 3TGs into the EU, including independent third-party audits. They want to make it mandatory for importers to provide information to the estimated 880,000 downstream users of 3TGs in Europe so that they can identify and address risks of using conflict-implicated metals and minerals. These requirements are more onerous than the SEC rule.

Industrial practice

Whether or not the EU introduces requirements on importers and downstream companies, there is an expectation that firms should stop using conflict minerals. The DFA is already driving this, particularly among large, consumer-facing companies whose products incorporate the 3TGs. Among them are Ford, General Motors, Apple, Dell, and Hewlett-Packard.

The way these companies have responded provides an insight into how to manage and report conflict mineral uses in supply chains. There is definite overlap in practice: establishing policies; setting goals; surveying suppliers; determining smelters in use; comparing smelters with those on approved lists; arranging smelter audits; and running awareness-raising training events.

Ford outlines its position and lists goals on its corporate website. These include the statement: "To the extent tin, tungsten, tantalum and gold are contained in products, it is Ford's intention to use DRC conflict-free minerals, while continuing to support responsible in-region mineral sourcing from the DRC." Targets include:

  • achieving a 100% response rate from in-scope suppliers for annual reporting;
  • obtaining year-on-year improvements in the proportion of suppliers providing smelter lists;
  • obtaining year-on-year improvements in using conflict-free smelter programme (CFSI) compliant smelters; and
  • participation in CFSI smelter outreach efforts to identify "true" smelters and encourage smelters to participate in the CFSI audit process.

These goals reveal a further practice common among companies: participation in the CFSI cross-industry group and, in particular, using its conflict minerals reporting template in supplier surveys.

The template serves to identify whether a supplier's operations contain any conflict minerals. In Ford's case, if any conflict minerals are contained in a product supplied to it, the vehicle manufacturer requires the supplier to report the names of the smelters or refiners used to process the minerals. Ford assesses the status of the smelters and refiners in the supply chain using audit information available through CFSI. The scale of such surveying is not to be overlooked.

Kelly Katynski, Ford's supply chain sustainability manager for conflict minerals compliance, says: "It's hard to express what an enormous undertaking this is for a company with a supply chain as broad, as deep and as complex as ours. We are layers removed from the smelters and refiners in our supply chain; therefore, we must survey our direct suppliers and request our suppliers, in turn, to survey their suppliers until the point many layers down in the supply chain where the smelter or refiner of the 3TG is known."

Challenging issues

Mapping and documenting supplier adherence in complex supply chains is demanding, while in-complete, missing or otherwise questionable supplier responses present further challenges. How companies best address these is difficult, although one solution could be to outsource surveying and data verification activities. In this way, services and comparisons can be drawn with existing traceability platforms to support company compliance with other legislation such as the EU timber regulation.

Practitioners might wish to take the following steps if tasked with managing conflict minerals:

  • Understand and scale the challenge facing your company. This is likely to include determining possible 3TG uses in products and identifying the suppliers and determining how to engage them - for example, by creating an in-house survey or using the CFSI conflict minerals reporting template.
  • Frame the company response, either with a new programme of work or by expanding existing ones - for example, programmes for managing substance restrictions found in legislation, such as the RoHS Directive and REACH Regulation. This will require senior management support, a budget, policies and procedures, and deciding who has responsibility for contacting suppliers and collecting and analysing data. Cross-functional work is expected so, even if the programme is owned and led by an environment or CSR manager, they will require support from colleagues in procurement, finance and IT.
  • Consider the best IT solution. This will depend on how many products and suppliers the organisation is dealing with. If it is a large number, it will generate a lot of data, so an automated solution is desirable.
  • Document actions as you go. This is good practice for due diligence because it constitutes a record of key decision-making and reasoning.
  • Phase in the programme, monitoring as you proceed. This will help identify any problems.

Adopting an approach that goes beyond compliance is beneficial. To see conflict minerals as something to be complied with is to miss potential opportunities, such as reducing risk in the supply chain and enhancing relationships with preferred suppliers and customers. Conflict minerals is something on which the investment world is also likely to assess company performance in future, so getting ahead on practice and disclosure may offer competitive advantage.


IEMA recently ran a webinar on conflict minerals and humans rights by ArcelorMittal's general manager of corporate responsibility Alan Knight. You can watch it here.


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