With Securities and Exchanges Commission (SEC) rules on conflict minerals expected out by the end of June, there has been a flurry of conference panels, blog posts, videos and articles on the importance of knowing what lurks in your supply chain.
This article offers 4 keys to navigating your supply chain so you can ensure it is conflict free:
- Understand the issue: There are a variety of good resources available to get informed about the impact of conflict minerals, including an a slightly older, but excellent video by the Enough Project.
- Build on the EICC/GeSI Protocol: Don’t reinvent the wheel–build your response upon the successes of the Electronic Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) reporting template, even if you are in a different industry.
- Go deep into your supply chain: Successfully understanding what is lurking in your supply chain will require more than sending out a spreadsheet to your Tier 1 suppliers.
- Get ahead of the regulatory curve: There is no need to wait until the regulations are promulgated to begin navigating your supply chain. While the final details of implementation are unclear, the intention of the Dodd-Frank act is clear – if you have conflict minerals in your supply chain, be prepared to disclose your due diligence strategy.
Let’s get into detail on each point…
1. Understand the issue
At a panel on conflict minerals at Sustainable Brands 2012, Patricia Jurewicz, Director of Responsible Sourcing Network (RSN), invited the audience to join the revolution to drive conflict-free mineral sourcing. She stressed, “If you use a cell phone, drive a car, or wear gold jewelry, you could be linked to the death and rape happening in the Congo.”
During the panel discussion, Jess Kraus, CEO of Source 44, commented,
“Businesses have to think about this problem globally and be committed to doing the right thing. The only way to do that is with supply chain transparency – know what is going into your products so that we can eradicate these human rights abuses. Every company must probe deeper to look into their products and ensure that their supply chains are clean.”
2. Build on the EICC/GeSI Protocol
The EICC/GeSI’s Conflict-Free Smelter (CFS) Program has developed a three-pronged approach to improving traceability of mineral sourcing:
- Mine to smelter
- CFS Program
- From smelter to product
To better understand the status of the EICC/GeSI program, I spoke directly to few of the key players involved (they did not attend SB12).
Once a smelter is certified by the CFS Program, companies still have the challenge of tracing their supply chain from product to a certified smelter. The reporting template is a tool available to make it easier for companies to begin tracking their supply chain. Bob Leet, Intel’s industry lead on conflict minerals and co-lead of the EICC/GeSI extractive working group, explained that they are “working on a second revision of its reporting template, which includes some of the learnings from the past year. It is fairly near complete, but we will update it again, if necessary, when the regulations are promulgated.“
Leet continued, “We have heard geographically from entities in countries across the globe that they are getting the template—it is very prolific at this point.”
3. Go deep into your supply chain
While it might be easy to send surveys to your Tier 1 suppliers and use your purchasing power to encourage them to respond, it gets more challenging as companies go deeper into their supply chains. “Tier 1 is a place to start, but if you are trying to establish being conflict free, you must go much deeper. That is the challenge,” explained Bruce Klafter, Managing Director and Head of Corporate Responsibility & Sustainability at Applied Materials.
If you have no direct commercial relationship with a supplier, it can prove difficult to get a response. Companies need to think about a strategy for communicating with their suppliers and how to motivate them to respond.
Suppliers are going to start feeling more and more pressure being exerted up and down the supply chain. “Your market is gone if you are not on board,” stressed Liz Muller, President of liz muller & partners and a CFS Program auditor.
Source 44′s solution goes beyond the EICC/GeSI spreadsheet, and allows companies the ability to expand the questions asked. According to Matt Thorn, COO of Source 44, “For us, gathering supply chain data is just part of the solution. The EICC template provides a great way to do that, but we are fully equipped to store, manage and analyze that data on a large scale.”
4. Get ahead of the regulatory curve
Some companies are sending surveys to Tier 1 suppliers and getting a jump start on the due diligence process, while others are waiting until the SEC rules come out. There is some competitive advantage to getting ahead of the regulatory ball now. You might want to consider getting a conflict minerals policy in place, developing a strategy for communicating with suppliers and creating a system for gathering and reporting data.
Klafter emphasized, “It is a compliance issue now. It will become a reputational issue once the regulations are out.”
According to Jurewicz, the answer is not just to pull out of the DRC. In a post SB12 interview, she clarified, the “expectations by the investor and human rights communities go beyond avoiding conflict minerals from the region. We don’t just want to see companies ‘cut and run’; we want to see their participation in the multi-stakeholder efforts to certify and trace minerals that are not contributing to the war there.”
Once companies must disclose and report on the use of conflict minerals from DRC, they may find themselves doing the “walk of shame” if they are publicly targeted by NGOs. The Enough Project and other NGOs such as Greenpeace will use this information in their public scorecards.
With very few gold, tin and tungsten smelters certified, it will not be a simple process for companies to avoid conflict minerals. Kraus elaborated, “Most companies face a similar challenge: they have a very difficult time getting the information they need to find out where upstream suppliers are getting their materials from.”
“Source 44 created Source Intelligence™ in response to this customer need. Our solution enables management to get ahead of the curve on disclosure requirements by helping them implement the EICC reporting template and drill down deeper into the supply chain,” he explained.
Resources for Learning More
- Enough Project and its video on conflict minerals.
- A new video from Source 44 that highlights the issue and its solution.
- Intel’s new video, recently shared at its shareholder meeting.
- Come Clean for Congo: Life Should be Free video.
- New York Times article, “Use of ‘Conflict Minerals’ Gets More Scrutiny from U.S.”
- Solutions for Hope, a pilot initiative to source conflict-free tantalum from the Democratic Republic of Congo (DRC) and follow it through to manufacturing.
- Intel’s recent White Paper on how to achieve a conflict free supply chain.
- RESOLVE has attempted to graphically illustrate the supply chain from mine to smelter and from smelter to product (diagram above from RESOLVE).
- The Public Private Alliance for Responsible Mineral Trade (PPA), a multi-stakeholder initiative to support in-region conflict-free sourcing.