Tracing conflict minerals proves elusive — and expensive
The clock for corporates looking to get a handle on supply chain conflict minerals is starting to tick much louder.
With just one year to go before stricter reporting is required by the Securities and Exchange Commission, many companies are still struggling to trace their sources for metals such as gold, tungsten, tantalum and tin, according to an analysis of reports submitted for the most recent reporting period.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act requires publicly traded companies to account much more closely for these high-value minerals, which have been linked to violence and other human rights violations, mostly in the Democratic Republic of the Congo (DRC).
Many people associate the issue most closely with technology and electronics companies, but conflict minerals often get caught up in the supply chain for makers of everything from jewelry to auto parts.
From the moment the new rules became law, companies have fussed and fumed over the expense of tracking mineral origin data, especially the independent verification required by the SEC for the next reporting cycle, which ends next June.
They were right to worry. The roughly 1,260 companies that filed information for the 2014 year spent an estimated $710 million gathering information for this year’s reporting cycle, according to the analysis by Tulane University and Assent Compliance, a New York-based firm that automates the compliance process.
That includes everything from hours spent gathering information and software updates. Middle men such as smelters, who collect raw materials from vulnerable areas and then resell them to company suppliers, often make the process much messier.
Assent Compliance works with about 30 percent of the S&P 500 companies that need to worry about conflict minerals disclosures. You can download the entire report here.
Another finding that resonates strongly, given next year’s verification requirement: Very few companies were willing to describe themselves as “conflict-free” based on the information gathered over the past year.
Indeed, for the most recent reporting period, just six companies actually submitted to an external audit.
In other words, things look much the same as they did last year, when a similar assessment of the disclosures was performed by Ernst & Young. That assessment also suggested many companies would find it difficult to provide the level of detail required by the SEC — not because they don't want to provide the information, but because there's no straightforward source for finding it.
Among those most prepared for more detailed reporting: technology companies Microsoft, BlackBerry and Intel; automaker Ford Motors; and automobile parts company Modine Manufacturing. Intel, for example, has certified that its supply chain for chips and microprocessors is conflict-free. But it's still working on its other product lines.
Much of the analysis suggests there’s still a lot of work to be done, and many companies are still scrambling for the resources to get the job done. The authors observe:
The one positive outcome observed by 78 percent of companies was that they had improved their ability to respond to customer requests for conflict minerals-related information. On the other hand, companies expressing criticism of the law argued that it rendered affected companies less competitive due to the cost burden, it was unlikely that the desired impact was being achieved in the DRC, that it was unrealistic that with due diligence required by public companies alone one could overcome conflict in the DRC, and that it was inconsistent with the history of U.S. securities law for the SEC to act as a regulator of social responsibility.
Aside from the five companies already mentioned, other technology companies making progress on conflict minerals transparency are Canon, Juniper Networks, IBM, Apple and General Electric.
The Commerce Department compiled a list of “all known conflict minerals processing facilities” (PDF) to aid reporting, but admitted that it probably isn’t complete.
Other sources of information include the Conflict-Free Sourcing Initiative, which currently recognizes about 150 validated smelters (PDF), and Solutions for Hope, dreamed up by mobile technology company Motorola Solutions in collaboration with components maker AVX.