Why care about conflict minerals? Customers and investors do

The Sustainable Shareholder

Why care about conflict minerals? Customers and investors do

Raw materials procurement can be a winding path, but businesses no longer have an excuse to plead ignorance.

Last year, a federal appellate judge last year struck down an important but lesser known corporate disclosure requirement of the Dodd-Frank Wall Street reform law enacted after the financial crisis.

The Conflict Minerals Provision of the law has continued to draw the ire of the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce, as part of the interest groups' persistent efforts to undermine Dodd-Frank rules and their enforcement through lawsuits claiming that such regulations are onerous, immaterial, nonfactual and controversial.

While this antiquated view of commerce purports that such regulation is harmful to business, the fact is that this conflict minerals rule has been implemented with great success in the five years since it was established. Its intent is simple and important: to assure that companies source minerals responsibly, as in not from oppressive regimes well known for human rights abuses, the most notable country of which is the Democratic Republic of Congo (DRC).

Under the law, companies must examine whether the tin, tantalum, tungsten and gold in their products may be contributing to conflict in the DRC and surrounding countries.

The significance of this measure is that industries that are the major purchasers of these minerals, such as automakers and electronics, must use their purchasing power to influence corporate practices in these countries rather than turn a blind eye or worse, knowingly support slavery and other abusive human rights practices by militias that control mining throughout the region.

The court’s judgment against the Securities and Exchange Commission brought by the big business consortium removed the regulatory requirement that companies report that their products have “not been found to be DRC conflict free."

In its suit, NAM argued that required disclosure creates a situation where non-complying companies “bear a scarlet letter that is laden with value judgments and opprobrious connotations with which they strongly disagree, because the rule compels them to make a statement that ‘conveys moral responsibility for the Congo war’ and ‘tell[s] consumers that the issuers’ products are ethically tainted.’”

That’s precisely the point. The public has a right to know which companies are ignoring major human rights concerns in their operations. Companies that profit from abuses of people and nature are irresponsible, and this way of generating revenue — although a longstanding American tradition — is coming to an end because more consumers demand corporate responsibility.

Transparent reporting provides the public with such information and sets a reasonable ethical bar for industry to achieve, so the rule is not only not onerous, it is essential to assuring the stability of corporate procurement practices because it removes a major geopolitical business risk.

Perhaps these business interests think customers don’t care about warlords, slavery and other such matters. But more of them do, despite legal challenges to this regulation.

Shaping a new status quo

Although companies no longer have to declare their products conflict-free, they still must comply with the broader due diligence and reporting requirements of the rule. Most are complying just fine.

More than 1,300 companies filed proper disclosure with the SEC last year, proving that in reporting their supply chain due diligence activities and findings, they are able to make responsible mineral sourcing purchases, thereby removing an important business risk that affects labor conditions in those countries and shareholders around the world that invest in these companies.

In addition, over 125 mines in the DRC have been certified as “conflict-free,” meaning they are not under militia control, and 200 more will be certified this year.

Solutions for Hope, led by the International Tin Research Institute’s Tin Supply Chain Initiative, certifies minerals that can be sold as “conflict-free.” The parallel Conflict-Free Sourcing Initiative established a Conflict-Free Smelter Program to certify over 130 smelters and refiners, with 50 more in the pipeline.

That American business interests would file a lawsuit to undermine the obvious success of these international initiatives reflects their ongoing solipsism, particularly that of the U.S. Chamber of Commerce, in opposing any regulatory oversight that assures environmental, social and governance responsibility.

Clearly, they are on the wrong side of history. Businesses can and surely do operate successfully and profitably in this sector without contributing to brutal and oppressive regimes operating in politically volatile countries where abuse is commonplace.

It’s as if these corporate interests don’t remember our own history of exploitation and corruption — or perhaps they believe in doing whatever it takes to keep financial costs low, even the cost to humanity itself.

It’s time this Neanderthal approach of selling one’s soul to make a buck becomes a distant memory and returns to the historical era where it belongs.

This is a pivotal point in our history. As the Baby Boomers retire and the next generations assume positions of business and political leadership in this country, the old way of doing business — profit at any social and environmental cost — will die with them.

Perhaps then we can move on to firmly cement the new normal of making money in a responsible manner. For starters, companies should not risk their reputation for the sake of associations that do not understand the importance of ethical and humane operational policies and procedures.

Businesses that are members of the U.S. Chamber of Commerce, Business Roundtable and National Association of Manufacturers should use their power of membership to object to these frivolous lawsuits and advocate for responsible business practices, or they should consider terminating their membership and join the American Sustainable Business Council as an appropriate alternative.

Conflict-free mineral sourcing is also just one component of the responsible sourcing movement, which addresses a variety of social and environmental issues including palm oil and myriad labor, workplace safety and environmental practices. For more information on this and related initiatives, visit the Responsible Sourcing Network.