Full disclosure: How SEC’s conflict mineral rule could affect you

Full disclosure: How SEC’s conflict mineral rule could affect you

Editor's note: The Responsible Sourcing Network (RSN), a project of nongovernmental organization As You Sow, has been working for years to develop global value chains at the raw commodity level that are accountable to the people and natural habitats they touch. RSN has coordinated a multi-stakeholder group of companies, NGOs, and investors in submitting joint comments to the SEC regarding conflict minerals. This is the first in a series of four pieces about the subject that RSN will be contributing to GreenBiz.

Last week’s vote by the SEC requiring companies to come clean about conflict minerals brought up a whole new set of questions: Does my company have to disclose? If so, how?

Although the law only covers four minerals – tin, tantalum, tungsten, and gold – one of these minerals, tin or cassiterite, is practically ubiquitous across a range of industries.

Companies across several industries will start to see changes. New internal policies, systems, tools, and collaborations will be needed to comply with the finalized legislation. 

NGOs are already looking at how this law could be applied to other products and other regions, such as Peru where there is fighting going on over a proposed gold mine. So even if your company does not have to report to the SEC under this ruling, be on the lookout for possible future reporting requirements.

Photo of conflict-free coltan mine in the Democratic Republic of the Congo courtesy of Patricia Jurewicz.

Here are the basics on which companies will have to disclose:

  • Companies that currently file an annual report with the SEC (whether they are US or foreign).
  • Companies using any amount of of one of the four minerals in their products (draft versions of the rule considered setting a de minimis), or minimum amount a company would have to be using, but the final rule requires all companies to report.
  • See RSN's product category chart at the bottom of this page for guidance on products that include product minerals (not a comprehensive list).
  • Companies who work with plastic of PVC should take note since organo-tin has been identified in trace amounts as a stabilizer in those materials. Apparel and footwear companies should investigate their products carefully.
  • Companies who work with one, two, or all four minerals – all are treated equally. Reporting on gold is no different than tin, tantalum, or tungsten.
  • Companies that manufacture, or contract to manufacture, products containing these four minerals must disclose. 

           -The way the SEC defines “contracting to manufacture” translates into the company needing to have a degree of influence over the design or manufacturing of the product.

           -Retailers do not have to report on products they sell from another brand

           -If a retailer has a private label product for which it does not supply design elements, and therefore the retailer is only    affixing its name on "generic" products (which other companies can also sell), the retailer will not have to disclose.

           -Similar to retail, if a cell phone provider has its name on a phone manufactured by another company and the cell phone provider does not specify design elements, it will not have to disclose.

          -Companies that determine its minerals do not originate from the region of the DRC, or that their minerals are from recycled or scrap sources, will still have to disclose. They will have to outline their process for making those determinations in a document called a Form SD, but will not be required to file a full Conflict Mineral Report.

          -Mining companies do not have to report

Products that contain conflict minerals (Source: Responsible Sourcing Network)

Some of the above clarifications by the SEC still leave room for interpretation. For example, if a retailer like Wal-Mart is selling a private-label television, how does the SEC know if Wal-Mart negotiated specific design elements for that TV or not?

How this aspect of the rule will impact retailers' reporting remains to be seen. Most likely, most responsibility will be put on human rights watchdog groups and sustainable and responsible investors to note private label products and analyze if retailers will have to report on them.

This legislation and the details of the final rule are of great interest because it has the potential to impact how consumer products are manufactured.

The conflict mineral rule is a groundbreaking case study of the how legislation can play a role in supporting transparency and accountability in the supply chain.

There are still many questions to be settled about Rule 1502, but it is already clear that a new transparency paradigm has arrived. It is just the beginning, but it is here -- so the sooner companies embrace and prepare for this expectation, the better.