NGOs Discuss How Companies Can Improve Disclosures for Next Conflict Mineral Filings

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Patricia Jurewicz and Carly Oboth

As companies prepare their conflict minerals disclosures for the June 1 deadline, non-governmental organizations and socially responsible investors are gearing up to scrutinize these reports. The disclosure requirements were mandated by Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act and implemented through a rule adopted by the Securities and Exchange Commission (10 CARE 859, 8/24/12).

While the first-ever filings in 2014--covering companies' use of conflict minerals in calendar year 2013--were given some leeway due to the historic nature of the disclosures, NGOs and SRIs stress they want to see progress in the reporting this year. Such organizations have provided valuable feedback that companies can use to file better disclosures. Conversely, companies that file what the NGOs and SRIs consider substandard disclosures may find themselves targeted in campaigns.

Between April 10 and 14, Bloomberg BNA's Yin Wilczek reached out to the Responsible Sourcing Network (RSN) and Global Witness--two NGOs extremely active in this area--for their views on the top reporting shortfalls companies should correct this year, among other matters. According to RSN Director Patricia Jurewicz and Global Witness Assistant Policy Advisor Carly Oboth, the top improvements the NGOs want are: more transparency; more engagement with suppliers; engagement with smelters and refiners; and more description of and more adherence to the OECD's five-step framework for conflict minerals sourcing.

In the meantime, RSN and its research partner Sustainalytics have developed a methodology to review companies’ conflict mineral filings and activities. RSN will soon release a report examining the results of a pilot set of companies in 17 high-exposure industries using this methodology. The report will highlight the industries leading and lagging in conflict mineral disclosures and recommend some best practices.

Bloomberg BNA: What would you like to see in terms of more transparency?

Jurewicz: Filers need to be more transparent about which of the four minerals--tin, tantalum, tungsten, or gold, commonly referred to as 3TG--are in their products. Very few companies listed their smelters or the countries where their minerals originated.

In addition, the majority of the filings we reviewed acknowledged the need to improve supplier response rates and supplier engagement. Educating suppliers is key to creating conflict-free supply chains; we want to know what companies are doing to address that.

With our forthcoming report, RSN is providing investors new metrics to assess social exposure and improvement over time. Successful social performance goes beyond minimum compliance with the Section 1502 legislation. It is crucial that companies understand that investors are not just asking for conflict minerals transparency. Investors want companies to disclose actions they are taking to minimize risk, respect human rights in their supply chains and generate social value.


“It is crucial that companies understand that investors are not just asking for conflict minerals transparency. Investors want companies to disclose actions they are taking to minimize risk, respect human rights in their supply chains and generate social value.”
Patricia Jurewicz,
Director, Responsible Sourcing Network


Oboth: One of the biggest things Global Witness would like is just more information. We want to see more information about what steps companies took to investigate where the minerals in their supply chains are coming from, we want to hear about what they found and if they found any examples of risks, we want to know how they have decided to engage with the proper entities, whether it’s with their smelters to try to find a different source for that mineral, or with national or foreign authorities when they have reason to believe that minerals may have been smuggled.

We just want to see what steps they’re taking. We believe these reports should be a clear picture as to what companies have done. And right now I don’t think we’re getting enough transparency.

BBNA: What would you like to see in terms of smelters and refiners?

Oboth: We would like to see more robust engagement with smelters and refiners, which is really important for companies to understand what’s happening before the minerals come to those smelters and refiners.

From the first reports I saw, very few companies actually tried to contact or contacted their smelters and refiners, which is really troubling. We think that's a huge missed opportunity for them to get more information about the upstream part of their supply chain.

Jurewicz: Almost every company with exposure to conflict minerals references the publicly available smelter data from the Conflict-Free Sourcing Initiative (CFSI), yet most companies are freeloading. In what way are they freeloading? If companies want a list of conflict-free smelters, they should join an existing auditing scheme or initiate a new one for their industries.

BBNA: What would you like to see in terms of the OECD framework?

Oboth: We would like to see that companies really are showing step by step exactly how they are adhering to the OECD guidance. Just generally, we found that a lot of companies did a poor job in describing how they adhered to the five steps. Some reports that used the five-step process were actually much easier to follow than some that took a more narrative format. So we’d like to see that companies really adhere to the five-step process. That makes it much easier for consumers and investors to see what steps the companies have taken.


“We would like to see that companies really are showing step by step exactly how they are adhering to the OECD guidance.”
Carly Oboth,
Assistant Policy Advisor, Global Witness


BBNA: Anything else?

Jurewicz: Companies should be promoting conflict-free, not Congo-free. We were happy to see most of the high exposure companies in our sample group explicitly reject an “embargo” approach and state they will try to source clean minerals from the Democratic Republic of the Congo (DRC) region. However, we know that some major companies are directing their suppliers to avoid sourcing from the DRC or neighboring countries.

We also want to see additional metrics reported for companies’ due diligence activities.

Oboth: It might be too late for it this year, but we would like to see more companies have their conflict mineral reports audited with an independent private sector audit (IPSA), which is kind of in flux at this point because of the court decision and the guidance released by the SEC in light of that decision. But we do think an IPSA is a really important part of the requirements and we would like to see more companies get those.

BBNA: In April 2014, the U.S. Court of Appeals for the District of Columbia Circuit invalidated a portion of the SEC's conflict minerals regulation, citing First Amendment grounds (12 CARE 421, 4/18/14). In the wake of the decision, the SEC stayed part of the rule and issued guidance that companies do not have to describe their products as “DRC conflict free,” “not been found to be 'DRC conflict free,'” or “DRC conflict undeterminable” (12 CARE 498, 5/9/14).

The D.C. Circuit now is rehearing the case (12 CARE 1556, 11/21/14).


“The SEC should penalize companies that don’t meet minimum requirements.”
Patricia Jurewicz,
Director, Responsible Sourcing Network


BBNA: Before the first reports were filed last year, NGOs said they would be closely monitoring the reports and discussing any disclosure shortfalls with the SEC. Is there anything you would like the SEC to address?

Jurewicz: When RSN reviewed the final conflict minerals rule, we were surprised to see that the SEC made it so easy for companies to avoid filing in-depth information in their specialized disclosure reports (Form SD). Companies are able to evade a great deal of public reporting if their internal inquiries found “no reason to believe” they are sourcing 3TG from the DRC region, and thereby not required to file conflict minerals reports (CMRs).

RSN expects any company that uses conflict minerals to thoroughly report on how it conducted its risk exposure assessment and reasonable country of origin inquiry (RCOI). Investors, risk managers and consumers want to know how companies are ensuring they are not supporting conflict in the DRC region. RSN thinks the SEC should address the minimal level of reporting by companies that claimed “no reason to believe” and therefore only filed Forms SD.

The SEC should penalize companies that don’t meet minimum requirements. Many of the submitted reports we examined were lacking details in the areas of describing a RCOI, following a global due diligence framework and outlining steps for improvement. If there is a repeat result with this year’s reporting, the SEC needs to take action--but you will likely see investors applying pressure as well.

Oboth: We have two issues we would like the SEC to handle. One is that we would like the SEC to release more concrete guidance on IPSAs.

For the first year, the companies only had to perform an IPSA if they voluntarily elected to say their products or product lines were conflict free. Per the original final rule, every large company should have an IPSA by 2016, but I think it would be really useful for the SEC to make that clear and confirm that through subsequent guidance.

The second thing we would like is for the SEC to clarify exactly what penalties companies can expect for submitting incomplete reports or reports that are not quite transparent enough as the rule suggests they should be. The SEC also should be looking out for companies that just filed Forms SD and not CMRs. Some of those Forms SD may indicate that the companies actually should have done their due diligence and should have done CMRs but they did not.

BBNA: Do you think the right number of companies reported last year or do you anticipate more filings this year?

Jurewicz: There should have been more filers, and we expect more companies will file this year.

Some industries lobbied to define “contract to manufacture” in such a way that they did not have to file for many of their products that use 3TG. Companies that avoid reporting or do minimal reporting are telling investors they are either unable or unwilling to perform due diligence and measure their social impact.

A company like Volkswagen that responds to the opportunity presented by Section 1502 by publicly saying, “We don’t have to do this reporting,” shows a weak approach to the risks and opportunities of social performance. On the other hand, forward thinking companies that did not have to file with the SEC like Dell, Samsung, Verizon and AT&T openly disclose how they are getting out in front of this risk.

Oboth: It’s hard to say. We speculate that there are a few companies that didn’t file that should have, but I think it’s going to be really difficult to be able to prove that.

BBNA: Are the disclosure requirements improving the situation in the DRC?

Jurewicz: We are heading in the right direction, but change is not going to happen overnight. The alternative is inaction and in the long run that benefits no one.

There is concern that out of shortsightedness, some companies have started to avoid sourcing from the region. We want to see companies take a proactive approach like members of the Public-Private Alliance for Responsible Minerals Trade or companies such as Apple, Motorola Solutions, Intel and HP that are directly supporting certified conflict-free mining efforts in the DRC.

Investors are demanding a response to the very real risk of human rights violations, reputational harm and loss of access to raw materials. We have to create incentives to source “conflict-free” and not “Congo-Free.” Embargoing the region is not just bad for people in the Congo; it’s a weak way to mitigate social risk. It doesn’t address the root causes of the risk in the long term and we are all just putting off the inevitable need to meet a demand for responsible minerals that can contribute to peaceful and prosperous communities in a region that desperately needs it.


“It’s critical that U.S. companies put forth a meaningful and good faith effort to ensure that they’re taking responsibility in the way they source their minerals.”
Carly Oboth,
Assistant Policy Advisor, Global Witness


Oboth: Global Witness has been researching the situation in DRC for over 10 years and in that time we’ve seen the obvious presence of armed groups in mines reduced. The DRC is one of the least developed countries in the world and the majority of its people are desperately poor despite the country’s vast mineral wealth. A clean minerals trade is one of the best hopes for lifting DRC’s people out of poverty.

I think it's too soon to tell [what impact the disclosure requirements have had]. Section 1502 is only in the third year of implementation. But the law will not solve the complex crisis in DRC alone. Cleaning up the mineral supply chain and ensuring that international companies are not bankrolling armed groups is an important part of a strategy for peace that also needs action from the DRC government, its neighbors and the international community.

The most important thing is for the intent of the law to fully be actualized. It’s critical that U.S. companies put forth a meaningful and good faith effort to ensure that they’re taking responsibility in the way they source their minerals.


Information about the Public-Private Alliance for Responsible Minerals Trade is available at http://www.resolv.org/site-ppa/participation/.

RSN issued an Indicators Shortlist April 16, which is available at http://www.sourcingnetwork.org/expectations-shortlist/.