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Companies Fall Short on Conflict Minerals Reporting

Aug. 2, 2023
More than half of U.S. companies may be using conflict minerals from the DRC or adjoining countries, but 53% that investigated further couldn’t make a solid determination on the conflict minerals’ origins.

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Defined as raw materials or minerals mined in the Democratic Republic of Congo (DRC) region, conflict minerals are a major concern for companies whose products are made with tin, tantalum, tungsten and/or gold.

Often mined in conflict zones, conflict minerals can be used to fund armed groups and prolong conflict. This can have a destabilizing effect on the region and lead to human rights abuses. Also, OEMs may be unknowingly “complicit” in the financing of conflict if the minerals in question find their way into the companies’ products.

“These minerals are used in a wide range of products including mobile phones, computers, jewelry and vehicles,” EcoVadis explains. “Original equipment manufacturers and supply chain partners work together to make sure global vehicle production doesn’t support warlords or further the conflict in the DRC.”

The Conflict Minerals Provision

In 2010, Congress passed a law requiring all U.S.-listed companies to determine if their products contain one or more of the four conflict minerals sourced from Congo or one of its nine neighboring countries. Also known as the “Conflict Minerals Provision,” Section 1502 of the U.S. Dodd Frank Act was focused on breaking the links between eastern Congo’s lucrative minerals trade and abusive armed groups.

Under the final rule, a company that uses any of the designated minerals must conduct a reasonable “country of origin” inquiry in “good faith and be reasonably designed to determine whether any of its minerals originated in the covered countries or are from scrap or recycled sources,” the U.S. Securities and Exchange Commission (SEC) states.

In 2012, the SEC adopted a conflict minerals disclosure rule requiring companies to file specialized disclosure reports beginning in 2014 and annually thereafter. The SEC requires companies to file a Conflict Minerals Report and exercise due diligence on the source and chain of custody of their conflict minerals. The due diligence measures must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organization for Economic Co-operation and Development (OECD).

Fast-Forward to 2023

Thirteen years after the Conflict Minerals Provision became a federal law, the U.S. Government Accounting Office (GAO), says some U.S. corporations that procure minerals from the DRC region aren’t doing enough to authenticate that those metals don’t originate in conflict zones.

In Conflict Minerals: 2022 Company Reports on Mineral Sources Were Similar to Those Filed in Prior Years, the GAO says that 51% of companies made preliminary determinations about whether the conflict minerals in their products may have come from the DRC or other covered countries last year. Of those companies that went on to perform due diligence, an estimated 53% reported they could not determine whether the minerals used in their products originated in covered countries.

In 2022, 1,005 companies filed conflict minerals disclosures with the SEC, reflecting a continued decrease since 2014, when 1,321 companies filed SEC disclosures. According to the SEC, this 24% decrease may be due to factors such as mergers and acquisitions among companies and changes in business practices by companies that previously filed disclosures.

“However, some industry stakeholders we spoke with told us that a factor contributing to the decrease in conflict minerals disclosure filings may be that some companies perceive that they are unlikely to face enforcement action by the SEC if they do not comply with the conflict minerals disclosure requirements,” the GAO states in its report.

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About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

Bridget McCrea is a freelance writer who covers business and technology for various publications.