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Conflict Minerals in the Supply Chain

Nov. 5, 2019
New report from the GAO reveals stagnant progress on the part of companies when it comes to identifying the presence of conflict minerals in their supply chains.

With the European Union’s Conflict Minerals Regulation set to go into effect in January 2021, companies that import, smelt, or refine four minerals—tin, tantalum, tungsten, and gold—will soon be subject to new rules. Similar efforts have been underway in the U.S., where under Dodd-Frank, the U.S. Government Accountability Office (GAO) annually assesses the effectiveness of the U.S. Security and Exchange Commission’s (SEC) conflict mineral rules.

Recently, the GAO released its annual report on conflict mineral disclosures filed with the SEC in 2018. Submitted to Congress, the report revealed that 1,117 companies filed conflict minerals disclosures that year—about the same number as in 2017 and 2016. The percentage of companies that reported on their efforts to determine the source of minerals in their products through supply chain data collection (country-of-origin inquiries) was also similar to percentages in those two prior years.

“As a result of the inquiries they conducted, an estimated 56% of the companies reported whether the conflict minerals in their products came from the Democratic Republic of the Congo (DRC) or any of the countries adjoining it—similar to the estimated 53% and 49% in the prior two years,” GAO points out, noting that the percentage of companies able to make such a determination significantly increased between 2014 and 2015, and has since leveled off.

Conflict Minerals in the Supply Chain

In their 2018 disclosures, some companies reported taking the same actions to improve supply chain data collection that they had taken in past years, and many noted difficulties in determining conflict minerals’ country of origin. Others either couldn’t determine their minerals’ origin or had reason to believe their minerals were from covered countries (and not from scrap or recycled sources) and were, as a result of the inquiry, required to conduct additional research (due diligence).

By definition, covered countries have an internationally recognized border with DRC; they include Angola, Burundi, Central African Republic, Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda, and Zambia. Of those firms that did conduct due diligence, 61% were unable to confirm the source of minerals in their product and 35% reported using conflict minerals from covered countries or from scrap or recycled sources.  

Here are the other key findings from the GAO’s report:

  • Nearly all companies that filed conflict minerals disclosures indicated that they had conducted country-of-origin inquiries. Specifically, an estimated 100% of companies that filed reported they had conducted such an inquiry, similar to the percentages that reported doing so in the prior two years, the GAO reports.  
  • Some companies are taking actions to improve supply chain collection data. In an attempt to further investigate the source of minerals, some organizations are following up with suppliers to improve the specificity and completeness of their survey responses. Others are working to improve supply chain data collection by educating suppliers about conflict-free sourcing and creating and publicizing conflict minerals policies.  
  • 94% of the companies that were required to conduct due diligence did so. Most used the due diligence framework prescribed by the Organization for Economic Cooperation and Development (OECD) guidance. They conducted the due diligence on the source and chain of custody of the conflict minerals in their products.
  • Supply chain visibility isn’t 100% yet. Of the companies that conducted due diligence, 35% determined that their conflict minerals came from covered countries or from scrap or recycled sources (compared with 37% in 2017 and 39% in 2016.) The GAO also says that 61% of the companies couldn’t definitively confirm the source of the conflict minerals in their products (compared with 47% in 2017 and 55% in 2016).
  • SEC guidance on due diligence can be confusing. The SEC staff’s revised guidance is causing confusion among some suppliers and stakeholders about reporting requirements, sometimes leading suppliers to be reluctant or slow to share information required by companies for their due diligence reporting, the GAO states in its report. 

Moving the Needle?

Overall, there were few differences in the number of conflict minerals disclosures filed last year vs. the two prior years, and also few changes in how those reports were filed and addressed. As the GAO reports, the good news is that companies appear to be doing more to refine their supply chain data collection processes, although many of them reportedly have difficulties figuring out the country of origin of conflict minerals.

About the Author

Bridget McCrea | Contributing Writer | Supply Chain Connect

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

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