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May 30, 2015
Report Assesses Corporate Conflict Minerals Disclosures
    by Robert Kropp

The Responsible Sourcing Network analyzes the quality of more that 1,000 conflict minerals disclosures by large cap corporations, and find that many fulfilled only minimal requirements.


Externalizing the cost of doing business can take many forms for corporations. It is perhaps most commonly invoked, understandably enough, in reference to greenhouse gas (GHG) emissions, the potentially fatal price society is paying to corporations in the fossil fuel industry.

But when externalization is considered in the realm of human rights, the implications are even more chilling, especially as they relate to the lives of human beings sharing the planet with us today. Imagine, if you will, that a causal acquaintance hurriedly offers to sell you a new MacBook Pro for $100. You wouldn't be surprised to learn that the computer had been stolen; and if you bought it, and authorities found it in your possession afterward, you could be charged with a crime.

For years, armed groups in the Democratic Republic of the Congo (DRC) have used payments for conflict minerals—including tantalum, tin, gold, and tungsten, which are used in products in numerous industry sectors—to fund a civil conflict which has resulted in the loss of more than five million lives. The moral responsibility of corporations to ensure that minerals used in their products are not sourced from armed groups is clear, but with rare exception it requires regulatory oversight to realize such assurance.

In 2012, following the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (SEC) issued regulations requiring US corporations to disclose whether their products contain conflict minerals. Last year was the first in which corporations were required to report to the SEC on the sourcing of minerals that could originate in conflict zones such as the DRC.

Even before the regulations were issued by the SEC, the multi-stakeholder initiative Responsible Sourcing Network (RSN)—including investors, nongovernmental organizations (NGOs), and corporations—formed to ensure that all corporations at risk of sourcing conflict minerals complied with not only the letter of the regulations, but the spirit as well. Following last year's inaugural round of corporate reporting to the SEC on conflict minerals, RSN and the environmental, social, and corporate governance (ESG) research firm Sustainalytics have produced a report analyzing the corporate disclosures.

Entitled
Mining the Disclosures, the report reveals that 1,315 companies from 58 industries submitted filings to the SEC in 2014. The filings, according to the report, “generated a huge quantity of data without much standardization of language or format, posing a challenge for investors and analysts.” Excavating the data nonetheless, RSN and Sustainalytics discovered a wide range of compliance among industry sectors.

The study examined a pilot pool of 51 companies across 17 industries with high exposure to conflict minerals. The transparent methodology was designed to encourage higher quality reporting, incentivize companies to support in-region conflict-free certification efforts, and set a precedent for comparing social performance.

Overall, “All industry averages fell short of the mark,” the report states. “The average score in the pilot group was less than 50 out of 100 points.” And although a handful of companies in the information technology (IT) sector scored well, even that industry only achieved an average score of 58. Companies in the Energy Equipment and Services, Containers and Packaging, and Healthcare Equipment and Supplies industry sectors were identified as laggards, “with companies in this group averaging below 35 points,” the report found.

“While some companies took the initiative to provide robust conflict minerals reports, too many took the easy way out by fulfilling only the most minimal compliance requirements,” said Patricia Jurewicz, Founder and Director of RSN and co-author of the report. “As companies see their peers adopting leading practices, we expect more transparency and greater depth in conflict minerals reporting.”

One way of achieving more transparency and greater depth, the report concludes, is through the formation of collaborative initiatives. “Industry-wide efforts like Conflict-Free Sourcing Initiative (CFSI), an initiative of the Electronics Industry Citizenship Coalition (EICC) and Global e-Sustainability Initiative (GeSI) have increased the private sector’s capacity to trace the origin of minerals through midstream audits and supplier survey templates,” it states. “Companies not already part of an existing effort should join or initiate one.”

“Investors must use this information to engage with both leading companies and those that have only done the bare minimum,” the report recommends. “Investors are in a position to raise the bar and push downstream companies exposed to conflict minerals to respond until a critical mass is reached, and a conflict-free minerals trade becomes a reality. Investors can demand that companies go beyond transparency and improved reporting, to take action to promote a conflict-free minerals trade in the DRC region. All companies that rely on tin, tantalum, tungsten, or gold in their business model, not only companies obligated to file per the SEC Rule, bear some responsibility.”

 

 
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