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Conflict Minerals: Compliance Challenges Ahead as Businesses Worry About Penalization

New U.S. reporting requirements on sourcing “conflict minerals” create challenges and opportunities for companies.

Submitted by: Guest Contributors

Posted: Jan 21, 2013 – 11:19 AM EST

Tags: conflict minerals, amd, motorola solutions, electronics, supply chain, fair trade, consumption, sustainability

 
Joe_verrengia

By Joe Verrengia

You paid $100 for an organic heirloom turkey for your holiday table. Your fair trade coffee costs $16 per pound. And the hand-crocheted organic cotton blanket from a Peruvian co-op for your new baby niece? As much as $220 plus shipping.

Sustainable merchants have established strong niche markets for luxuries and incidentals. But what about an essential tool like your smart phone? Would you pay more if you could be sure its materials weren’t indirectly bankrolling human rights abuses in a distant frontier like the Democratic Republic of Congo?

New Reporting Requirements For Conflict Minerals

Creating a new economic framework amid anarchy is just one dilemma facing companies in the U.S. subject to new reporting requirements for “conflict minerals” by the Securities and Exchange Commission. These minerals are crucial to electronics and widely used in many products.

Other challenges: understanding and complying with the new federal reporting requirements, untangling complex global supply chains and quelling fears of both suppliers and customers.

As the DRC government and rebels consider a new round of ceasefire talks, companies are now determining whether to keep sourcing materials from the DRC under the new regulations, or source from other nations.

“It would be easier to just stay out of it,” said Michael Loch, director of supply-chain corporate responsibility for Schaumburg, IL.-based Motorola Solutions.

“But from a CSR standpoint, you don’t want to make a bad situation worse, “Loch said. “If there is enough momentum and people stay engaged, you can see how a legitimate pipeline can be established and eventually we will see this as a normal way of business.”

Companies See Compliance Challenges  

Other companies say the conflict minerals regulations penalize them for circumstances far beyond conflict mineralstheir influence. More than a year before the first conflict minerals report is due to the SEC in 2014, they are feeling the pinch from customers asking them to certify that their products are conflict-free.  Yet, they can’t see clearly down their supply chains back to the materials’ origins – often small “artisan” mines under the control of warlords.

“We do not want to purchase any components where the manufacturer purchases raw materials from the DRC region, “ said Michael Goeringer, president of Arc-Tronics, an Illinois-based circuit board manufacturer. “However, we have no mechanism to determine if they are doing that or not.”

Four materials – tin, tantalum, tungsten and gold – are covered by the new regulation, which was required in the 2010 Dodd-Frank Act. A percentage of the world’s supply comes from mines on the eastern frontier of the DRC, where millions have been killed or uprooted in a civil war that has persisted for more than a decade. 

Next year, U.S. public companies will be required to report their use of “conflict minerals” exported from this tropical twilight zone in a new effort by policymakers to choke off the outlaws’ financing and establish a legitimate economy. They must report their audited findings to the SEC.

Motorola Paves The Way on Compliance

Motorola Solutions has embraced the reporting process and is working with several programs to establish a clean, sustainable supply chain the materials in its products, which include wireless networks, two-way radios and bar code scanners, as well as related services for many industries and public agencies.

One such program is Solutions for Hope.  Since 2011, Motorola Solutions, capacitor manufacturer AVX and 12 other stakeholders have been supporting this pilot initiative to source conflict-free tantalum from small mining cooperatives in the DRC.  The pilot mines are not in an area designated as “conflict.”  The idea is to reliably establish the process, then apply it to mines in conflict areas.

To create a verifiable chain of custody for the ore, the organization identifies key participants – mines, a smelter or processor, component manufacturer and end user. They work in tandem throughout the process to ensure the chain of custody for the materials remains intact.

Loch said small mines in the program are following safer mining practices for workers. The program is stimulating government reinvestment in the local community, including schools, medical clinics and water projects.

So far, the project has shipped 127 metric tons of confirmed “conflict free” ore in sealed bags tagged with a tracking bar code. The ore goes to a pair of smelters comply with the Conflict-Free Smelter Program, and does not mix with ores from other mines.

“A supply chain that typically was 10 steps long has been reduced to four or five steps, “Loch said.   “The ore is routed through areas that have not been subject to the conflict. You minimize the opportunity for infiltration so transport areas not tainted.”

Nonprofits and Governments Support Conflict Free Minerals Programs 

Last fall, the Dutch government brokered a conflict-free tin-sourcing program with industry outside the warlords’ control in the DRC.

Congo's Conflict Minerals Supply Chain

Fairphone, an NGO, is working with the Conflict-Free Tin Initiative, to develop a cellphone that meets conflict-free requirements. On Dec. 15th, Fairphone reported that 51,500 pounds of conflict-free cassiterite has been exported, which would yield about 14 tons of tin.

Consumer Awareness Is Key

Loch said that’s the next step is to determine whether consumers will recognize conflict minerals as a market differentiator in the stampede towards the latest generation of electronics. Will there be a consumer backlash against companies that can’t demonstrate their products are “conflict-free?” Will consumers pay a premium for a “conflict-clean” product?

 “It works in the grocery store and some apparel lines, but is that approach scalable and transferable to minerals?” Loch said.

Other companies in the supply chain – especially component distributors and contract manufacturers – prefer to find clean sources of the regulated materials elsewhere in the world.

Companies are committing staff to the conflict minerals reporting process. They typically work in interdepartmental teams, including public affairs, supply chain logistics, IT and audit.

Tim Mohin, corporate social responsibility director for chipmaker AMD says his company has several employees working on conflict minerals. AMD has chaired a multi-stakeholder working group on the topic with the Enough Project, an NGO, and made policy recommendations to the SEC.

conflict free electronics“Customers want to have a conflict-free status for products and components,” Mohin said. “This represents a substantial increase in workload.”

Companies Advised to Exercise Caution in DRC

“This regulation does nothing but add costs without any way to ensure what our supply chain, many tiers down, is doing to prevent raw materials from being sourced from that region,” said Arc-Tronics president Goeringer.

The disparity of views does not surprise those who work in the DRC. While the government is trying to establish order and collect tax revenues in some areas – artisan miners now carry ID cards, for example, and traders are being licensed - they advise companies to tread carefully and seek experienced partners.

“The appetite to do business in the DRC now is very small,” Peter Dulvy, a director of the James Mintz Group, told a recent seminar hosted by IPC, an electronics trade association. “It’s a complex, dangerous environment. You should ask the same questions to four or six different parties on the ground to assemble a reasonable view of how to proceed.”

The proceedings of the IPC seminar are now available.

About the Author:

Joe Verrengia is senior administrator for public affairs at the National Renewable Energy Laboratory [NREL].  In 2011, he was certified in corporate social responsibility management by the Boston College Center for Corporate Citizenship [BCCCC]. Previously he was senior director of the Denver Museum of Nature & Science and national science writer for the Associated Press. He was the inaugural winner of the John B. Oakes Award for Distinguished Environmental Journalism and a Knight Fellow at MIT.

The opinions, beliefs and viewpoints expressed by CSRwire contributors do not necessarily reflect the opinions, beliefs and viewpoints of CSRwire.

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