1 Sep 14

Understanding conflict minerals in the supply chain

State of reporting in the U.S

Understanding Conflict Minerals in the Supply ChainNearly three months have passed since the submission deadline for U.S.-listed companies’ conflict minerals reports, and the results have been disappointing. Although over 1,200 companies managed to file reports prior to the deadline, a large proportion failed to comply with the ruling through omissions of mandatory items. According to Bloomberg, regulatory compliance consulting firm Claigan estimated that only 1.9% of submissions actually conducted proper due diligence, as stipulated by the Securities and Exchange Commission, to determine their conflict mineral status.

Alternatively, a large number of the reporting companies have stated that they do not know where 3TG (Tin, Tungsten, Tantalum, and Gold) originated, taking advantage of a two-year moratorium on conflict mineral determination in disclosures to the SEC.

Understanding the supply chain

What has been made apparent through this attempted compliance with Section 1502 of the Dodd-Frank Act is that companies are struggling to understand their supply chains.  Despite the complexities of the supply chains associated with 3TG, the central issue for companies is not actually the SEC ruling itself, but a wider lack of third-party transparency.  Although the U.S requires reporting of this information, being outside the U.S is not a reason to ignore conflict minerals.  The UK Government strongly encourages companies with supply chains involving any conflict minerals to implement the OECD Due Diligence Guidance. [1]

The introduction of the SEC ruling is actually part of a broader global push for companies to understand their supply chains and should therefore be approached in the same way.  

Increasingly a combination of EU Directives, national legislation, and CSR reporting frameworks all include requirements for organisations to understand a lot more about their suppliers’ business practices and policies. Topics growing in importance include a supplier’s approach to working conditions, human rights, health and safety, environmental performance, and anti-bribery measures – conflict minerals can be added to this list, although actually at its core it is a working condition, human rights, and anti-bribery issue.

5 steps to addressing conflict minerals in your supply chain

In order to achieve supplier compliance across any of these topics, as well as ensure that your own organisation is compliant with Section 1502 of the Dodd-Frank Act, you need to take a holistic approach. The following steps will help any organisation begin to understand their conflict mineral status and ensure the difficulties with this year’s SEC filing become a starting point for significant improvements in the years to come.

1. Review information collected from your suppliers

In addition to the information that you need to collect for conflict minerals reporting, your organisation may already be gathering additional due diligence information from its suppliers.  This could be insurance, bribery and corruption information, or even environmental policies.  It is important that you understand any current processes that are in place and if possible ensure consistency across the data-gathering process. The response rate and quality of information from your suppliers will be improved by reducing the number of separate and disjointed information requests you send them.

2. Consider the limitations of current processes

Suppliers are often asked for similar information from multiple buyers and this is certainly true when gathering conflict minerals information.  This means a lot of repetitive offline form-filling and an unnecessary drain on resources.  At the same time, the quantity of data you hold on your suppliers will become increasingly challenging to manage.  A solution that is simple for the supplier is a must but, more importantly, you will need to be able to use the data for your own compliance purposes.

3. Dedicate resources to the issue

When an organisation first starts to analyse its supply chain there are a number of unknowns, from up-to-date contact details for the supplier to the information you need to request from them.  By dedicating time to manage the process properly you are not only working towards understanding your organisation’s conflict mineral status but also driving the potential rationalisation and effective management of your suppliers.

4. Move the process online 

Using spreadsheets is a costly, time-consuming, and potentially inaccurate method of gathering data. Moving the process online can save a huge amount of time for suppliers and enable you to analyse and manage their information more easily.  Having the data in a consistent format and a set of analytical tools means you can make use of the data, easily identify gaps or risks and compare supplier performance.  For more reasons to move online, see our recent blog.

5. Communication with stakeholders 

Regardless of how streamlined and automated the due diligence process is, it is vital that you communicate effectively to relevant stakeholders; both internal and external.  Your suppliers should be aware of why they are being asked for this information and clear on how they should meet the requirements.  The more support you can provide them, the better the response rates will be and the smoother the process will become over time.  Internal communication is also key as it ensures that there is a common message across the organisation. This is particularly relevant where there are multiple points of contact for suppliers.

Greenstone enables you to engage your suppliers through its award-winning supply chain sustainability software and support services. SupplierPortal is a supply chain management software solution providing your business with transparency and compliance across your entire supplier network.

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[Photo credit: ENOUGH Project via photopin cc]

[1] http://www.oecd.org/daf/inv/mne/mining.htm


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