Earlier this year many North American based companies were filing their conflict minerals reports for the first time. The Dodd-Frank Conflict Minerals Law was introduced to help understand the source of conflict minerals across global supply chains, primarily in the high tech, automotive and CPG manufacturing sectors. This is an area that I have blogged about before, however this blog will provide an update on how this year’s reporting process went. I will also be covering this subject in more detail during one of my presentation sessions at our Enterprise World conference next month.
This new law was introduced by the US Senate and applies to any North American based company filing to the Securities and Exchange Commission, SEC. Companies have to provide evidence that their supply chains are not using conflict minerals. Even though it was just North American based companies that had to report to the SEC, suppliers located in other countries would have to provide evidence to their respective customers in North America of where potential conflict minerals were sourced from.
Conflict minerals, namely Tin, Tungsten, Tantalum and Gold (collectively known as the 3TG minerals) are mined all over the world however this new regulation specifically relates to the sourcing of 3TG minerals from the Democratic Republic of Congo (DRC) in Africa. Many mines in this region are owned by militia groups and the proceeds from the sale of 3TG minerals are used to fund their military operations. 3TG minerals are used in a range of every day products:
The new law aims to check the source of these minerals before they enter the smelter process. In December 2010 the International Organisation for Economic Co-Operation and Development (OECD) produced a document describing a five stage process which provides due diligence guidance for sourcing minerals from conflict affected and high risk areas around the world. Stage two of this framework specifically relates to the assessment and reporting process for identifying the source of conflict minerals.
To assist with the reporting process, the Conflict Free Sourcing Initiative (CFSI) was established to help companies implement a process for assessing their supply chain and to find out where 3TG minerals were sourced from. CFSI devised a SEC approved reporting Microsoft Excel spreadsheet that companies could use for assessing their supply chains.
All of the major industry analysts have produced reports offering their own analysis on the sourcing of conflict minerals, however Deloitte succinctly summarised the issues as follows, “The complexity of today’s supply chains combined with the lack of visibility into sourcing practices will be one of the key challenges of ensuring that Dodd-Frank can be adhered to”. So how did companies do during the first reporting period and what were the challenges that they faced during the assessment process?
Initial estimates of the number of companies that would be impacted by this new ruling were 6000, however a study conducted by Ernst and Young in June 2014, just after the 2014 reporting process had been completed, showed that the actual number of companies that completed a standard disclosure form to the SEC was just over 1300 and of these just 1000 completed a conflict minerals report as they had reason to believe that 3TG minerals had been sourced from the DRC.
The Ernst and Young report went on to say that:
- Average number of suppliers surveyed was 2500, but ranged from just 5 to over 40,000 suppliers
- 49% of respondents came from the technology, industrial and CPG sectors
- 43% of respondents showed sourcing of some portion of minerals from the DRC
- 52% of companies did not disclose supplier response rates, of those that did respond only 15% of companies had supplier response rate greater than 90%
- Only 27% were able to provide a list of smelters and refiners
After reviewing some of the conflict minerals disclosures on the SEC website it became clear that many companies had struggled to engage with their entire supply chain and in fact there were some remarkably similar issues faced by reporting companies, namely:
- Ensuring that supplier contact information was up to date to allow reporting template to be sent to them
- Some companies received no response from their direct and sub-tier materials suppliers, partly due to the complexity of their respective supply chains
- Information provided by suppliers was often incomplete or inaccurate
- Suppliers had to be chased up for report submissions to meet SEC’s May 31st deadline
Part of the problem related to acquiring information from suppliers is the reporting tool itself, even though it is relatively easy to complete, the main challenge is the distribution of the spreadsheet to a supplier community and then tracking all responses. If a company for example has more than ten thousand trading partners located all over the world then this problem becomes even more complex.
OpenText™ Active Community is a cloud based community management platform that is used to manage day to day interactions with a supply chain community. Using a centrally managed archive of supplier contact information combined with comprehensive email management and reporting tools, Active Community can help remove the complexities of managing the distribution of information to a trading partner community.
OpenText has re-created the CFSI reporting template within Active Community’s survey module. This means that companies can simply send an email to all their suppliers with a link to a reporting web form and all responses can be tracked and reported on.
Using Active Community for the conflict minerals reporting process offers a number of key benefits:
- Provides an effective cloud based platform for distributing and tracking responses to conflict minerals based assessments
- Offers a simple and efficient reporting environment to encourage 100% participation from trading partners
- Ensures trading partner information is accurately maintained within a centralized environment
- Allows a company to meet an important corporate social responsibility objective and allow a conflict minerals report to be filed on time
Even though the reporting process is only mandated by law in North America at the moment, other regions around the world are closely monitoring the US reporting process. The European Union passed a ruling earlier this year that it would allow companies located in member countries to self-certify their supply chains for conflict minerals. The EU ruling currently applies to importers of raw materials and does not include manufacturers and companies importing finished goods. The US and EU rules are intended to introduce more transparency into global supply chains, companies will therefore be ethically compelled to find out what is in their supply chains. Moving forwards it is expected that conflict minerals sourcing will become a core part of a company’s Corporate Social Responsibility initiative, which of course has board level support in most companies.
OpenText has developed a number of resources to explain how we can help companies simplify their reporting process, these resources include an executive briefing document, a short webinar providing more details on the conflict minerals ruling and how Active Community can help and finally a twenty minute demonstration of the CFSI template within Active Community and how it can be used to quickly survey a supplier community. If you would like to see a short introductory video which introduces the conflict minerals ruling then please see the video below. To access our conflict minerals resources, please click here.