Welcome to the club.
While supply chain and risk management managers have had to come up to speed on this buzz topic rather quickly because new and evolving regulations puts the track-and-trace burden squarely on them, it’s not been an easy learning curve.
And for those not directly involved in supply chain and risk management planning and execution, you’re not completely off the hook or able to shrug it off as a passing trend. Public companies across all industries, including high tech, automotive and life sciences, are impacted and will be held responsible for filing mandated conflict minerals reports. Additionally, employees in all departments from engineering to legal to finance will have to contend with sourcing and supplier relationship changes, too.
Here are a few questions we have been getting from clients who are beginning to dive into the complex world of conflict minerals management and compliance. We hope our Conflict Minerals FAQ helps you steer your own plans forward.
What are conflict minerals?
In legal terms, according the U.S. Security Exchange Commission, the term “conflict mineral” is defined as:
(A) Columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted); cassiterite (the metal ore from which tin is extracted); gold; wolframite (the metal ore from which tungsten is extracted), or their derivatives;
(B) Any other mineral or its derivatives determined by the U.S. Secretary of State to be financing conflict in the Democratic Republic of the Congo (DRC) or an adjoining country that shares an internationally-recognized border with the DRC, which presently includes Angola, Burundi, Central African Republic, the Republic of the Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia.
How did this come about?
In August 2012, the SEC adopted a provision mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require public companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining African country.
Congress enacted the conflict minerals mandate because of the humanitarian crisis linked to the exploitation and trade of conflict minerals. Armed groups use these minerals to finance a civil conflict in the DRC region.
Under the legislation, companies must report their use of conflict minerals if those minerals are “necessary to the functionality or production of a product.” Companies had to file their first specialized disclosure report covering the 2013 calendar year on May 31, 2014, and will continue to file these reports annually every May 31.
For additional background, click here.
What is 3TG? What are they used for?
3TG is a shortened catch-phrase referring to the red-flag minerals of tungsten, tantalum, tin and gold, which are frequently mined in or around the conflict region of the DRC.
These minerals are found in numerous parts used to produce automotive, aerospace, construction and industrial machinery, medical and dental equipment and electronic device, to name just a few. In the electronics industry, for example, impacted 3TG metals might include tin in solders for joining circuits, tantalum in capacitors, tungsten in electrodes and gold in integrated circuit wiring.
How can my company comply? What should be included in a conflict minerals compliance program?
One of the first steps is to understand what minerals are used in and are necessary to your company’s products or manufacturing process, and identify which suppliers provide parts containing these minerals. Companies must also conduct country-of-origin surveys with their suppliers to assess where the minerals are sourced, and implement due diligence measures to track and trace the chain of custody of their conflict minerals.
Any successful conflict minerals compliance program, however, should go beyond just supplier-level reporting and include product and part-level insights. Being able to include sub-tier suppliers increases confidence that compliance problems are not “hiding” outside the tier-one supply chain. Likewise, compliance solutions should have the ability to map bill-of-material (BOM) data and report conflict mineral dependency at a product or group of products level.
More broadly, conflict minerals compliance should be integrated into other sourcing and risk mitigation practices and capabilities in order to capture greater visibility across the entire supply chain. Taking this step not only improves the integrity of conflict mineral reports but also opens up opportunities to forge stronger supplier relationships, reduce redundancies throughout the supply chain operation and lower the company’s overall exposure to risk.
How can we collect the required information from multiple-tiers of suppliers?
Educating and onboarding suppliers were among the biggest challenges companies faced during the first year of the conflict minerals reporting cycle. It’s not a problem that will likely go away anytime soon.
To address this, many companies are re-evaluating their existing processes and developing ways to expand their visibility to their sub-tier suppliers. In addition to building out compliance measures, leading companies are clarifying supplier roles and responsibilities; developing one, two or three-year plans to assess conflict minerals compliance gaps and identify potential supply chain risks, and better mapping suppliers and parts worldwide.
By creating more awareness and engaging the suppliers more directly in the process, companies and suppliers will develop a more standard way of communicating conflict minerals concerns up and down the supply chain.
What lies ahead?
With one year under their belts, many executives are now looking ahead to see what reporting challenges still need to be addressed and which best practices could be replicated or expanded throughout their supply chain operations.
They’re also keeping an eye out for clarifications to the existing U.S. law and monitoring how regulations could evolve in other places, namely Europe.
By all counts, it will continue to be a roller coaster ride as companies learn to navigate this changing landscape. But, with a little help, smooth sailing towards full conflict mineral compliance could go from a pipe dream to reality.
Click here to learn more about Resilinc's conflict minerals solution.