Reminders

Conflict Minerals Reporting Passes a Notable Milestone

By Heather Ashton – June 6, 2014
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This week marks the deadline for audits from the first required reporting period for the U.S. SEC to comply with the legislation surrounding the use of conflict minerals by U.S.-listed companies. IDC Manufacturing Insights has paid close attention to the regulation of conflict minerals since before the rules for implementing the official law to regulate them was finalized and released in August 2012 (Section 1502 of the Dodd-Frank Wall Street Act).

With the passage of the first filing date May 31, 2014 (since the date this year fell on a weekend, Monday June 2nd was the official deadline), the manufacturing industry is seeing the results of the first efforts to capture and share the traceability of conflict minerals from mine to finished product. Approximately 1,300 of the estimated 6,000 companies required to file audits of their usage of tin, gold, tungsten, or tantalum in their supply chains filed their reports with the SEC this year. The results reveal the ongoing challenges that many manufacturers are having with the legislation.

While manufacturers like Intel, HP and Apple filed their in-depth reports last week ahead of the deadline and have released publicly-available reports that highlight their individual efforts at reaching conflict-free status, there are still many more manufacturers who have not filed yet. And, a recent ruling from the US appeals court has rendered parts of the legislation unconstitutional, specifically around requiring companies to declare whether or not their products contain conflict minerals. Now, rather than listing their products as "conflict free" or not, companies only have to prove that they investigated their supply chains.

The audits that have been filed with the SEC range vastly in level of information from highly detailed to perplexingly vague.  This is likely a reflection of the varying levels of transparency that exist across global manufacturing supply chains and the inherent challenges in trying to follow the chain of raw materials through multiple suppliers and handlers back to their original source. The challenge is exacerbated by global supply chains that involve many suppliers who have no legal requirement to comply with the law since they are not U.S. listed companies. Here is a sample of the findings from the SD forms being filed with the SEC this week (found at www.edgar.sec.gov):

From Smith & Wesson Holding Corporation (manufacturer of firearms): "SWHC has been unable to determine for the reporting period all smelters, refiners and the ultimate source of origin of such minerals."

From Ralph Lauren Corp. (apparel manufacturer): "The Company does not have sufficient information to determine the country of origin of the Conflict Minerals in the Covered Products."

From Elecsys Corporation (a technology equipment manufacturer): "All of the Company's suppliers were not able to provide sufficient information to conclude or identify the country of origin of the conflict minerals contained in the parts and components supplied to Elecsys or represent that the parts or components contained conflict minerals from recycled or scrap sources. As a result, Elecsys is unable to determine the country of origin of the conflict minerals used in its products and assemblies."

As the above sampling reveals, many of the companies that did file form SD with the SEC were not able to achieve a finite level of certainty whether their products contain conflict minerals from a restricted country of origin. Given the widely distributed and globally complex nature of these supply chains, it is not surprising that a desired level of visibility has not been reached for many of the reporting companies in the first year.

However, the initial effort are putting companies on a path toward visibility and transparency up and down the supply chain that IDC Manufacturing Insights sees as necessary for continued supply chain resiliency. The conflict minerals issue is also elevating some manufacturers who have chosen to make it part of their wider sustainability and GRC efforts, something that is becoming increasingly important to stakeholders and shareholders alike.

Do you have something to share about the conflict minerals filings, or the recent US appeals court ruling? I'd love to hear it.

 

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