From the Wall Street Journal Tuesday August 4th, 2015
U.S. Firms Struggle to Trace ‘Conflict Minerals’
Dodd-Frank requirement to disclose metals in supply chain connected to war-torn region proves costly
In all, companies shelled out roughly $709 million and six million staff hours last year to comply with rules to disclose “conflict minerals” in their supply chains, according to recent research by Tulane University and Assent Compliance, a New York consulting firm. And next year, they will need to hire auditors to evaluate their results.
“Conflict minerals” include tin, tantalum, tungsten and gold originating from the Democratic Republic of the Congo. The conflict-torn country holds vast reserves of these four minerals, which are widely used in a flurry of products, from electronic devices to engagement rings to auto parts.
Some companies, including microchip-maker Intel Corp., sent employees overseas to verify their products were conflict-free.
Yet 90% of the 1,262 companies that filed conflict-mineral reports with U.S. securities regulators last year said they couldn’t determine whether their products are conflict-free, according to Tulane University’s research.
Major tech firms were among the best at reporting whether conflict minerals were in their supply chain, while a handful of smaller companies didn’t even file their reports by the June deadline, or left out required details about their supply chain.
Below, the top and bottom companies as ranked by Assent Compliance based on research from Tulane University.
- Modine Manufacturing
- Westport Innovations
- Lifeloc Technologies
- Protea Biosciences Group
- Federal Signal
players and materials in their global supply chains.
Rules arising from the 2010 Dodd-Frank Act mandate that companies begin to disclose in reports filed with the U.S. Securities and Exchange Commission whether any tin, tantalum, tungsten or gold, in their supply chains is connected to violent militia groups in the Democratic Republic of the Congo. The companies so far enjoyed a two-year phase-in period during which they could declare that they couldn’t determine if these minerals were in their products. But that phase-in has now expired, and large companies will need to be more specific when they next file by end-June 2016, and will have to hire outside auditors to inspect these reports.
“It’s a herculean task,” said Chris Bayer, an independent research consultant who studied the latest reports filed with the Securities and Exchange Commission for Tulane University. Tracking materials from more than 2 million artisanal miners in the Eastern Congo that smelt small amounts of metals—and determining their links to guerrilla operations—is like trying to “apply modern supply-chain logistics to the equivalent of the 1849 California gold rush,” Mr. Bayer said.
“We have no reason to believe there are conflict minerals in any of our products, but we’re spending an enormous amount of money trying to prove it,” said Brian Cooper, chief financial officer of communications and safety-equipment maker Federal Signal Corp. in Oak Brook, Ill.
Twelve percent of the world’s supply of tantalum stems from miners in the DRC, according to the U.S. Geological Survey. The hard blue-gray metal is essential in companies’ ability to build smaller and lighter cellphones, laptops, hard drives, and other devices. But to track the origin of tantalum, companies often have to dig four or five layers deep into their supply chains, as the material travels across the globe to various parts manufacturers.
With the money and manpower to conduct extensive examinations of their supply chains, several major technology companies including Microsoft Corp., Apple Inc. and Intel Corp. topped the list in terms of compliance with the law and providing additional information on their processes. But even Microsoft and Apple said that they were “conflict undeterminable” last year. Intel says its products are “conflict free,” but sent employees to 90 mineral smelters around the world to gather that information.
Most companies struggled to comply with the rules already in place when they filed conflict mineral reports—without audits—before the June deadline.
Only 314 companies, or fewer than 24% of the total, reached full compliance with the law
Two-thirds, including Google Inc. and Amazon.com, didn’t describe the country of origin of their metals, as required, and about 43% failed to disclose the framework they used to conduct due diligence, according to Mr. Bayer.
Companies’ ability to find conflict minerals in their products largely depends on where they sit in the supply chain, Mr. Bayer said.
Federal Signal has about 60 staff members from its technology, legal and procurement departments involved, Mr. Cooper said. They bought specific conflict minerals software to track its supply chain, and followed up with suppliers who didn’t respond. Still, a handful of suppliers couldn’t, or wouldn’t, answer its queries, he said.
Apple told suppliers last year that if they weren’t getting their minerals audited by the end of 2014 they would be kicked out of the company’s supply chain. Apple has verified 135 of its smelters are conflict-free and another 64 are in the process of verification.
Under Dodd-Frank, the U.S. Commerce Department was supposed to publish a world-wide list of refiners and smelters that are being used to fund militia groups, but it said in September that the task was impossible. Companies still have to comply with the SEC reporting rules. The SEC declined to comment.
Only six companies, including Intel and capacitor maker Kemet Corp., have managed to submit their conflict minerals reports to a voluntary external audit so far.
“The cost of doing a bad job isn’t much,” said Jeff Schwartz, professor of law at the University of Utah’s law school. “Companies can kind of just check the boxes in the rule, send out a survey, report the results, and I don’t think the SEC is really going to do anything about it.”
Just after Dodd-Frank was passed into law, Kemet, which is the world’s largest producer of tantalum capacitors, decided it was better off opening its own tantalum mine in the DRC village of Kisengo, in the country’s conflict-free Katanga province in 2011. Kemet has strict rules for production and tracing, and has invested in building the town’s infrastructure through roads, bridges and new wells.
“Our tantalum supply is 100% clean right now,” said Joel Sherman, director of social responsibility at Kemet.