SEC eviscerates conflict minerals reporting requirements

By JESSICA HOLZER
A version of this article appeared August 23, 2012, on page B1 in the U.S. edition of The Wall Street Journal, with the headline: Wal-Mart, Target Avoid Mining Rule.


WASHINGTON—Big retailers including Target Corp. and Wal-Mart Stores Inc. may largely escape a costly new rule that requires U.S.-listed companies to disclose whether their goods contain so-called conflict minerals that are blamed for fueling violence in central Africa. Retailers lobbied to be exempted from the requirement, which will affect manufacturers of a range of products, including smartphones, light bulbs and footwear.

The Securities and Exchange Commission had proposed an earlier version of the rule that would have applied to retailers carrying products sold under their own brand names, but which are typically produced by outside contractors. On Wednesday, however, the SEC voted 3-2 to adopt a final rule that would exempt companies that don't exert direct control over the manufacture of such products.
The rule, which was mandated by the Dodd-Frank financial overhaul, has been a source of friction between the SEC and companies ever since the law was passed in 2010. Companies have said the requirement would be burdensome and expensive.

Indeed, the SEC on Wednesday sharply raised its estimate of the rule's financial impact, saying it would cost companies a total of $3 billion to $4 billion upfront, plus more than $200 million a year. The SEC initially had said the cost of compliance would be just $71 million. It said it revised its estimate based on comments from the business community and others.The SEC estimates around 6,000 U.S. and foreign companies would have to comply with the conflict-minerals rule, which covers products containing tin, tantalum, tungsten and gold.



Unverified Origins
Some store-brand goods that may include 'conflict minerals'—tin, tantalum, tungsten or gold mined in or around the Democratic Republic of Congo:
Wal-Mart Stores:
Canned goods (tin in cans)

Light bulbs

Clothing and footwear

Target:
Canned goods

Jewelry

Best Buy:
MP3 players

Flat-screen TVs

Companies that merely attached their brand or label to a generic product made by another company aren't covered, the SEC said. But it added that if their involvement with the product went beyond that point, they "would need to consider all of the facts and circumstances" to determine if they were governed by the rule. The SEC also on Wednesday passed a similar disclosure rule focused on the development of foreign oil fields, which was also mandated by the Dodd-Frank law.

Industry lobbyists were optimistic the bulk of store-brand goods sold by leading retailers wouldn't fall under the conflict-minerals requirement, but they were waiting to read the full text of the rule."We are pleasantly surprised where [the agency] ended up," said Jonathan Gold, National Retail Federation vice president. Mr. Gold declined to elaborate before seeing the full text, which the SEC posted on its website Wednesday evening.

SEC Chairman Mary Schapiro said Wednesday the conflict-minerals rule was implemented in a "fair and balanced manner," and the SEC "incorporated many changes from the proposal that are designed to address concerns about the costs."

A spokeswoman for Target said the retailer is "committed to sourcing products from business partners who engage in responsible mining practices" and is "taking time to understand the impact of the new rule." Best Buy Co., which also sells store-brand products, declined to comment.

The four minerals covered by the rule are thought to be used to finance armed groups in the Democratic Republic of Congo and the surrounding region. Companies using any of these minerals are required to investigate whether they were mined from the area. Those that believe they use minerals from the region must file a report with the SEC saying what steps they took to verify the minerals weren't taxed or controlled by rebel groups.
"We remain concerned about the challenge of complying with these new and complex requirements," said Retail Industry Leaders Association Vice President Stephanie Lester.The companies don't have to file a so-called minerals report with the SEC if their materials come from scrap or recycled sources. Companies that fail to verify their sources of supply still can sell their products, but run some reputational risk if their connections to problems in the region are publicized.

Nonprofit groups wanted companies to take immediate steps to comply with the rule, rather than take advantage of a two-year transition period during which they could categorize certain products as "DRC conflict undeterminable."Corinna Gilfillan, head of the U.S. office of Global Witness, a human-rights group, said she was disappointed the SEC approved a two-year phase-in period for the rule, accusing the agency of caving to pressure from businesses.

SEC records indicate that representatives of Best Buy, J.C. Penney Co., JCP Costco Wholesale Corp., Lowe's Cos., Wal-Mart and Target met with officials to air their concerns about the rule. Costco declined to comment. J.C. Penney and Lowe's Cos. didn't respond to requests for comment.

Republican SEC commissioners Troy Paredes and Dan Gallagher opposed the rule, questioning whether it belonged in the securities laws and whether the agency had determined the rule would do more harm than good.

The SEC rejected other demands from business groups, including an exemption for companies using minimal amounts of minerals. The SEC said companies' minerals reports would be subject to the same level of legal liability as annual reports and other important SEC filings. Also on Wednesday, the SEC voted 2-1 to adopt rules requiring companies to report their payments to the U.S. and foreign governments for developing oil and gas fields, another regulation that businesses say could cost them billions of dollars. The SEC rejected a plea from the industry for an exemption for companies operating in places that forbid the disclosure of such payments.The American Petroleum Institute, in a press release, said the rule would hand U.S. oil companies' competitors a tactical advantage.



—Shelly Banjo contributed to this article.

Write to Jessica Holzer at jessica.holzer@dowjones.com

Vancity Divests Enbridge Holdings from IA Clarington Inhance SRI Funds

Vancity announced today that pipeline company Enbridge no longer meets Vancity Investment Management’s environmental, social and governance criteria for its socially responsible investments. The decision was based on the U.S. National Transportation Safety Board report on the Enbridge 2010 pipeline spill in Michigan.

As a result, Vancity Investment Management (VCIM) has divested its Enbridge holdings in the IA Clarington Inhance SRI funds which it manages.

VCIM is a sub-advisor on three SRI funds for IA Clarington and determines which holdings are contained within the funds, based on ESG criteria. Two of these funds previously contained Enbridge holdings.

“When you purchase the IA Clarington Inhance SRI funds, you are also investing in a disciplined process that considers ESG factors and financial analysis,” says Tamara Vrooman, President and CEO of Vancity. “Vancity Investment Management’s portfolio managers balance risk, return and the impact of all the investments that are made. They believe in engaging with companies to improve their ESG performance, however, if companies no longer meet the ESG criteria, they will divest the holdings from the portfolio.”

“It looks like there’s even more risk [to Enbridge], which we think further potentially puts the financial performance at risk,” Vrooman told the Globe & Mail. “We think the balance has tipped such that it’s not going to be a higher-performing investment in our criteria.”

The Globe also notes that Vancity is not the only investment firm considering divesting Enbridge. Northwest & Ethical Investments LP (NEI) has spent six years pressuring the company to gain better first nations acceptance before pursuing the Northern Gateway pipeline. NEI sponsored a resolution at this year’s annual general meeting calling for a report to shareholders on how first nations opposition would impact plans for the project. It failed, but gained 29% support.

NEI, which has pushed for executive compensation to be more closely tied to pipeline safety, the Globe reports, is now seriously weighing the benefits of sticking with Enbridge, and expects to revisit its position on the company following meetings with management and the board in September and November.

“We are kind of running out of rope here on Enbridge,” Bob Walker, NEI’s vice president of sustainability told the Globe. “Typically we see things moving in a more progressive direction. With Enbridge, things seem to be going from bad to worse.”