Conflict-free minerals - are they a pantomime?

Responsible Sourcing 2019 report published

Majority of firms fail at conflict minerals due diligence

Cecilia Jamasmie

mining.com

11 October 2019

Nine years after the implementation of a law requiring publicly traded
companies to ensure their raw materials don’t come from mines that use
child labour or fund warlords or corrupt soldiers, companies’ efforts to
comply continue to fall short.

Dodd-Frank legislation requires companies operating in conflict areas
such as the the Democratic Republic of Congo (DRC) to conduct due
diligence to establish their commodities are conflict-free. The minerals
involved are tin, tantalum, tungsten and gold (3TG) .

But US President Trump’s threat in 2017 to suspend Section 1502 and the
SEC’s subsequent decision of not enforcing the law, has encouraged
companies to neglect 3TG supply chain due diligence.

According to the annual report by the Responsible Sourcing Network
(RSN), now in its sixth edition, companies’ attempts at conducting due
diligence and reporting their practices have decreased.

The study, which analyzed 215 companies’ actions around 3TG, said firms
scored 39.8 points in the last 12 months, down from 40.3 points they
achieved in the same period the previous year.

The rating system is based on 24 key performance indicators (KPIs)
divided across three themes, analyzing disclosures to the US Securities
and Exchange Commission’s (SEC) conflict minerals policies, and any
other conflict-minerals-related documents or descriptions of activities
on company websites.

Each KPI is weighted according to its significance and in relation to
the number of sub-indicators for each theme. For companies to earn
points for a KPI score, the corresponding information must be publicly
available.

“[This year’s scores] regrettably show the lack of efforts of a large
number of companies, highlighted by the decline or stagnation of 59.8%
of the sample, and, even more regrettably, 63% of the sample scores at
mediocre levels (categories of minimal and weak),” RSN, a body that aims
at ending human rights abuses and forced labour related to the
extraction of raw materials, notes.

“The fact that a large majority of the companies disregard their
corporate responsibility on conflict minerals and cobalt is the result
of the U.S. administration’s policies, but also reflects internal
business decisions,” Raphaël Deberdt, author of the Mining the
Disclosures 2019 report, says.

The study, which also ranks the efforts of 27 companies to address child
labour and other human rights abuses in their cobalt supply chains, as
established by the Dodd Frank Act Section 1502, shows that the
technology sector remains a leader on the topic.

Companies achieving a score of 70 or higher have shown their ability to
innovate beyond simple compliance, accomplishing an integrated and
robust response to conflict minerals risks, the report says.

The three bottom-performing industries were, for a second year in a row,
integrated oil & gas, steel, and business services. However, building
materials gained an average of eight points, moving it to 17th place up
from 23rd.

The six leading companies were mostly in the IT sector — Intel,
Microsoft, Apple, HP, Dell Technologies, and Ford. They all have
excelled at adopting proactive, due diligence-based strategies and
leading the way in terms of transparency.

It doesn’t mean, however, that supply chains are free of conflict
minerals, particularly of those coming from the resource-rich, but
impoverished DRC.

Pressure builds

Allegations of abusive mining practices in Congo came to light in 2015,
largely focusing on informal, or artisanal, small scale mining (ASM).
The country’s cobalt — a key component in the batteries used in electric
vehicles and smart phones— is said to be mostly mined by hand, in often
dangerous conditions and sometimes by minors.

According to Amnesty International, children as young as seven have been
found scavenging for rocks containing cobalt in the DRC. The group also
claims to have evidence that the cobalt those miners dig has been
entering the supply chains of some of the world’s biggest brands.

Traditionally, artisanal miners have sold their ore to local
cooperatives, which then sell it to local merchants and traders. They,
in turn, sell to international traders or operating mines with
established transport links and that cobalt ends up being exported
mostly to China.

Those and other allegations have put pressure on companies and on
traders. The London Metal Exchange (LME), the world’s biggest market for
industrial metals, has plans to ban metal tainted by human rights
abuses. The initiative to ensure responsible sourcing originally had
2022 as the deadline, but LME will now wait until 2025.

The European Union in May 2017 passed a regulation to stop mine workers
being abused and conflict minerals being exported to the EU. The
requirement to ensure mineral imports are responsibly sourced will
become effective on Jan. 1, 2021.