A Critical Review of the Enough Project’s Conflict Minerals Ratings for Electronics

During our recent research on the financial impact of consumer sentiment about conflict minerals, we conducted a deep review of the Enough Project’s rankings of electronics companies’ conflict minerals programs.  These rankings are frequently referred to in publications and in social media venues such as twitter.  As we are auditors by vocation and predilection, we took an in-depth look at the data collection tool/approach, the data itself and interpretation thereof.  Our review found that the rankings

  • Reflect outdated and incomplete information,
  • Appear to contain bias, and
  • Are inconsistent in applying their scoring system.

Flawed questions.  Several of the questions in the survey are flawed because they ask for solutions and information that did not exist at the time of the survey – and still don’t today.  For instance:

  • Question:  Has the company published the refiners it uses for 3TG?  This fails to recognize the existence of legally-binding non-disclosure and confidentiality agreements that are common between suppliers, especially in the electronics industry.  Even today, concerns about confidentiality are unresolved and no company has published a list of its 3TG refiners.  Confidentiality agreements are many times necessary to protect key intellectual property and valuable trade secrets related to the products manufactured and similar sensitive business information related to pricing, contracts and design.
  • Question:  Has the company had third party audits conducted of 3TG suppliers down to the level of refiner, at least within the past year?  Even today, there are still no agreed-upon standards for conducting such audits.  This was recognized by the UN Group of Experts in the December 2011 report at paragraph 418: “Auditing is an essential component of due diligence, but as yet there is no agreed way to carry out due diligence auditing.”  At the time of the survey, EICC’s Conflict Free Smelter (CFS) program had just completed their pilot program which involved only tantalum.  There remain gaps in the coverage of the CFS.
  • Question:  Has the company developed at least one verifiably conflict free product, with independently audited supply chains all the way to the point of extraction?  Even today, there is still no agreed-upon product certification program.  And differing definitions of “conflict free” have arisen.

Biases.  The survey includes two questions on stakeholder engagement, both of which are specifically limited to activities lead by Enough.  Credit is not given for other stakeholder engagement activities such as those directly supporting governmental entities, the OECD, the UN, any other relevant NGO, EICC-GeSI, ITRI or any other proactive trade association – or the recently launched private-public partnership sponsored by USAID.

Inconsistent answers.  Companies participating in the CFS program were given credit for doing so.  However, almost without exception, the direct membership costs and other participation fees associated with EICC to support CFS development were ignored and companies were not given points for “providing financial support for auditing for 3TG materials”.  Minimal effort on Enough’s part to cross-reference answers to EICC membership fees would have provided a more accurate reflection of the facts, even in instances were companies did not provide costs.

Microsoft was given credit for “… initiating development of our management systems and related audit processes to support our conflict minerals procurement policy.  This will be completed once we are assured that our processes are consistent with on-going US governmental rulemaking”.  Yet

  • LG received no credit for the following statement:  “We will conduct supplier audits including this issue next year.  We are in the process of developing a verification method, aligning with EICC”.
  • Nokia received no credit for the following statement:  “We have visited suppliers as part of GeSI/EICC work, which is a preparatory step for the coming regular audits”.
  • Samsung was not given credit for implementing a “supplier CSR audit” internally.  “Conflict-free minerals related questions are included in the audit items so that our suppliers do not source DRC minerals when manufacturing.”

Nokia was not given credit for financial support for auditing, although comments under the question about financial support for certification state:  “Nokia’s contribution relates to auditing, not certification”.

Toshiba indicated they had investigated one gold and one tin supplier and was in the process of investigation with other major suppliers of metals, but received no credit for these efforts.

Outdated answers.  The rankings/survey results were published in December 2010.  To put that in perspective:

  • the proposed SEC conflict mineral regulations were published in the Federal Register of December 23, 2010; and
  • OECD published its final due diligence guidance in May 2011, initiating a year-long pilot study of its implementation (still ongoing).

Also, at the end of 2010:

  • the EICC CFS program had not fully completed its initial tantalum trials;
  • only two tantalum smelters had received CFS designation; and
  • the tin, tungsten and gold CFS protocols had not even been developed.

Other interesting notes

  • Enough editorializes in the details of the HP’s answers (HP ranked #1 in the survey) by stating HP “did not suffer competitive disadvantage” by publishing its supplier list.  We would be interested in seeing the details of the analysis supporting that claim.
  • Although the survey tool clearly states that a maximum of two points is allowed for the question on participation in the EICC tantalum smelter working group, Motorola and Intel were each awarded four points, the additional points being attributed to “chairing the working group”.  It is also notable that both of these companies also participated directly with Enough in their coalition referred to in the Stakeholder Engagement questions.
  • Many companies did not respond to the survey; therefore the survey results reflect incomplete information.

The situation today is dramatically different, although not perfect.  The SEC has still not published a final rule, there are still a number of tantalum smelters without a CFS designation and no tin, tungsten or gold smelters have a CFS designation.

However, there is no doubt that if the survey were conducted today – even without appropriate revisions/corrections to the tool – we are confident that most companies would improve their rankings greatly.  With an improved survey tool and process, updated rankings have a potential of providing insightful information to consumers.

 

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