Last Tuesday and Wednesday, we attended and spoke at the 12th Conflict-Free Sourcing Initiative (CFSI) Workshop held in Washington DC. The CFSI is the newly renamed conflict minerals program initiatives of the Electronic Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI).
No other meeting brings together so many of the world’s most knowledgeable subject matter experts, and provides an open forum for others to take advantage of their expertise. Attendance at the Workshop was strong at 180 attendees from industry, government and NGOs, along with a strong showing from IT systems providers, consultants and audit firms.
We were not able to make every session of interest, but we did compile a summary of what we saw as the high points of the two days. Some of this is new information, and some is not so new, but worth bringing forward due to the amount of discussion and confusion on the regulation and OECD Due Diligence Framework that came out in audience Q&A periods.
- The growth of internal company expertise for conflict minerals program development and deployment continues to be strong. Use of external resources by these companies is therefore rather low. This has been generally effective up to a point (especially for purposes of controlling costs). But some have either stalled out, have had higher priorities placed on them or feel the need for a new set of eyes to look at their program. There now appears to be a trend for companies to seek third party program reviews. In some cases, the companies only need a limited scope review – for instance of their operating procedures or of their RCOI process framework.
- More than one session pointed out an important aspect of relying on the conflict free smelter (CFS) audit program results. The CFS listings provide an aggregated list of the Countries of Origin that have been identified across all the smelters/refiners. This list is available only to CFSI members who sign non-disclosure agreements. Some of the countries identified include Covered Countries, although those are sources verified as not funding or benefitting armed groups. It is not currently possible to link individual smelters/refiners to specific countries of origin, nor “de link” specific countries of origin from individual smelters/refiners based solely on information from the CFS. Therefore, companies relying on CFS arguably “have reason to believe that conflict minerals may have originated in a Covered Country”, triggering Due Diligence, a Conflict Minerals Report, and possibly the third party audit of the CMR.
Companies wishing more certainty may choose to contact the smelters/refiners directly, ask if they purchase any materials from Covered Countries, and obtain some form of reasonably reliable documentation from them supporting their answer. It may also be possible to link/de-link countries of origin and smelters by comparing the answers in Question 2 and the smelter list of the Common Reporting Template.
- Several audience members questioned the value of the required efforts by downstream companies. Presenters responded by saying that the value is related to finding how close a company is to the smelters/refiners and, based on that knowledge, determining the level of influence a company has on their smelters/refiners to push for assessing/changing their raw material sourcing practices, or being audited by the CFS.
- One presenter pointed out that the typical time for ore to make its way from the mine to the final product is between 9 – 12 months. This timing may be worth keeping in mind within strategy and policy development.
- The next Enough! company surveys are not likely to be sent to targeted companies until the end of 2013. Enough! said they are evaluating significant changes to the survey: new questions, modified questions, adding new industries/companies, and inviting other NGOs to participate in the survey process. The tentative goal for the publication date of the rankings themselves is May 2014.
- The EU representative clarified three important matters in relation to the EU Directive on conflict minerals that is in development. First, it appears that rather than expanding the list of minerals/metals, the EU Directive will be limited to 3TG as a starting point. Second, the Directive will not be limited to Africa, but will have a global scope. No further detail was offered on other countries, but one would reasonably anticipate Indonesia and Latin America will end up on the list. Third, the Directive will apparently be consistent with the OECD Due Diligence Framework and will not create a competing or divergent system.
- Ambiguity still exists around the CMR audit trigger and the possible deferral. The CFSI is developing a white paper/FAQ that should be available around the first of the year stating their position on the question. The most common questions brought forth at the meeting are:
- Is the audit triggered only when information is available on all four metals, and at a product level?
- Is it necessary to link specific suppliers to specific products in order to make product-level determinations for the audit applicability?
- Is the audit triggered solely by virtue of the source being located in a Covered Country – without regard for whether the material did finance or benefit armed groups?
- If a known DRC Conflict Free source is identified in a company’s supply chain for a single metal (such as tantalum), does that trigger the audit?
- With the emphasis this year on obtaining baseline or initial supplier information, some presenters commented that it may be a good idea to send suppliers a reminder before the end of 2013 to provide any updates/new information they may have on their own supply chain. Many companies have change management notification requirements for their suppliers that address when actual physical/material changes are made, but these may not specifically cover situations where new information is obtained about existing materials.
- It may be worth reviewing the regulations and preamble again. The regulation and its wording are confusing and complex at times, and many find themselves focusing on certain aspects while forgetting others. There are numerous areas where a refresher is worthwhile, but specific matters that jumped out at us during our conversations at the Workshop:
- Page 157 of the Release, concerning reasonableness of the RCOI process; and
- Footnote 562 (page 189 of the Release), offering suggested disclosure language explaining or clarifying “DRC Conflict Free” determinations and “undeterminable”. This language may be considered a model to be adapted to an issuer’s particular situations.
- Remember that “DRC Conflict Undeterminable” status is to be claimed only after undertaking due diligence measures, not just by completing the RCOI.
Please feel free to contact us if you have questions about the meeting or conflict minerals programs. We are happy to talk with you.