With the U.S. Securities and Exchange Commission (SEC) set to issue a rule limiting the buying of conflict minerals sometime this summer, business managers are starting to discuss exactly what this will mean for their companies. After all, conflict minerals--tin, tungsten, tantalum, and gold--are used in myriad products, including mobile phones, wind turbines, PVC pipe, glass panes, jewelry, and even ink.
The SEC rule will require companies to disclose whether their products contain the minerals, if those minerals originate from the Democratic Republic of Congo (or if the origin is unknown), and if so, what kind of due diligence the company is following regarding the source of the minerals. But there is a risk that in the rush to implement compliance-based reporting, companies will miss the purpose and spirit of the law.
Ultimately, conflict minerals due diligence is not just about transparency. It is about business’s accountability for solving some of the most egregious social and environmental challenges in today’s global supply chain, including forced labor, child labor, human rights abuses, and environmental degradation, not to mention ongoing conflict and the associated gender-based violence. And it is about helping a region that has been devastated by decades of violence develop a sustainable economy.
So what will it take for business to support the spirit of this law?
Supply-chain transparency alone will not solve the conflict in the DRC. It’s certainly true that companies’ responses to the Dodd-Frank regulation have had a significant impact on the flow of minerals like tin, tantalum, and tungsten from the region. And this has created a chain reaction of positive effects, such as improvements in mining-sector governance, increased exports from non-conflict areas, and reductions in conflict-financing provided by minerals. At the same time, though, conflict areas have experienced a decline in mineral production, which has led to an increase in unemployment as well as an increase in smuggling and fraud, not to mention the fact that armed groups are still active.
Companies that want to help end the conflict should support efforts for credible tracking schemes, including in the conflict-affected areas. In this way, companies can support responsible sourcing and greater economic stability in the eastern DRC.
Issues like child labor, forced labor, environmental degradation, and gender inequity are also tied to the mining sector in the eastern DRC. As increased transparency begins to reveal conditions in the mineral trade from mine to smelter to manufacturer, stakeholders will expect companies to use their position in the supply chain to make improvements and include controls for social and environmental responsibility.
With the increase in transparency regulations hitting businesses, many people are wondering what “the next conflict mineral” issue will be that focuses attention on supply-chain activities. These conversations usually highlight similar supply-chain legislation, including the expansion of the Lacey Act to include timber, the California Transparency in Supply Chains Act covering human trafficking, and the UK Bribery Law covering company responsibility for bribery, corruption, and the facilitation of these payments throughout the supply chain. But these speculations miss the most important point: It’s not about predicting the next big issue; it’s about companies being accountable for their social and environmental impacts, which are appearing deeper and deeper in their supply chains.
Rather than approaching each transparency request in isolation, companies should implement systems to manage risks holistically. They can do this by undertaking a human rights and environmental impact risk assessment as a foundation for their strategy and due diligence. This better equips them to respond to current and future demands. And it pays off, through cost savings, increased market share, realized efficiencies, and, yes, even opportunities to understand and manage the “next conflict mineral” issue.