Conflict Minerals and Supply Chain Scrutiny

Authors

• Marshall Chase

  Former Associate Director, BSR

Two recent events on opposite sides of the United States will have significant implications for industries ranging from high-tech electronics and aircraft engines to commodities like cans and cutting tools, whose supply chains source minerals like gold and ores containing tantalum, tin, and tungsten. In Washington, D.C., the financial reform legislation passed by a House-Senate conference committee early June 25 included a provision requiring companies to publicly report on their use of so-called “conflict minerals” from the Democratic Republic of the Congo (DRC) and neighboring countries. And in California’s Silicon Valley, the trustees of Stanford University have voted to support shareholder resolutions on the same subject.

These regulatory and investor actions demonstrate that stakeholder campaigns focused on the eastern DRC—the site of the world’s deadliest conflict since World War II—are gaining increasing attention. The region’s trade in minerals used as raw materials in many products plays a critical role in funding armed groups in the DRC, and the use of these minerals in the information and communications technology (ICT) sector has been the focus of several NGO campaigns.

In part due to the NGO focus on the ICT sector, that industry may be the best prepared to handle any new supply chain transparency requirements. Already, ICT industry efforts are underway to develop supply chain verification procedures for “conflict free” tantalum and tin. However, the lion’s share of conflict minerals (except for tantalum) are used outside of ICT, and increased investor pressure and government legislation, if passed into law, will force many companies in other industries to address this issue.

As companies come to grips with the demands being placed on them, it’s important to keep the bigger picture in mind: The goal is not to eliminate minerals sourced from the eastern DRC. The goal, ultimately, is to end the conflict and the resulting suffering faced by those in the region. One of the ways that companies can support this goal is by developing transparent and verifiably conflict-free supply chains for minerals from the region, which will support the economic development and security that the region needs.

Merely attempting to stop the use of minerals from the region is likely to do little to accomplish the broader goal, for at least two reasons: First, it is nearly impossible, at present, to guarantee a “conflict-free supply chain,” because verification programs are only starting to be implemented and will take time to develop and perfect. Second, a blanket ban on all minerals from the region would affect miners, traders, and others who do not contribute to the conflict, and these individuals—as well as the millions of people in the region who depend on the minerals trade—would face significant hardship if their business were cut off.

Companies now facing pressure on this issue should also consider a strategic approach that goes beyond a focus on supply chain transparency, and may include things like participation in industry or multi-stakeholder groups, support for development programs in the region, and perhaps encouragement of diplomatic efforts to end the conflict. Broader approaches can complement and ensure the success of supply chain efforts, while speeding the stabilization of the region.