Has Progress Been Made on Due Diligence for Conflict Minerals?

Authors

• Sasha Radovich

  Former Manager, BSR

I was recently in Paris at the Organization for Economic Cooperation and Development (OECD), helping to facilitate the third meeting that they, with the International Conference on the Great Lakes Region (ICGLR) and the UN Group of Experts on the Democratic Republic of the Congo (DRC), hosted on the due diligence efforts that companies are implementing on conflict minerals—tin, tantalum, tungsten, and gold. In June, the OECD will release progress reports on the efforts of the implementation project for its five-step Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

Currently, companies face practical challenges in implementing due diligence. For example, on-the-ground traceability schemes for minerals in the region are not fully in place, and supply chain transparency is murky at best. However, companies are taking significant steps toward due diligence and are progressing quickly in order meet the impending Dodd-Frank legislation and to enable responsible sourcing of the four minerals. BSR is working with the OECD and the downstream companies participating in the pilot participants to collect and report on lessons and best practices from the pilot and will publish the report in November 2012. 

Upstream Companies

Sixty upstream companies (those from mine to smelter) have reported increased awareness of and less skepticism about implementing supply chain due diligence. In fact, a new willingness to spend the necessary resources to implement the OECD Guidance was reported. Several events brought about these changes: the requirements imposed by a new legal framework in the DRC incorporating the OECD Due Diligence Guidance, increased industry coordination through the iTSCi scheme, and the public naming of companies in the last UN Group of Experts report.

The participants emphasized the need for capacity-building, such as trainings, and other support from donors, industry, and governments for the successful implementation of the ICGLR certification scheme, which can be regarded as the institutionalization of the on-the-ground mechanisms for due diligence.

Downstream Companies

Almost all of the 30 participating downstream companies (from smelter to brands or retailers) have adopted policies on responsible mineral sourcing, mechanisms to support them, and participants have identified suppliers whose products contain the minerals. Additionally, they are using industry-wide tools, such as the EICC & GeSI Reporting Template and Dashboard and the Conflict Free Smelter Program, to obtain information about material content, smelters used, and minerals’ countries of origin. Most importantly, participants are urging all smelters to become verified as conflict-free through the EICC & GeSI Conflict-Free Smelter Program.

However, suppliers deep in the supply chain cite concerns about confidentiality in their supply chain, which has limited the ability to gain transparency. A majority of the participants have implemented contract clauses and non-disclosure agreements to help address this. 

What’s Next

The meeting generated a number of significant next steps, including:

• For the OECD: Establish a new tripartite governance structure for the implementation program of the OECD Due Diligence Guidance to enhance ownership and legitimacy of the process while ensuring effectiveness and efficiency.
• For OECD and ICGLR: Reach out to domestic industries of smelter countries, including China, Indonesia, and Russia, to encourage their smelters to perform due diligence in accordance with the OECD Guidance and engage in industry programs.
• For donors: Support host governments’ reform agendas, strengthen the capacity of civil society, and focus on systemic challenges, which are often outside the reach of companies yet hamper due diligence efforts.

Additionally, the upstream companies have agreed to encourage more effective coordination among the on-the-ground initiatives to minimize multiple audits and other inefficiencies. Downstream companies have agreed to explore way to communicate reasonable expectations, particularly for avoidance of any negative consequences taking place on-the-ground due to new and potential upcoming regulations.

In the end, progress has been demonstrated by both ends of the supply chain. We expect, however, that once the U.S. Securities and Exchange Commission (SEC) issues its final conflict minerals reporting regulations on Dodd-Frank Section 1502, we will see even bigger developments in due diligence by these participants. What will be interesting is if, at that point, we can ask if and how the regulation has made a difference.