It was the headache most supply chain professionals expected it to be. The first year of conflict minerals reporting required by U.S. Security and Exchange Commission (SEC) brought with it frustration, confusion and varying levels of compliance.
We’ve seen first hand and heard anecdotally about all sorts of challenges related to regulatory compliance, legal interpretations (or misinterpretations), source of origin identification, and tracking the red-flag 3TG minerals of tin, tantalum, tungsten and gold coming from or around the Democratic Republic of the Congo (DRC).
It’s been a roller-coaster year, and very few companies have been able to achieve full compliance with year one conflict minerals reporting. In fact, a majority of report filings did not even satisfy the SEC’s instructions, according to an analysis by global professional services firm Resources Global Professionals, something Kevin Deely, RGP’s senior practice director for supply chain risk and compliance, will discuss in more detail during our upcoming webcast.
The Law That Put Conflict Minerals in the Spotlight
In case you haven’t lived through it directly, here’s some background. The short version is that in August 2012, the SEC adopted a provision mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act to require companies to publicly disclose their use of conflict minerals that originated in the DRC or an adjoining country.
Congress enacted the conflict minerals provision because of the humanitarian crisis linked to the exploitation and trade of conflict minerals used by armed groups to finance a civil conflict in the DRC region.
The part of the story that has turned companies and supply chain professionals upside down for the last two years comes down to a key legislative phrase and the report filing timeline. Companies had to disclose their use of conflict minerals if those minerals are “necessary to the functionality or production of a product,” and they had to file their first specialized disclosure report covering the 2013 calendar year on May 31, 2014. Publicly-traded companies will have to continue to file these reports annually every May 31.
Since the law was passed, companies have scrambled to understand what minerals were necessary to their products or manufacturing, conduct country-of-origin inquiries, and implement due diligence measures to track and trace the chain of custody of their conflict minerals.
Full supply chain mapping and supplier on-boarding are just a couple of the many other costly challenges identified last year. There has also been a widespread feeling of baptism-by-fire, where companies, trade associations and legal bodies are wrangling over how to decipher legislative wording, making distinctions between metal compounds and conflict mineral derivatives, and looking to improve their compliance track record in the wake of changing national and international regulations.
Looking Into the Crystal Ball
The bumpy reporting ride will continue into year two, if talk in the supply chain community is true. Many executives are still struggling to understand the entire scope of the provision, address data quality issues, survey suppliers across multiple tiers of the supply chain and develop controls to ensure program sustainability and auditability.
Leading companies have started to carve out an advantage. They see conflict minerals reporting as a conduit for increasing their supply chain visibility and a way to meet other supply chain risk and compliance objectives. They’re looking to create a supply chain that is more flexible to changing markets needs and emerging regulations, and create more dynamic and reliable communication flows with multiple tiers of suppliers globally.
As the initial sense of legislative surprise fades and conflict minerals reporting becomes a more every day thing, now’s the time for companies to decide how a conflict minerals program could add value to their supply chain process and think about what other opportunities can be captured as a result.
How did companies manage through the first year of conflict minerals reporting? What are they planning for year two? How can supply chain mapping improve conflict minerals reporting compliance? Sign up for this upcoming webcast, and find out.
Kevin Deely, Senior Practice Director – Supply Chain Risk and Compliance, Resources Global Professionals (RGP)
Sumit Vakil, CTO, Resilinc