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How Conflict Minerals Reporting Can Improve Customer Trust

The deadline for filing your company’s Specialized Disclosure Report (or Form SD) and Conflict Minerals Report is looming (effectively June 2nd). The theory behind exposing human rights violations in corporate supply chains is important, but the mix of social consciousness and SEC filings is a new kind of animal for finance and compliance leadership.

By now, most people who deal with compliance, sustainability, internal controls, and/or financial reporting in their organizations[1] are familiar with the new SEC rule’s requirements: U.S. listed companies that manufacture or contract to manufacture products that use so-called “conflict minerals” (tin, tungsten, tantalum, and gold—also known as 3TG) in their products must conduct an inquiry to determine whether or not the minerals originate in the Democratic Republic of Congo or adjoining countries (known collectively as “covered countries”) and, if so, whether acquiring the 3TG minerals financed or benefitted armed groups.

Are some companies trying to game the two-year transition period?

The Form SDs that have already been filed are illuminating. They show the differences in the way organizations are capitalizing on the opportunity to give their customers trustworthy insight into their corporate culture. There is a two-year transition period that allows organizations to say that their supply chain minerals are “DRC conflict undeterminable.” During this time, they are not required to conduct an independent audit.

Realizing that they have this leeway, some companies are reporting only the bare-minimum required information. Many are reporting that the suppliers that are not “DRC conflict free” are “DRC conflict undeterminable.” There is limited information included in the Form SD and the accompanying Conflict Minerals Report, other than the obligatory mention that they used an internationally recognized due diligence framework (the OECD guidance framework) and that they collected information from their suppliers using the EICC/GeSI tool, which has become the industry standard data collection tool for conflict mineral supplier inquiries.

Use the process as a way to gain investor and customer trust.

Some companies, like Intel, are spearheading the movement to have a completely transparent and conflict-free supply chain, with disclosures that describe supply chains that are closely aligned with the OECD guidelines and clear-cut risk assessment and supply chain monitoring processes. Intel used the Form SD to highlight some of the company’s milestones, accomplishments, and initiatives toward DRC conflict free supply chains. Intel’s filing actually described the company’s efforts to determine whether any of the necessary conflict minerals in its products originated in a covered country.

Obviously, these steps could be cost-prohibitive to smaller organizations that do not have the resources available for such labor-intensive investigations at this point in time. But it sets a good example for those organizations looking to leverage these reports for the purposes of some good publicity and customer goodwill.

 

 

[1] The organizations required to submit a Form SD under the Dodd-Frank Act are those that file reports with the SEC 13(a) or 15(d) of the 1934 Securities and Exchange Act.