Companies' conflict mineral reports are mixed as SEC deadline passes

While some US companies are racing to the wire to file their first ever conflict minerals reports, due to the US Securities and Exchange Commission today, those filed so far range greatly in clarity and detail. Some tech giants that have taken a lead on this issue - such as Intel, HP and Apple - filed in-depth reports last week. Meanwhile others, including Herman Miller, Soda Stream, and Oracle, can best be described as vague.

The SEC’s requirement offers a first glimpse into the often-murky backdrop of a company’s global supply chain, particularly of companies in the consumer technology and electronics industries.

This first ever conflict minerals report has stirred up much controversy, panic and corporate consternation, particularly surrounding the daunting task and complexity of putting together a first conflict minerals report.

While this reporting deadline marks a milestone in terms of corporate transparency, it is clear that for some leading tech companies, such as Intel, HP and Apple, this is a mission-driven issue which is key to their overall sustainability efforts, not just an SEC requirement.

Others, who are not the “usual suspects”, like Toyota, Canon, and Tata Motors, have filed fairly perfunctory reports, not necessarily describing company's products using any of the three labels in the conflict minerals rule or offering up easily accessible, public-facing conflict reports that quickly get to the point in describing their supply chains.

To date, big players in consumer technology such as Microsoft, Amazon and Walmart have yet to file.

Under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the rule requires most US companies to report whether they use conflict minerals - raw materials like gold, tungsten, tantalum and tin - from the Democratic Republic of the Congo (DRC) and neighboring war-torn countries.

At least for now, companies have not been specifically required to declare whether or not their products contain conflict minerals. In April, a US appeals court ruled the requirement to be unconstitutional, agreeing with the National Association of Manufacturers, The US Chamber of Commerce, and the Business Roundtable, that the SEC rule would violate First Amendment rights by compelling commercial speech.

Because there will be there will be an onslaught of 2 June filings. the Responsible Sourcing Network, along with the Calvert Fund and a coalition of NGOs and investors has released an expectations shortlist to aid in the assessment and review of these first conflict mineral reports.

Patricia Jurewicz, Responsible Sourcing Network Director and lead author of the Expectations Shortlist said in a statement: “As reports become available to review, we wanted to publicly share the criteria numerous groups agree are the key points”, highlighting how “stakeholders will look poorly upon issuers that postpone robust reporting or file a report that simply ticks a box.”

Detailed disclosures

Leading blue chips such as Intel, HP, Apple and a handful of others began filing reports last week, while the majority of US businesses have been scrambling to prepare their disclosures in time for the deadline.

Significant to these initial filings has been the scope and span of what each company has chosen to reveal in their disclosures, and how they have danced around the hot-potato language and ambiguities of not knowing what’s exactly in the business’ supply chain.

Leaders such as Intel, have gotten ahead of this issue and taken an aggressive approach to the transparency of its supply chain – boasting the first third-party audited report. Intel’s conflict minerals program led it to determine that some of its products are “DRC conflict undeterminable.” For its remaining products, Intel states that they are “conflict free".

Apple has equally taken proactive steps to trace and audit its supply chain in order to be well positioned for the SEC filing. As part of its work with the Conflict-Free Smelter Program (CFSP) Apple reported that the majority of the smelters and refiners in Apple’s supply chain are either designated "conflict free" by the CFSP or an equivalent independent third-party audit program or are undergoing conflict minerals audits.

Ironically, for those companies such as Apple who are ahead in mapping their supply chains, and now issue quarterly updates on the status of their smelters, the SEC filing doesn’t tell the full story as it only reflects activities in 2013.

As part of its supplier responsibility process, Apple has begun publishing quarterly smelter reports. In February 2014, the company issued a smelter report that 80 of its smelters were CFSP compliant or in process, with 104 not participating. By this May, 106 smelters were CFSP compliant or in process, with 84 not participating – a significant step forward in their progress towards conflict-free sourcing. For Apple, making a public outing of its suppliers, their country of origin and verification status has clearly made changes.

HP, also working with the CFSP, reported that of its 201 smelters, only 60 were are accredited to be conflict free.

Julie Schindall, director of communications and stakeholder engagement at the Electronic Industry Citizenship Coalition and Conflict Free Sourcing Initiative (www.conflictfreesourcinginitiative.org), said that the looming legislation has forced a conversation about conflict-free minerals and "provided companies an exercise in transparency into their supply chains that they probably never had before."

From good to vague

As a result of the US appeals court’s decision in April, and the SEC’s partial-stay on the specific language of disclosure, business now has more flexibility in its approach to transparency, due diligence and the shaping of language of their reports. Of the 171 reports filed with the SEC by the end of business on 30 May, many do not describe the company's products using any of the three labels in the conflict minerals rule as adopted.

While Apple, Intel and HP may have provided great detail into their due diligence efforts, particularly in a public-facing way, others such as Siliconware Precision Industries only filed a vague report, and Affymetrix, a biotechnology company, and Herman Miller, have framed their efforts in different and often vague disclosures.

In the case of Siliconware Precision, despite determining 66 of its 182 smelters to be “conflict free”, its filing points simply to their corporate website, ultimately offering the public little insight into their due diligence efforts around determining a reasonable country of origin. Affymetrix determined its supply chain to be conflict undeterminable, and similarly offered little public insight into the process.

Herman Miller requires its suppliers to establish their own due diligence
 programs to ensure a supply chain that results in products that are “DRC
 conflict free", however its disclosure highlighted that despite incomplete responses from their suppliers, it had no reason to believe that any of products may have originated in any “Covered Country” during 2013.

In evaluating the reports filed prior to the 2 June deadline, Sophia Pickles, a campaigner for Global Witness – an activist-related consumer watchdog group - said in a statement, “while some firms have made strong submissions, most reports filed to date don't include enough information to show that companies are doing credible checks on their supply chains.”

The supply chain hub is funded by the Fairtrade Association. All content is editorially independent except for pieces labelled advertisement feature. Find out more here.