EU approves “watered down” conflict minerals rule, while investors press SEC

New EU rules will establish compulsory due diligence for importers

The European Parliament has passed its conflict minerals regulation, establishing compulsory due diligence for importers, a requirement which will not be extended to EU manufacturers that use such raw materials in their products.

The EU Regulation, whose due diligence obligations are effective on January 1 2021, will require importers of certain minerals (tin, tungsten, tantalum and gold, known as 3TG) to carry out due diligence on their supply chains in order to ensure that those minerals extracted in conflict-ridden areas do not provide financial support to human rights violations.

The Regulation, unlike its US counterpart, Section 1502 of Dodd-Frank Act that is now threatened by the Trump administration, applies to any country beyond the Democratic Republic of the Congo region.

EU importers will have to undertake these due diligence checks under the applicable OECD Guidelines or a system of equivalent effectiveness, while each member state will set up an oversight authority reporting on the implementation of the Regulation to the European Commission.

Manufacturers which use 3TG in their production, sectors which range from electronics to industrial machinery, are just “encouraged to report on their sourcing practices”.

During the plenary debate on March 15, Molly Scott Cato, Green Party MEP, welcomed the new bidding rules for importers but said it was disappointing that the legislation has left important loopholes.

“While the Parliament’s proposal included mandatory due diligence for manufacturers of products such as computers, mobile phones or laptops, this was watered down during the trialogues so that imported goods using the metals identified will not now be subject to the same binding rules,” she said. ‘Trialogues’ are the negotiations between the Parliament and the European Council and Commission.

Maria Arena, shadow ‘rapporteur’ of the legislation, said that her Parliament’s Group of the Progressive Alliance of Socialists and Democrats accepted this compromise because “we have to make progress, but you can count us to pay great attention to its implementation”.Her colleague, British Labour Party MEP David Martin, highlighted that it’s good timing to pass this Regulation given the lack of leadership coming from the US on such issues.

“Europe is demonstrating that we are still a community of values and that we are prepared to export our values to elsewhere in the world,” he said.

Meanwhile, the US group of investors campaigning to support the implementation of Section 1502 of the Dodd Frank Act has now grown to 127 members representing more than $4.8trn.

The group submitted a joint letter to an SEC consultation of the rule, initiated by Michael Piwowar, Acting Chairman and long-standing critic of Section 1502.
https://www.sec.gov/comments/statement-013117/cll2-1618221-137060.pdf

The consultation, launched in late January and closing on March 17, was soon after followed by a leaked executive order draft from President Trump which proposed the suspension of the rule for two years.

So far there have been no more leaked reports or official announcement about Trump’s executive order.

US Conflict minerals: lead investor signatories:
Boston Common Asset Management
ICCR
Mercy Investment Services
Responsible Sourcing Network
Trillium Asset Management
US SIF: The Forum for Sustainable and Responsible Investment

Supporting signatories (selected):
Sweden’s AP1, AP2, AP3 and AP4
BMO Global Asset Management
BNP Paribas Investment Partners
City of New York’s Comptroller, Scott Stringer
UK’s Environment Agency Pension Fund
Hermes EOS
HSBC Global Asset Management
Nordea Wealth Management
NorthStar Asset Management
PGGM
Robeco
Rockefeller & Co
Standard Life Investments
Triodos Investment Management
Zevin Asset Management