Despite the ongoing legal challenge led by industry trade associations, the majority of the rule remains intact, and is making a difference.
As a group of responsible investors with a keen interest in Section 1502 of the Dodd-Frank Consumer Protection and Wall Street Reform Act – known informally as the Conflict Minerals Provision – and the associated campaign to bring conflict-free mineral sourcing to the Democratic Republic of Congo (DRC) and Great Lakes Region, we write to respond to Responsible Investor’s recent article on this topic, “Clarity over Dodd-Frank conflict minerals rule still lacking as corporates fight back.” We recognize the need to educate readers as to the rule’s efficacy despite the measure of uncertainty created by legal challenges to the rule. We write to address how companies are complying with the law by implementing due diligence, the precedent that the legislation is setting for mandatory disclosures related to human rights concerns, and the impact the legislation is having in the DRC and the Great Lakes Region of Central Africa.
The U.S. Securities and Exchange Commission’s (SEC) conflict minerals rule was developed to implement Section 1502 of the Dodd-Frank Act, which became law in 2010. The final rule requires specified companies to undertake source and chain-of-custody due diligence to determine whether certain minerals (tin, tantalum, tungsten, and gold: collectively known as “3TG”) in their products may be contributing to conflict in the DRC and surrounding countries. Thus, the rule intends to encourage downstream issuers, such as electronics and automobile manufacturers that use 3TG in their products, to apply leverage to effect positive change upstream in the countries where these minerals are extracted.
The positive impacts of the rule must be emphasized. Despite the ongoing legal challenge led by industry trade associations, the majority of the rule remains intact. (1)
More than 1,300 companies complied with the disclosure requirement ahead of the first filing deadline in June 2014, by reporting their supply chain due diligence activities and findings. Companies that were unable to identify the countries of origin for all 3TG minerals in their supply chains benefitted from a two-year grace period, an accommodation set during the SEC’s rule-making process. Following continued due diligence to determine all of their minerals’ origins, these companies should report complete findings by 2016. We expect the overall quality of 1502 disclosures to improve over time as all companies subject to the rule deepen their inquiry into the sources of the minerals in their products.
The passage of Dodd-Frank 1502 enabled the United States’ first federally-mandated, human rights-related corporate disclosure. By recognizing the materiality of effective supply chain management and of evaluating and mitigating human rights risks, the rule sets a strong precedent for future corporate disclosure requirements related to companies’ social impacts. The rule also has won the support of industry leaders whose innovations have begun to transform relevant mineral supply chains in the DRC and the surrounding region.
Initiatives, such as the Solutions for Hope project led by Motorola Solutions and the International Tin Research Institute’s (ITRI) Tin Supply Chain Initiative (iTSCi), are working to certify “conflict-free” minerals from the DRC and neighboring countries. If minerals from the DRC are certified through iTSCi or another approved program, the minerals can be sold and reported by issuers to be “conflict-free.” (The “conflict-free” categorization indicates that the minerals did not originate in a militia-controlled mine; this term does not refer to the mine’s geographic location.). Thus far, 125 mines in the DRC
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