Investors lock horns with US business groups over SEC conflict minerals challenge

Sides line up over legal fight around Dodd Frank ruling.

A huge investor group representing over $450bn in assets, including signatories to the United Nations-supported Principles for Responsible Investment (PRI), has pitched itself against a legal challenge by some of the US’ largest business groups to the proposed Dodd-Frank rule on conflict minerals.
The investors are contesting a lawsuit filed against the Securities and Exchange Commission (SEC) by The U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable, over a ruling issued last August – rule 1502 – which details how corporations must report on their use of “conflict minerals” from the eastern Democratic Republic of the Congo (DRC). The rule, scheduled to go into effect in May 2014, requires manufacturers to report whether their products contain any conflict minerals – gold, tin, tantalum, or tungsten-based ores – used to finance armed conflict. It was originally proposed in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. In their legal case, the business groups argue that the SEC failed to properly evaluate the economic effects of the rule. A similar legal challenge was made by the same business groups to the SEC’s proxy access rule for investors to nominate corporate board members, which the courts overturned in 2011. Earlier this month, US courts transferred the latest case to a federal district court, which has said it will expedite its review of the SEC rule. The court will hear oral arguments on July 1.Observers say the court transfer will seriously slow down any final ruling, particularly if it goes to appeal. The investor statement against the business groups’ SEC challenge counters the ‘economic effects’ argument. It says: “We believe the final 1502 rule from the SEC appropriately considered the costs and benefits involved with implementation. The process for determining the rule was highly consultative and included comments from many industry leaders.” The investor group comprises 56 sustainable, socially responsible, and faith-based investment groups, including PRI signatories, the Interfaith Center on Corporate Responsibility (ICCR), a membership association of 275 faith-based institutional investors, and the US SIF, the Forum for Sustainable and Responsible Investment. The conflict in the Democratic Republic of Congo (DRC) is estimated to have claimed more than five million lives and contributed to human rights abuses such as rape, child soldiers, and slave labor. The region has been subject to numerous UN Security Council resolutions. In their support of the SEC 1502 rule, the investors said: “Requiring disclosure within a company’s supply chain allows investors to evaluate supply chain policies and practices, to make company-to-company comparisons, to calculate the level of risk associated with conflict mineral sourcing, and to provide assurance that companies are not engaging in destabilizing activities.”