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The EU’s Copycat Conflict Minerals Rule Adds Further Impetus to Supply Chain Stewardship Initiatives

In May 2015, the European Parliament officially voted in support of mandatory compliance for all European Union importers sourcing minerals from conflict areas. According to EU estimates, the new law will require up to 880,000 European firms that manufacture consumer products to disclose their use of four minerals (tin, tungsten, tantalum and gold). The EU Parliament’s final vote for mandatory independent, third-party audits applies to smelters and refiners and goes beyond earlier drafts for ‘self-certification’. The geographic scope expands beyond the 2010 US Dodd Frank Act focus on the ten DRC region countries to include “all conflict-affected high risk areas in the world”. 

So what impact will an EU conflict minerals ruling have on large multinational firms? The US SEC conflict minerals ruling passed in 2010 sets a precedent. Effective from January 2013 onwards, the US rule mandates all firms that “manufacture or contracts to manufacture products” to complete an annual reasonable country of origin inquiry (RCOI) to determine if they are ‘DRC Conflict Free’, ‘Not DRC Conflict Free’, or ‘DRC Conflict Undeterminable’ (a label that expires this year for large firms). Among the 1,313 Form SDs filed by June 2014 for 2013, 301 firms identified as ‘DRC Conflict Free’ with the remaining 1,012 firms identifying as ‘DRC Conflict Undeterminable’. Similarly, 1,273 Form SDs were filed by June 2015 for 2014. The number seeking assurance increased from four firms in 2014 to a paltry six firms in 2015.

Demand for the assurance of conflict minerals due diligence in the US has failed to materialize significantly for two reasons. Firstly, firms with supply chains that source 100% ‘DRC conflict free’ minerals do not need to conduct the further due diligence which requires assurance. Secondly, the ‘undeterminable’ label provides a two year time period for firms to identify and displace ‘conflict mineral’ suppliers. Verdantix estimates that among the 1,746 US-listed firms with at least $1 billion in revenue, 462 will need to comply with the US SEC ruling. The SEC estimates that 15-20% of applicable firms will need to seek assurance of the Conflict Minerals Report due diligence process when the ‘undeterminable’ label expires in 2016. This totals $6 million in spend on conflict minerals due diligence assurance assuming an average $65,000 engagement cost. But the picture will be radically different in Europe if the new regulations expand beyond smelter audits and make disclosure report assurance mandatory for all relevant firms from year one.

In the Verdantix Global Sustainability Leaders Survey, supply chain performance transparency saw the highest growth globally from 37% reporting in 2014 to 56% reporting in 2015. The EU parliament is now working with EU member states to finalize implementation of the law. Verdantix recommends that firms set up integrated systems and processes to meet the increasing demands for supply chain transparency. When hard-pressed managers in sourcing, supply chain and sustainability run out of resources, they should turn to specialist suppliers like 3E Company, Actio, Assent Compliance and EcoVadis. To learn more about supply chain stewardship solution providers register for the Verdantix webinar “Supply Chain Stewardship - New Solutions Responding To New Challenges” on Thursday July 16.