RSN BLOG

Friday
Aug152014

Connecting the Dots on Conflict Mineral Disclosures

Two months ago, 1,314 conflict mineral reports poured into the US Securities and Exchange commission. The Responsible Sourcing Network (RSN) has been working to connect the dots between expectations and results for this historic first-round of disclosures required by section 1502 of the Dodd-Frank Act. (No small task: you would need 450 to 700 hours to read all the disclosures back-to-back.) Despite initial rumors that few of the disclosures were any good, and notwithstanding last-minute court rulings, there is a wealth of valuable information in these reports. Many of the disclosures we are reading show thoughtful methodology and good faith effort. There is, of course, room for improvement, and RSN is in the process of preparing a report that will identify best practices in more detail.

The conflict mineral disclosures confirm the extent to which tin, tantalum, tungsten, and gold are found in everyday products. As expected, the greatest concentration of reports came from manufacturers of electronic devices and technology, from processors to smartphones. Yet the scope of the rule was broad. Conflict minerals can be found in eyeglass lenses and fine-jewelry (Wal-Mart), refining catalysts (ExxonMobil, Chevron), metal working and cutting tools, jewelry, highway transportation equipment, apparel and building products (Berkshire Hathaway), automobiles and car parts (Ford, General Motors). And that’s just a sampling of top Fortune 500 companies required to file disclosures under the new 1502 disclosure rule.

Missing the big picture?

Unfortunately, many companies are not connecting the dots to “conflict-free from the DRC”. The purpose of the law (Dodd-Frank, 1502) is to promote peace in the Democratic Republic of Congo (DRC) and neighboring countries, not to discourage trade in the region. Contrary to RSN’s shortlist of expectations, some major companies have explicitly stated that their risk-management strategy is to ask suppliers to completely avoid the DRC region.

In contrast, some companies promote a conflict-free minerals trade in the DRC as a central part of their approach to the challenge. Some initiatives to go above and beyond the letter of the rule include:

Companies that connect the dots internally will have the best disclosures in 2015.

Better reporting starts with company management systems. Auditing firm KPMG recommends: “Set a compliance strategy, create a dedicated team, involve all departments, communicate consistently, and garner support from executives.” Professional services network PwC has advice for companies on how to take advantage of strategic business opportunities presented by the conflict minerals rule, and Forbes similarly argues for the inherent value of “knowing your supply chain”.

The Organization for Economic Co-operation and Development (OECD) has published extensive guidelines on how to establish company management systems, and develop risk-management strategies.

Finally, look out for updated “best practices” on conflict minerals reporting from RSN in the near future.

If your organization would like to support RSN’s research, please contact Patricia Jurewicz, Executive Director, at patricia@sourcingnetwork.org.

Ready to pick up a conflict minerals report? Shareholders can look out for a few key attributes.

  1. If the company filed only a Special Disclosure (SD) Form without an attached Conflict Minerals Report, does the Form SD clearly describe a good-faith reasonable country of origin inquiry, product risk-exposure, and company risk-management systems?
  2. Is the report easy to find on the company’s website? The US Securities and Exchange Commission (SEC) requires that the issuer place its Conflict Mineral Report on its website – but while some companies place their report front-and-center, others bury it deeper in the site. Many companies have additional information on their websites that is not listed in the conflict minerals report.
  3. Is the report readable? Does it make sense, or does it leave you asking questions like, “How did they come up with this number? What is the extent of risk-exposure (ex: description of products, percentage of spend, percentage of smelters or refiners that are certified conflict free)?”
  4. This first round presents a “trial-run” of the rule. Does the company identify specific steps to improve its due diligence processes and reporting methods for 2015?
Thursday
Jun262014

Trafficking in Persons Report Keeps Uzbekistan at Lowest Ranking

For the second year in a row, Uzbekistan has been placed in the lowest ranking possible in this year’s Trafficking in Persons (TIP) report released by the United States Department of State. Uzbekistan has not demonstrated to the U.S. government that it is making a significant effort to change its noncompliance with minimum trafficking standards. As a result, it faces possible punishment of sanctions.

This ranking sends a message to Uzbekistan that even though forced labor of children under the age of 16 has largely been eradicated, more must be done to dismantle the system of that forces a million of its own citizens to harvest cotton every year.

“While the decision is an important step to curb forced labor, further pressure will still be needed,” said Nadejda Atayeva, president of the Association for Human Rights in Central Asia. “Tashkent’s well-established pattern of breaking its international commitments means that the Obama administration should be ready to follow through with the consequences set out in the legislation, including travel restrictions on Uzbek officials who organize and profit from forced labor.”

Pressure must continue to be applied from a multitude of sources. The United States government recognizes the atrocities happening in Uzbekistan and is taking action to demonstrate practices by the Uzbek government are unacceptable. It is time for retail companies, consumers, investors, and lending institutions to take similar actions. It is of utmost importance that retail companies understand from where their cotton originates to be certain it was not picked from forced hands in the fields of Uzbekistan.

Friday
Jun132014

World Bank Approves Problematic Uzbekistan Projects

In a disappointing move, the World Bank has decided to fund three projects in Uzbekistan despite concerns raised that such investments risk perpetuating the state-sponsored system of forced labor in the cotton sector. The Uzbek government controls all aspects of the cotton industry and forces over a million of its own citizens to harvest cotton annually. Funding projects in Uzbekistan will only allow the political elite to more deeply line their pockets with cotton profits.

The Uzbek government forces many students, including 16-17 year olds, to work in cotton fields without adequate housing or food for weeks, pays farmers prices below cost of production, and sells this “white gold” at world market prices. After much international outcry over forced child labor, including 141 brands vowing not to purchase Uzbek cotton until the forced labor practice stopped, the Uzbek government almost entirely eliminated children under the age of 16 from working in the harsh harvesting conditions during the 2013 harvest. Unfortunately, teenagers, university students, and adult citizens were still forced to harvest cotton under the threat of expulsion from school, imprisonment, unemployment, or punishment.

Something must be done to rectify this dysfunctional and antiquated system of modern day slavery. By funding these Uzbek projects before seeing any real progress toward changing the root causes of forced labor, the World Bank is perpetuating a broken system. In a letter to the World Bank, Responsible Sourcing Network and other members of the Cotton Campaign stated, “The mass use of forced labor in the cotton sector of Uzbekistan is particularly pernicious in that it is organized by the state. The World Bank acknowledges this problem in project documents for each of the proposed projects.” It is disappointing that the World Bank went forward with these projects despite recognizing the seriousness of the issue.

It is now a pivotal time for retail companies, consumers, investors, and lending institutions to speak out against these human rights violations and to solidify their commitments not to use or invest in cotton grown in Uzbekistan. It is necessary more than ever to keep pressure on the Uzbek government to change its underlying structure of systemic forced labor so come harvest season in the fall, no child or adult will be forced to labor in the fields.

Monday
Jun092014

RSN Director Patricia Jurewicz, on Terra Verde, KPFA 94.1

RSN Director Patricia Jurewicz, right, with Terra Verde host Adrienne Fitch-Frankel

RSN Director Patricia Jurewicz recently appeared on 94.1 KPFA’s Terra Verde, a live public affairs program focusing on investigating and analyzing environmental issues from a global perspective. She joined the program to discuss conflict minerals reporting and corporate transparency. If you missed the live broadcast, you can listen to recording below. Just click the play button, or use the link below to download the clip.

Click to Play:

Download this clip (30 minutes, mp3, 5.13 megabytes)
Play this clip in your Computer’s media player
Thursday
May152014

Investors Applaud Court Decision on Conflict Mineral Reporting

A motion from the National Association of Manufacturers, U.S. Chamber of Commerce, and Business Roundtable to stay the SEC’s conflict minerals reporting rule was denied.

This week, the D.C Circuit Court of Appeals denied a request from trade groups to temporarily suspend the SEC conflict minerals rule. Investors welcomed the decision, which leaves in place the requirement that companies complete their conflict minerals due diligence disclosure filings by the June 2nd deadline. All reporting expectations remain unchanged with the exception of the use of “DRC conflict-free” terminology.

This decision to uphold near-full implementation of the rule is very important to sustainable and responsible investors, who are relying on the conflict minerals due diligence disclosures for brand valuation, risk assessment, and investment decisions. Investors released a public statement today detailing the importance of 1502 implementation and their continued support of the rule.

Read the investor statement

The ruling acknowledges and supports companies’ ability and willingness to comply with the rule. Early reports are already completed and have been submitted to the SEC.

The SEC promptly came out with a statement clearly explaining the adapted filing requirements per the Appeals Court ruling in April against use of the compelled “DRC conflict-free” speech. Despite this statement, trade groups still argued that the entire rule had been called into question and needed revision. Fortunately, the court did not agree with this faulty argument and the rule remains in effect. Companies should continue preparing and submitting their filings in line with the SEC requirements.

As the June 2nd deadline approaches, investors commend the conflict minerals supply chain due diligence that companies have undertaken and look forward to reviewing the filings. The first set of reports will provide a baseline level of information from which companies will be expected to expand and deepen as their due diligence efforts become part of their daily business activities. This court decision offers even more legitimacy to the mandate of the rule to promote responsible and transparent sourcing practices in the conflict minerals supply chain. With this decision, work can continue to progress toward bringing peace and prosperity to the citizens of the DR Congo and Great Lakes Region through a reformed minerals trade.