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Wednesday
Mar212012

Preparing for the SEC’s New Conflict Minerals Rule

By Tim Mohin
The Wall Street Journal’s CFO Journal 

Tim Mohin

Director of Corporate Responsibility, AMD

When the Dodd–Frank Wall Street Reform and Consumer Protection Act was enacted in 2010, the law was characterized by some as the most significant change to financial regulation in the U.S. since the regulatory reforms that followed the Great Depression. At 848 pages, it is no mystery why Section 1502 of the law, focused on so-called “conflict minerals,” has largely flown under the radar. But that’s quickly changing.

The Securities and Exchange Commission is poised to issue a final rule in the coming weeks or months implementing this provision of the law, and companies are scrambling to understand and prepare for compliance. Implementation is complicated by the fact that it involves an issue far outside financial matters typically regulated by the SEC and the agency has been deluged with hundreds of comments on how to structure the rule.

In short, this provision of the law requires any company that is subject to SEC jurisdiction and that uses the minerals tin, tantalum, tungsten or gold, to trace and report the sources of those materials.  If the material originates from the Democratic Republic of Congo (DRC) or any of the adjoining nations, the company must file an audited conflict minerals report with the SEC that lays out their due diligence process and identifies any products that are “not conflict free.” The law and the SEC’s forthcoming rule aim to stem the flow of profits to warring factions in the region that come from mining and trading these minerals.

What sets this issue apart from other humanitarian crises around the globe is the connection to everyday products. Awareness campaigns have linked DRC minerals to materials in electronic devices such as cell phones, computers and tablets. While the electronics industry does use these minerals, it is the majority user for only tantalum, according to the Electronics Industry Citizenship Coalition (EICC). Industries ranging from aerospace to automobiles to food producers (cans) also use these minerals and thus will be subject to the new rules.

The electronics industry engaged early and developed methods to track and trace these minerals even before the new law was enacted. The EICC and the Global e-Sustainability Initiative (GeSI) teamed up to establish standardize processes and, as the legal requirements are clarified, the coalitions have adjusted the processes to ensure they will be sufficient for compliance. In essence, the electronics compliance strategy can be characterized in three steps:

1.       Downstream (from the smelter to the final product): A standard data template for retrieval of essential information in the supply chain.

2.       Smelters: The “conflict free smelter program” conducts audits of the smelters of the four minerals to assure they originate from conflict free sources.

3.       Upstream (from the mine to the smelter): Working collaboratively with the U.S. government and DRC stakeholders to develop conflict-free sources of minerals through the Public Private Alliance for Responsible Minerals Trade.

At AMD, we have completed a pilot of this approach with good results. Many of our suppliers were able to identify the smelters of the minerals in their products so that we could match them to the conflict-free smelter list. While these systems are still new and maturing, EICC and GeSI have worked openly with other industry sectors to share the processes and tools.

The broader issue is whether this regulation will achieve its intended goal to eliminate conflict in the DRC. Clearly the law has focused more attention on the conflict, but tracking and reporting on the sources of minerals alone will not solve the problem. Real improvement will require international diplomacy, better governance, additional security and the rule of law in the DRC. These are issues beyond the scope of what any one industry can accomplish.

As other regions look to adopt similar rules (Europe is considering a similar law), the optimistic outlook is that all of the effort and resources expended to comply will tip the balance toward better conditions in the DRC. Regardless of the ultimate outcome, companies with foresight and commitment to social responsibility should act early, not only to prepare for compliance, but to add their clout to the public-private alliance focused on cleaning up this supply chain.

Tim Mohin is Director of Corporate Responsibility for Advanced Micro Devices (AMD) and the author of the forthcoming book, Changing Business from the Inside Out: A Treehugger’s Guide to Working in Corporations (Greenleaf and Berrett-Kohler). His postings and comments made in his book are his own opinions and may not represent AMD’s positions, strategies or opinions. Links to third party sites, and references to third party trademarks, are provided for convenience and illustrative purposes only.  Unless explicitly stated, AMD is not responsible for the contents of such links, and no third party endorsement of AMD or any of its products is implied.

http://blogs.wsj.com/cfo/2012/03/21/preparing-for-the-secs-new-conflict-minerals-rule/

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