What to Know About the EU Conflict Minerals Regulation Before 2021

by Source Intelligence

on November 3, 2020

On January 1, 2021, the EU Conflict Minerals Regulation will take full effect. Inspired by the Dodd-Frank Act Section 1502 on US Conflict Minerals Regulation, the European law and its reporting framework align with the OECD due diligence guidelines for responsible mineral sourcing. The wider scope of the EU regulation means that impacted companies have to take a few extra steps to reach compliance.

 

 

Objectives, Scope, and Reporting Requirements of the EU Conflict Minerals Regulation

 

 

Similar to the US regulation, the EU law is designed to improve and increase transparency in the mineral supply chain and prevent mining from aiding and/or financing armed forces in politically fragile and unstable regions.

 

To date, four minerals are targeted, having been identified as the most linked to conflict areas with the human rights abuses it entails.

 

Tin, tantalum, tungsten, and gold, commonly referred to as the 3TG, are minerals that are necessary to manufacture electronic components, medical devices, retail accessories, and many other household items.

 

Global Coverage

 

Whereas the US regulation only addresses the Democratic Republic of Congo and its nine surrounding countries as high-risk regions, Europe casts the net globally over Conflict-Affected and High-Risk Areas (CAHRAs), including the DRC and neighbors. The EU defines CAHRAs as:

 

  • Regions in a state of armed conflict
  • Areas suffering the aftermath of conflicts
  • Regions made fragile by weak or lack of governance such as failed states
  • Regions or countries known to systematically violate international law; human rights included

 

Who Is in Scope?

 

The EU regulation on conflict minerals is actually split between mandatory reporting for upstream actors of the supply chain and voluntary disclosures for downstream companies.

 

The regulation affects importers into the European Union of 3TG ores, concentrates, and metals whether to sell to smelters or refiners or to use in their manufacturing processes. Metals imported in the form of bars, rods, sheets and other “raw” parts also fall under the scope of the reporting requirements.

 

Manufacturers who source finished components and companies that import or distribute end-user products containing any of the 3TG are not required to comply, although a proactive due diligence approach would go a long way, if only for brand management purposes.

 

Mandatory Reporting Requirements

 

Companies are expected to adopt a risk-based due diligence approach to assess their mineral supply chain from mines to end users. The OECD framework serves as guidance to follow a 5-step reporting template:

  1. Responsible mineral sourcing by establishing a chain of custody to the mine of origin
  2. Risk assessment for “red-flagged” supply chains by auditing mines, producers and traders. Items of concern should include conflict, abuses, corruption, money laundering, tax evasion.
  3. Risk management by collaboratively engaging with local authorities and businesses to help prevent, mitigate and monitor impact and risks of sourcing conflict minerals.
  4. Smelter and/or refiner audit by directly engaging them in the due diligence process. Auditors should have access to chain of custody, traceability documentation (and ability to validate such documentation), risk reports and company records.
  5. Public due diligence reports shall be filed annually and demonstrate companies’ due diligence efforts.

 

Voluntary Downstream Reporting

 

The EU strongly encourages downstream companies to engage and report in the conflict minerals due diligence process. To that effect, a transparency platform is available to voluntarily publish due diligence practices:

 

  1. Identify “choke points” in the supply chain, mostly at the smelter or refiner tier.
  2. Collect information from upstream to reveal weak points or potential risks
  3. Leverage industry data to further support upstream reporting

 

Expecting to Extend to Other Minerals in the Future

 

 

To date, only tin, tantalum, tungsten, and gold are regulated under conflict minerals regulations. There is, however, mounting pressure to expand the mining horizon and extend to other natural resources precious for many industries. For the OECD, conflict minerals and serious human rights abuses affects all mineral resources from precious stones to coal and cobalt.

 

In fact, cobalt may find its way to the conflict minerals regulation update agenda soon, due to strong push from NGOs and human rights organizations. Human rights abuse in cobalt mining in the DRC issues have been exposed by an Amnesty International report in 2016. Continuous research has since increased awareness and piqued the interest of investors.

 

Additionally, the shift in investment decisions based on ESG factors has led to an increase in demand for sourcing transparency. Even without current legislation in place to regulate colored gems, cobalt, mica, and other rare earth metals, it’s advantageous for companies to ensure they are sourcing from ethical mines and staying away from human rights abuses.

 

 

Less Than a Quarter to Prepare: Recommended Action Plan

 

 

Many organizations may have planned to use most of 2020 to prepare for the January deadline. Little did they know a global pandemic would reassign many business priorities. Now, with less than a quarter to prepare before the reporting deadline, it’s more important than ever to have an action plan in place.l

 

If you import 3TG into the European Union, take a clear stock of your current standing in terms of knowing and controlling your supply chain. Field audits are no longer an option, so you have to rely on programs that cross the T’s and dot the I’s.

 

Are you required to comply? If yes, keep reading. If not, keep reading. It is a commonly encouraged best practice to always be prepared.

 

Source Intelligence has spent years working closely with the EU conflict minerals regulation actors since the inception of the program. This has led us to create a compliance solution that leverages technology and industry collaboration, thereby significantly minimizing legwork and increasing suppliers’ engagement.

 

  1. Update your list of suppliers with current information. Lucky you, the days of sending forms by fax are over (right?). Source’s proprietary algorithm and unique database will help you clean your suppliers list.
  2. Conduct an RCOI. The Reasonable Country of Origin Inquiry (RCOI) determines whether a supplier is in-scope for 3TG content originated in any of the covered countries and regions or is recycled from scrap sources.
  3. Map out your due diligence process. Regardless of what you have accomplished so far, chances are you are due for a refresh. Why? Because risks migrate or expand, suppliers change sometimes unbeknownst to you, and data is dynamic.
  4. Knowledge is power. Validated information is gold. Our team of experts act as an extension of your procurement, financial, policy, and technology departments to unify your efforts and keep suppliers engaged.
  5. Develop a reporting process. Actually, you don’t have to. Our conflict minerals solution includes a report-ready scheme: a set of complete, consistent documents that detail the efforts made by all parties, and offer comprehensive compliance information.

 

The one last item you should consider adding to your action plan is adopting a program that can bridge numerous compliance requirements so there is no need to multiply the workload, but rather leverage efficiencies.

 

January 1, 2021 is the deadline for European Conflict Mineral compliance. If you’re behind schedule for compliance, don’t have the resources, or are overwhelmed, we can take it off your plate. Let us show you how we can ensure compliance in time for the deadline and beyond so you can continue to focus on your core business functions.

 

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