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.
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.
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:
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.
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:
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:
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.
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.
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.