President-Elect Donald Trump has pledged to repeal the Dodd-Frank Act, and with it the conflict minerals provision, Section 1502.
The intended outcome of Section 1502 was to limit the potential for the extraction, transportation, and trade of ‘conflict minerals’, namely tin, tungsten, tantalum and gold (3TGs), to fund conflict in the Democratic Republic of Congo in Africa’s Great Lakes Region.
If Trump is successful, what will this mean for the many companies that have spent several years improving their management systems, policies and procedures to ascertain the potential presence of conflict-affected 3TGs in their supply chains? Will this mean a reversion to the bad old ways of “business as usual” with regards to 3TG sourcing?
It is reasonable to suppose that the repeal of the Dodd-Frank Act (DFA) will not change the way many major US companies are currently operating in relation to responsible mineral sourcing, and that this law, in the six years since its passing, has already established a robust trend towards responsible mineral sourcing which has moved beyond only 3TG. The main reasons for this supposition are twofold:
Other legal requirements will continue to apply, or come into force
Over the last decade we have seen a progression from soft law to hard regulation in the area of responsible business. This progression has obliged companies to undertake profound and non-discretional organisational change to implement responsible business practices. From soft laws such as the UN Global Compact, the UN Guiding Principles for Business and Human Rights, the OECD Guidelines for Multinationals and the ILO Tripartite Declaration of Principles on Multinational Enterprises and Social Policy we have seen a progressive shift towards mandatory legislation to ensure responsible business practice. Examples of this transition include the emergence of mandatory regulations on due diligence such as the EU Directive on non-financial reporting, the French Bill on corporate due diligence, the recently agreed EU Conflict Minerals Regulation[1], and the abovementioned Section 1502 of the DFA—the “conflict minerals” rule which extends to downstream companies.
Given the current legal landscape, it could be argued that the repealing of the DFA would be partly counterbalanced by the two abovementioned EU legislations: the EU Directive on non-financial reporting which applies to public-interest entities having an average number of more than 500 employees; and, the EU Conflict Mineral regulation which applies to EU importers of raw 3TG (mid-upstream companies in these mineral supply chains). This is because, despite some disappointments being expressed as to the limits of the proposed EU Conflict Mineral Regulation, these two regulations, combined with ongoing monitoring carried out by civil society, could have an impact on the behaviour of companies both within and without the EU.
Furthermore, unlike the DFA, the proposed EU Conflict Minerals Regulation will not only focus on countries in the Great Lakes Region of Africa, but will apply to all conflict-affected areas anywhere in the world, thus broadening the geographical scope of existing due diligence practices and setting this into law.
Given the interconnected nature of the world’s supply chains, these EU laws will likely have a global impact. The scale of this impact will also be in part determined by the ability of industry associations, such as Electronic Industry Citizen Coalition (EICC) and Tantalum-Niobium International Study Centre (TIC), to encourage the ongoing development of conflict-free mineral supply chains amongst those companies that are not in scope for the EU Conflict Minerals Regulation—such as those that import manufactured goods containing 3TGs, and would thus only be urged to report on their sourcing of conflict minerals under the EU Directive..
The bar set by mandatory regulation has already moved beyond conflict minerals to the responsible sourcing of materials
Dismantling the DFA, and with it, Section 1502, will not automatically lead companies to revert to their former supply chain management systems and old ways of doing business. Corporate supply chain management has gone through a profound reshaping over recent years; many companies in the minerals sector have partnered with other industry leader and public and third sector organisations (like NGOs) to tackle complex supply chain issues that require all parties to play their part in developing a responsible minerals sector. Some companies have claimed that positive commercial advantages have arisen out of these efforts, separate to making progress towards the intended outcome of Section 1502, such as stronger supplier engagement, and better general supply chain risk management.
Industry associations have played a key role in driving the advancement of responsible supply chains in the mineral sector (think about the work done by the Electronic Industry Citizenship Coalition, The Global Tin Industry Association (ITRI) and the Tantalum-Niobium International Study Center). The new EICC and CFSI Initiative to Advance Responsible Sourcing of Raw Materials in Technology Supply Chains provides another example of industry leading the way in setting new standards going beyond existing regulation. While Section 1502 was limited to 3TG minerals sourced from conflict-affected countries in the Lake Region of Africa, and to the worst human rights risks and white collar crimes listed in Annex II of the OECD Due Diligence Guidance, the EICC and CFSI initiatives seek to address a broader suite of social and environmental impacts along global supply chains in raw materials, beyond 3TG. Thus, what Section 1502 has set in motion will likely accelerate a broadening in scope with regards to responsible mineral sourcing. It is therefore unlikely that companies will be tempted to revert to business as usual as those that regress to the “bad old ways” could simply find themselves excluded from markets and losing out to competitors who have properly read the obvious trends in responsible sourcing.
[1] The EU Conflict Mineral Regulation will be presented for ratification in 2017.
