In July, our latest ASM-PACE report was released, focusing on the ASM of gold and tin – two 'conflict minerals' under the Dodd-Frank Act, Section 1502 – in the Itombwe Reserve in South Kivu, DRC. Levin Sources and WWF researchers had to cut their fieldwork short owing to insecurity in the area brought on by the presence of M23 rebels. One cannot look at minerals in DRC and not consider the conflict. We have thus invited Brad Brooks Rubin to submit a blog on conflict minerals in DRC to build on this theme.
At the end of the classic film Dr. Strangelove, Slim Pickens' character leaps out of a plane riding the bomb, headed for an unknown landing spot but facing certain doom.
That, sadly, seems to be too much of the theme of where things stand with Dodd-Frank section 1502 compliance: companies feel they are being asked to leap out of a plane, strapped to a legal/public relations bomb, unsure of what comes next, other than various threats of destruction. Or that may be what they're hearing from consultants or NGOs.
I say it is time to stop worrying....and love 1502. Perhaps not the conflict minerals themselves, but at a minimum and at least for a while, we need to embrace the term "Not been found to be DRC Conflict-Free." Not because it will make compliance easier or allow companies to ease up in their efforts, but rather because implementation of the rule and achievement of the underlying goal of improving life and environment in a difficult region depends on it.
As a brief review, section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act establishes a rigorous three-step process concerning "conflict minerals" that will require reporting from all SEC annual filers, with the first reports due in May 2014. In sum, section 1502 requires a company to determine whether gold, tin, tantalum, or tungsten are necessary, in any amount, to a product it manufactures, or contracts to manufacture. If so, the company must work with its suppliers throughout the supply chain to make a reasonable country of origin inquiry, specifically to identify whether the minerals originated in the Democratic Republic of the Congo (DRC) or any of its nine neighbors.
If the company identifies any products containing minerals from these countries, or is unable to determine the country of origin, then it must report on the due diligence process undertaken to ensure that mineral purchases did not directly or indirectly benefit armed groups. Based on this due diligence, it must then make a determination as to whether its products are "DRC Conflict Free" or "Not been found to be DRC Conflict Free;" for an initial phase-in period, the term "DRC Conflict Undeterminable" may be used.
The initial phase of attempted compliance has been marked by a few themes: confusion, consternation, and concern. The confusion stems from the many nuances and twists that companies are finding as they delve into their supply chains, and for which there are few answers (yet). The consternation comes from the time, cost, and overall difficulty of trying to comply with sweeping rules that companies acknowledge may stem from a laudable goal but were imposed in a less than ideal way. The concern is rooted in the fear that there will be public (whether through media or NGO reporting or actual consumer campaigns) or even contractual backlash against companies that say anything other than "DRC Conflict Free."
Confusion and consternation are frankly hard to avoid in the early stage of any new regulatory compliance program, particularly one as broad in scope or as difficult in goal as section 1502. Those will simply take time and experience to work through. There is no doubt that section 1502 could have been developed in a more effective way, but like it or not, it's law.
The concern, however, should be dispelled immediately; preferably by advocates or regulators, but if not, then by the compliance community itself. So, as a former policy official on the issue who is now entering the compliance community, let me be the first:
It is okay to report that your products are "DRC Conflict Undeterminable" or even "Not DRC Conflict Free."
At least it is for the next few years and if you are demonstrably engaged with in-region efforts and overall development of the infrastructure of responsible sourcing.
Why would I say this, especially after coming from within the policy apparatus that has been for the last several years working hard to raise awareness about conflict minerals and 1502?
I say it because of the number of positive and, with time and patience and resources, potentially game-changing efforts underway on the ground to develop conflict-free supply chains. It is true that the conflict in the DRC will not be eradicated solely through the efforts of these activities, but most informed observers recognize the goal of the law – to break the link between natural resources and armed conflict in the region – and understand the critical role they play. That is, because extraction of these minerals is largely undertaken by artisanal miners, rather than industrial mining entities of any scale, the long-term and sustainable solutions to the problem rest on the implementation of approaches and interventions that prioritize economically viable sustainable development, which reduce the vulnerability of the miners, their communities, and the mining sector as a whole to exploitation and abuse.
By combining broadly-focused due diligence that the downstream companies can use with detailed, upstream efforts that focus on conflict, human rights, environmental, and other issues at the mine-site level, materials can flow from sites directly through to the global supply chain. This combination of activities provides a renewed focus and new platforms to encourage and push various actors to address governance and security. If allowed to gain traction and momentum, these could be the necessary steps the region needs because they focus on solving the underlying problems while also allowing the miners to keep working and supporting their families and communities, rather than forcing them into alternative livelihoods (or, worse, no livelihoods at all). I do not have room to explain them all here, but there are several streams of work ongoing now, at different levels of the supply chain, that are slowly transforming the trade in these minerals. These include:
In-region sourcing: Conflict-Free Tin Initiative, Solutions for Hope supply chain, the iTSCi scheme, the Public-Private Alliance for Responsible Minerals Trade
"Chokepoint" standards: Conflict-Free Smelter program, London Bullion Market Association, Responsible Jewellery Council
Broader supply chain due diligence standards: OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict Affected and High Risk Areas, World Gold Council Conflict-Free Gold Standard
And if you read the words of the Department of State, leading NGOs, and other analysts, this is precisely the work that needs to be encouraged and developed further. At this stage, implementation of most of these initiatives is in early days, and the in-region programs are producing only a minimal quantity of material. In order to be encouraged, more companies need to participate in their work and incorporate these efforts into their supply chains.
But if they do, they risk having to report that their products are "DRC Conflict Undeterminable" or even "Not DRC Conflict Free" because of the difficulty of scaling these systems up or, for example, if rebels overrun the area where a conflict-free pilot is underway, thereby tainting the material previously sourced. This is where the role of the consultant can be critical, specifically if they are advising how to use the OECD guidance and other tools to mitigate these issues when they arise. OECD specifically allows for risk mitigation and continual progress and reassessment of a situation. Sadly, because of the risks and unknown requirements of what it may take to be DRC Conflict Free, the advice from many consultants and companies is simply that it's best to walk away from the region altogether.
The consequences of that walking away, however, could be catastrophic. For the region, the impact will be clear: even worse economic conditions in an area where they are already quite difficult, because companies can somewhat easily direct their supply chains elsewhere. The region is not essential for supply of any of these minerals, so why stay and risk not only expense in dealing with the early days of new supply chain programs and regulatory regimes, but also that the media pick up only that the company is "not conflict free?" Such an approach will prolong and entrench the "embargo" that ensued prior to the SEC's issuance of its regulations and likely worsen the social, human rights, and environmental impact of mining undertaken in conditions where those purchasing pay no attention to these concerns.
The reputational risk for downstream companies could also be severe, should the public discussion continue toward how companies are contributing to long-term solutions, in which case the approach of "walked away" may not be the most beneficial.
No matter what supply chain approach is taken, these issues are unavoidable – and we must encourage companies to be persistent in their efforts and overcome such challenges even after they arise. And the only way to do that is to accept, indeed welcome, reports for such companies that unfortunately can't say "DRC Conflict Free" but can offer the details of their activities to ensure and make improvements in their supply chain. The effort to achieve true "conflict free" status for minerals in the DRC will be a long-term one, with vision that looks beyond the mantra to companies that any report of "Not been found to be DRC Conflict Free" is akin to PR suicide.
Not only is there little evidence to show that consumers or the public at large will truly alter purchasing or investing patterns in light of these reports, they are less likely to do so if we can begin to develop a more nuanced and accepting approach with companies, one that encourages engagement and honest reporting in the short term in order to achieve the long-term goals that section 1502 elaborates. There is a choice to be made, and I for one will continue to encourage choosing responsible sourcing in the region, with the possible risks it may entail for early reporting, rather than more short-term approaches.
At one point in Dr. Strangelove, as General Turgidson (George C. Scott) discusses the pros and cons of a nuclear attack with President Muffley (Peter Sellers), the General says, "We are rapidly approaching a moment of truth both for ourselves as human beings and for the life of our nation. Now, truth is not always a pleasant thing. But it is necessary now to make a choice..."
Although the circumstances are different, it is time to accept unpleasant truths in the service of achieving our goal: meaningful governance of the minerals sector and break to the link between conflict and natural resources that has dogged the region since King Leopold's time.
It is a choice we have to make, and to embrace.
