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February 01, 2013

Many Industry Sectors Unprepared for Conflict Minerals Rule
    by Robert Kropp

A report from the Responsible Sourcing Network finds that leading companies in the information and communications industry have undertaken initiatives to ensure that their supply chains are free of conflict minerals, but few other industry sectors have done so.

SocialFunds.com -- The ultimate fate of the Dodd-Frank provision requiring that US corporations disclose whether their products contain conflict minerals smuggled out of the Democratic Republic of the Congo (DRC) remains unclear. Although the Securities and Exchange Commission (SEC) adopted rules mandating disclosure in August, a lawsuit filed by industry trade groups argues that ensuring supply chains free of conflict minerals would amount to an overly burdensome cost to companies.

In November, a multi-stakeholder group led by the Responsible Sourcing Network, a project of As You Sow, spoke out strongly in defense of the rule. "The violence and abuse in this region of the world must end," the group stated. "An important part of the solution is the efficient and responsible minerals sourcing process."

Found in many electronic devices and other consumer goods, conflict minerals are smuggled out of the DRC, and armed groups use payments for them to fund a conflict which has resulted in the loss of more than five million lives.

The multi-stakeholder group advocating in defense of the rule includes many prominent companies from the information technologies sector whose products rely on the minerals exploited by armed groups and whose own industry associations—the Electronics Industry Citizenship Coalition (EICC) and the Global e-Sustainability Initiative (GeSI)—have successfully developed programs advancing the responsible sourcing of minerals.

A new report by the Responsible Sourcing Network singles out the information and communications (ICT) industry for its initiatives, stating that many leading companies "are committed to finding solutions and developing programs contributing to smelter auditing, traceability, and development projects."

Most industry sectors, however, still have far to go to ensure that conflict minerals are not entering their corporate supply chains. Although the automotive industry formed the Automotive Industry Action Group (AIAG) in 1982 "to establish a seamless, efficient and responsible supply chain," only Ford has taken significant steps to address conflict minerals thus far. Other car companies, the report states, "have not done much more and are encouraged to take further action."

Other industries fare even worse in the Network's analysis. "The aerospace/defense industry has not been very active regarding conflict minerals. And "the food packaging, medical device, retail, apparel and footwear, tooling, and toy industries have made little or no progress."

On the other hand, the jewelry industry "should…begin to make more progress," the report states. And the smelter/refiner and mining industries "have an opportunity to contribute to local economic development efforts."

The report recommends that companies go beyond merely reporting to the SEC and implement supply chain traceability as well as engage with key stakeholders, which, the report argues, "is a critical component towards implementing industry-wide standards for conflict-free mineral sourcing and achieving a peaceful, stable, and prosperous Congo." The only way to ensure that supply chains are 100% free of conflict minerals is by ending the conflict in the DRC.

"Investors are looking for companies to take actions that will minimize their material and reputational risks as well as be fiscally responsible," the report concludes. "Sustainable and responsible investors want companies to source their minerals from the DRC and neighboring countries in a certified ethical and sustainable way so they contribute towards building a conflict-free environment."

The Network also recommends that investors sign onto an Investor Statement, whose current signatories manage a total of almost $200 billion in assets.

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