Most Companies in the Dark on Conflict Minerals

Do you know where your minerals are from?

Congo's Conflict-Free Tin

Congo's Conflict-Free Tin

Conflict minerals are difficult to dig out of U.S. supply chains.

Three years after U.S. companies began filing reports about their efforts to find minerals linked to armed militia groups in Africa in their supply chains, more than 70 percent say they still cannot make a determination.

More than 1,200 companies filed conflict mineral reports due to the U.S. Securities and Exchange Commission by June, ranging from Apple Inc. to General Motors Co., according to separate analyses this month backed by the two largest conflict minerals software companies Assent Compliance Inc. and Source Intelligence.

"This is giving us true insight into company behavior," said Chris Bayer, an independent academic with non-profit Development International, which conducted the study backed by Assent and other organizations.

U.S.-listed companies are required to investigate their supply chain for the presence tin, tantalum, tungsten and gold, under a rule stemming from the 2010 Dodd-Frank Act. The law is meant to choke off mining revenue to militia groups in the Democratic Republic of the Congo and adjacent countries.  

It's controversial whether the rule has achieved that goal. The United Nations Security Council said in June that rebels are still profiting, despite the laws. The U.S. House of Representatives voted 236-188 this month to prohibit the Securities and Exchange Commission from using government funds to implement the rule. But analyses of the reports show that corporate conflict minerals reports are boosting supply-chain transparency.

In the 2015 reports filed over the last few months, companies are more descriptive on average than in previous years, a larger number of companies said that they have conflict-free products, and firms are reporting significantly higher supplier response rates to conflict minerals surveys. Companies like Apple are even starting to kick non-compliant suppliers out of their supply chains.

"Companies that have been able to make a business case out of this and are looking at this as a litmus test for their suppliers are going to be seen as leaders," Bayer said. "It's not just about conflict minerals. We're looking at how much command and control you have over your supply chain."

The page length of reports this year skewed higher on average, according to a separate analysis by Source Intelligence. The longest conflict minerals report this year was 79 pages, up from 47 pages last year, the firm found. On average, conflict minerals reports were 11 pages in the 2015 reporting year, up from an average of 6.6 pages in the 2014 year. The added length is a "key indicator of increased transparency in reporting," Source Intelligence said in its report.

But only some companies yield enough power in their supply chain to produce such lengthy reports. Apparel and electronics companies report supplier-response rates to conflict minerals surveys at around 90 percent on average, but the figure is as low as 70 percent in the oil and gas industry.

"While companies are understanding the importance of supply chain transparency, there remains serious challenges for many who seek cooperation within the supply chain to attain proof," said Jess Kraus, chief executive of Source Intelligence in a statement.

About half of the companies that filed reports disclosed the response rate of their suppliers to conflict mineral surveys. Combined they had an average supplier response rate of 83 percent, according to Bayer's analysis. In that group, 181 companies reported that 100 percent of their suppliers responded to their surveys, his study showed.  

Companies filing 2015 conflict minerals reports had a combined revenue of $9.7 trillion, according to Bayer's analysis, with  935 manufacturing companies representing more than half of that revenue. Almost half of the companies that filed reports, 557, had all four minerals present in their supply chain, according to Bayer's analysis.    

More than 100 companies, or about 10 percent of all the conflict minerals filers, said or implied they had conflict free products, Bayer found. But only 19 companies, including Intel Corp., Kemet Corp., Texas Instruments Inc., actually underwent an audit for those claims on one or more of their products.

Suppliers of tantalum — a metal heavily used by the electronics industry —  had the highest response rate to audits, while tin, gold and tungsten suppliers lagged behind, Bayer's study showed.    

Still there is a long way to go to reach full compliance with the SEC rules, Bayer said. According to the analysis, 31 companies missed the deadline to file their conflict minerals reports on time, 77 didn't name the due diligence framework they used, 656 companies failed to disclose their suppliers' country of origin, and 228 companies didn't offer a conclusional statement. Bayer estimates that hundreds of companies in the affected industries that should be filing conflict minerals reports with U.S. regulators aren't.

"Companies themselves want this level playing field, and they would like the SEC to go after companies that aren't actually filing," Bayer said.

The SEC declined to comment.

The European Parliament agreed on a provisional conflict minerals reporting law in June that would require minerals importers based in the European Union to carry out similar mandatory supplier due diligence, but the process would be voluntary for other companies that use products containing minerals, such as electronics manufacturers.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE