Conflict minerals and human rights in the supply chain
I remember watching a BBC Panorama programme on the abuse of human rights by Apple in the manufacturing of their products earlier this year. As I have grown accustomed to doing, I tweeted and posted about it on social media to highlight the atrocities.
It’s ironic to think that we can’t do without our phones today and yet how many of us think about what goes into making a smart phone?
I am talking both from an environmental and a human rights perspective. One of the components widely used in cellphones is tantalum. It is one of four so called ‘conflict minerals’ mined in the Congo. The other three are tin, tungsten and gold. Collectively these minerals are also referred to as 3TG. They are used in all kinds of items from medical implants to consumer products such as electronics and even food containers.
About 20% of worlds tantalum is mined in the Democratic Republic of Congo (DRC). In the DRC armed groups use revenue from the trade of these minerals to finance their operations. The ruthless violence inflicted by these groups on civilians have created a humanitarian crisis.
It is this link that US lawmakers are trying to break. The US government tried to intervene in the conflict by introducing a provision under the so called Dodd-Frank Act (section 1502). The provision requires public companies to investigate where the minerals in their products are coming from and to report their findings annually to the Securities and Exchange Commission (SEC). They are required to declare whether their products contain a conflict mineral from the DRC or the adjoining countries (the “covered countries”).
Whilst the UK has regulations requiring listed companies to annually disclose on human rights issues in their annual report, it was hoped by NGOs that the inclusion of a Transparency in the Supply Chain provision in the Modern Slavery Act (MSA) this year would have a significant impact on how companies address human rights in their supply chains . The MSA, that requires companies that provide goods and services in the UK with a turnover of greater than 36 million to provide a ‘slavery and human trafficking statement’. The mining and trade of minerals in conflict zones particularly is directly linked to human rights abuses that include slavery and human trafficking.
But going back to the US legislation, what effect has it actually had since its entry into force three years ago? Are we seeing more companies trying to address the risks in their supply chains by developing robust due diligence processes? A recent Al Jazeera report reviewed 147 companies that submitted conflict mineral reports in 2014 (the first year that certain companies were required to do so) and found that more than two thirds of companies could not identify the source of the minerals in their products.
The disclosure rule that was aimed at trying to curtail the profiteering of the armed groups has not had an immediate impact. This is not unsurprising according to some sources as they state that the process will take years. So what can we do to expedite this process and what can we do differently here in Europe (where is the process of drafting a conflict minerals regulation is underway) and also the UK.
What is more worrying is the recent US decision in NAM vs SEC where the National Association of Manufacturing challenged the SEC’s interpretation of the relevant , ,which requires reporting on 3TG that "did originate" in the “covered countries” rather than reporting on minerals that "may have originated" there. They also alleged that the SEC failed to recognise and use its power to establish a reasonable de minimis exception for small amounts of minerals, which could provide substantial relief from the burdensome requirements of the rule for thousands of manufacturers. Finally, they raised the First Amendment. They objected to the requirement that companies are to make public statements that are effectively misleading and stigmatizing and that this unfairly links their products to gross human rights abuses.
The court ruled in their favour, stating that part of the SEC ‘Conflict Minerals Rule’ is unconstitutional and citing the First Amendment. Although the disclosure rule still stands, companies no longer have to declare their products are DRC- conflict free.
There are other criticisms of the Dodd Frank regulation but whatever reforms that will be put in place to curtail the Dodd Frank Act , the growth in discussions on human rights due diligence and companies ensuring that they not only develop a human rights policy but the due diligence processes that sit behind these polices is not looking to diminish . Companies that choose to ignore their supply chain challenges are likely to face stakeholder pushback in the long run –not just from government, legislatures, activists and media but also investors, shareholders and customers.
Colleen Theron is a tri-qualified solicitor in England and Wales, Scotland and South Africa. Since 1996, she has advised on environmental issues in complex property and corportate transactions and recently founded sustainability consultancy CLT envirolaw.
CLT envirolaw recently produced a Legal Insight document which examines how the EU Conflict Minerals Regulation will affect SMEs and larger companies. Read more here.Colleen Theron