Report: Performance Falls Short on Supply Chain Due Diligence for Conflict Materials

The Responsible Sourcing Network (RSN), a project of the nonprofit organization As You Sow dedicated to ending human rights abuses associated with raw materials, has released a new report analyzing 206 companies’ due diligence regarding the use of conflict materials in their supply chains. In a year-on-year comparison, almost all participants decreased their scores, despite demonstrating strong initiative to mitigate risks.

RSN’s Mining the Disclosures report analyzes companies’ SEC conflict materials filings following the requirements of Section 1502 of the Dodd-Frank Act. Businesses are assessed against 24 key indicators ranging from risk management capacities to reporting efforts and human rights impacts.

The Technology sector dominated the ranking, outperforming all other industry groups analyzed. On the other end of the spectrum, Oil & Gas, Steel, Business Services and Building Materials received the lowest scores, reflecting a compliance-only focus, instead of the proactive, due-diligence-based strategies implemented by the top five leading companies:Intel, Microsoft, Qualcomm, Apple and Royal Philips. This is consistent with last year’s report, demonstrating a greater need for transparency in these sectors.

We’re disappointed to see so many companies simply ticking a compliance box, rather than engaging in genuine risk reduction.

On an indicator level, dramatic changes in performance were noted related to companies’ capacity to identify and manage risks. The average score for a company’s efforts to identify products containing 3TG (tin, tantalum, tungsten and gold) dropped by over a third between 2016 and 2017. Similarly, there was also a poor showing of verification of suppliers’ responses, diminishing the quality of the disclosures. In contrast, the report marked improvement with the adoption of conflict minerals policies and response strategies with smelters or refiners. However, these represent only two elements of a complex due diligence process and cannot effectively reduce all the risks in companies’ supply chains on their own.

“We’re disappointed to see so many companies simply ticking a compliance box, rather than engaging in genuine risk reduction,” said Patricia Jurewicz, Director of RSN. “Investors should be concerned when nominal attention is paid to a critical issue — other corporate core business efforts could be just as weak. Laggard companies should emulate proactive due diligence strategies from the technology sector.”

The decline in performance is largely attributed to an atmosphere of uncertainty following the Trump administration’s announcement that it would be deregulating Section 1502 of the Dodd-Frank Act. Despite investor support for this piece of legislation, the uncertain future of the rule has created an environment that encourages companies not to fulfill their legal obligations.

“Ensuring a clean supply chain in mineral mining is critical,” said Raphaël Debert, author of Mining the Disclosures 2017. “Regardless of Section 1502’s enforcement prospects, companies introduce themselves to significant risk if their efforts fund human rights abuses.”

The lower scores in this year’s report illustrate a need for companies to continue prioritizing and investing in their supply chain due diligence efforts. Despite the downward trend, leading companies have continued to demonstrate that implementing measures to mitigate risk in the downstream, midstream and upstream levels of their supply chains is both imperative and possible.

This article first appeared on Sustainable Brands