The Enough Project report calls on the United States, through Secretary of State Hilary Clinton, to convene a senior partnership on certification with industry and the International Conference on the Great Lakes Region (ICGLR). The report also states that “the United States must act quickly, as minerals traders in Congo are already seeking alternative, opaque markets for their minerals. An internationally accepted certification process would deter this development.” Last week, a letter writing campaign launched encouraging U.S. Secretary of State Clinton to state a public U.S. position on this issue and convene a high-level partnership on certification with leading electronics and end-user companies, together with Congolese President Kabila and regional governments. The goal of this summit would be “aimed at unifying the regional and industry-led initiatives and gaining consensus on a system of independent checks on the ground”.
Meantime, Conflict-Free Smelter the industry protocols proposed and under development by the EICC and GeSi are focused on two key areas targeted at what they characterize as the “pinch point” in the supply chain- the smelter:
Business Process Review: Evaluate company policies and or codes of conduct relating to conflict minerals
Material Analysis Review: 1) Conduct a complete material analysis to demonstrate that all sources of materials procured by the smelting company are conflict-free; 2) Evaluate whether source locations are consistent with known mining locations; and 3) Establish whether material identified as “recycled” meets the definition of recycled materials.
The CFS program is moving forward in spite of the delay by the SEC for final rulemaking. CFS assessments for tantalum began in the fourth quarter, 2010 and are expected to be posted on the EICC website starting this month. Tin, tungsten and gold are planned to commence later this year.
What Makes a Good Auditor?
In addition to “what” types of certification schemes are needed and how they should be administered or governed, there’s the matter of “who” should do the auditing and third- part certifying. What I see as critical here is Step 4 of the OECD process and Step 3 of the Enough Projects documents, both of which the EICC and GeSi programs are attempting to fulfill. However, key to this audit process is the “independence” and competency factor as well as what qualifications auditors have to perform these assessments. The Enough Project gleaned through numerous frameworks in order to develop its proposed certification approach, which deserves careful consideration. In addition, while the SEC has yet to clarify the specifics of the Dodd-Frank provision, ELM Consulting’s Lawrence Heim in a recent AgMetal Miner series, notes:
… There are a number of auditor certifications that could be considered applicable to this scope of audit, but none should be considered to automatically qualify an auditor for these engagements. These audits require a unique blend of expertise in general auditing processes/procedures, environmental knowledge, accounting basics, chemistry/industrial processes, procurement controls, contracts and supply chain fundamentals. Finally, the auditor must be able to execute the engagement in accordance with the auditor/engagement standards of the Government Auditing Standards, such as the standards for Attestation Engagements or the standards for Performance Audits (GAO–07–731G) GAO-07-731G contains standards on auditor independence.
Associations consist of multiple members who have varying degrees of business relationships with each other and the audited entities, putting the auditor in a position of serving “multiple masters” relative to influence over the audit scope, process, information, report and payment. Our research and inquiries to qualified experts in SEC auditing requirements indicates that there appears to be no precedent in any other legally-required audit in the US that has been fulfilled in this manner.
Comparisons and Contrasts
I had the chance last week to listen in on an informative webinar by STR Responsible Sourcing. The company is an accredited monitor for numerous social certification programs, and partners with many organizations that share our mission of assuring responsible sourcing practices. The company compared governmental, regional, industry schemes for addressing minerals mined in conflict regions. The figure below summarizes each of the initiatives and target areas.
According to STR, there are a series of challenges lying ahead for both upstream suppliers (e.g. miners (artisanal and small-scale or large-scale producers), local traders or exporters from the country of mineral origin, international concentrate traders, mineral re-processors and smelters/refiners) and downstream users (e.g. metal traders and exchanges, component manufacturers, product manufacturers, original equipment manufacturers (OEMs) and retailers) of precious minerals. Downstream Supply Chain parties are faced with some unique challenges, namely:
- No clearly defined requirements of “due diligence”
- No guarantees for “conflict-free”
- Limited transparency in upstream supply chain
- No traceability in downstream supply chain
- No generally accepted standard / certification
For the upstream supply chain, primary challenges include:
- Complexity of the supply chain
- Difficulty to include small and artisanal mining
- Challenges for implementation of traceability schemes in the DRC due to militarization of mines and widespread lack of formalization of small scale mining
Meanwhile, according to STR, the downstream supply chain might consider the following approaches to start on the path of responsible sourcing of precious minerals:
- Implement a procurement policy and due diligence procedures
- Develop consistent supplier engagement processes (awareness raising, communication and training) throughout the supply chain
- Monitor downstream suppliers’ due diligence procedures and gather data on organization of supply chain (desktop or onsite)
For the upstream supply chain consider the following:
- Support certification schemes and industry efforts
- Join certified trading chains / buy certified products
- Government lobbying
Where to Start
If you are a manufacturer of electronics, jewelry, automotive parts or other goods that may be subject to sourcing through the DRC or other conflict prone areas of the world, consider (at a minimum), the following steps:
- Read the OECD and Enough Project guidance documents to understand the issues and risks associated with responsible sourcing
- Stay tuned into the progress that your industry associations are achieving to bring a better sense of responsible management to this issue
- Follow the development of the SEC conflict mineral guidelines
- Work with procurement, operations, legal, environmental and communications staff to craft a procurement policy & selection of supplier selection process (along the lines that Intel, HP, Motorola and others have)
- Request origin and chain of custody documentation for purchases to assure traceability
- Establish adequate record-keeping system
- Ensure that relevant staff is trained on procurement policies, procedures to receive material and identification of potential conflict material
If I were to look at where industry was a few short years ago on this issue compared to now, there’s no doubt that increased minerals sourcing tracing and accountability in conflict-free minerals is improved. The system as presently planned, in pilot stages or in process certainly has some flaws as most new initiatives have. But given the industry, region, national and international levels of cooperation that is rapidly becoming evident, I’ve no doubt that the positive outcomes will be great.
Aaron Hall, Policy Analyst at the Enough Project in a recent interview with Resource Investing News said “It’s a start. You have to take small steps forward. The fact that governments and industry are thinking about this shows concern and to a large extent they are willing to tackle the problem,” said Hall. “I think it’s remarkable that the multiple stakeholders involved in this process have been able to come together in such a short amount of time and make progress towards setting up a regional certification regime for these minerals.”
Dave R. Meyer is VP of Sustainable Economic and Environmental Development Solutions (SEEDS) Global Alliance. You can view his blog related to sustainability best practices, green supply chain, public policy, the environment and business competitiveness at valuestream2009.wordpress.com