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Thursday
Sep062012

Conflict Minerals Due Diligence

Reporting companies that might be using conflict minerals, according to the SEC, have to perform due diligence that 'must conform to a nationally or internationally recognized due diligence framework, such as the due diligence guidance approved by the Organisation for Economic Co-operation and Development (OECD).'

The OECD? That's right. Last year it released a 65-page publication called 'Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.'

The preface says,

Trade and investment in natural mineral resources hold great potential for generating income, growth and prosperity, sustaining livelihoods and fostering local development. However, a large share of these resources is located in conflict-affected and high-risk areas. In these areas, exploitation of natural mineral resources is significant and may contribute, directly or indirectly, to armed conflict, gross human rights violations and hinder economic and social development.

The guidance sets out a five-step 'Framework for Risk-Based Due Diligence in the Mineral Supply Chain:'

1. Establish strong company management systems.

2. Identify and assess risk in the supply chain.

3. Design and implement a strategy to respond to identified risks.

4. Carry out independent third-party audit of supply chain due diligence at identified points in the supply chain.

5. Report on supply chain due diligence.

It also mentions some basic red flags about locations of mineral origins and transit (if a red flag pops up, more due diligence is needed):

  • The minerals originate from or have been transported via a conflict-affected or high-risk area.
  • The minerals are claimed to originate from a country that has limited known reserves, likely resources or expected production levels of the mineral in question (i.e. the declared volumes of mineral from that country are out of  keeping with its known reserves or expected production levels).
  • The minerals are claimed to originate from a country in which minerals from conflict-affected and high-risk areas are known to transit.

And supplier red flags:

  • The company’s suppliers or other known upstream companies have shareholder or other interests in companies that supply minerals from or operate in one of the above-mentioned red flag locations of mineral origin and transit.
  • The company’s suppliers’ or other known upstream companies are known to have sourced minerals from a red flag location of mineral origin and transit in the last 12 months.

The OECD's 'Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas' can be downloaded here.

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