Conflict Minerals Compliance: A Long Way to Go in a Short Amount of Time

In a report published July 10 by PwC, almost half of the 900 companies surveyed are in the initial stages of compliance with the SEC’s Conflict Minerals rule, with 32% still in the process of determining the applicability of the rule to their products.  As discussed in a previous blog post, first reports are due to be filed with the SEC May 31, 2014, and the covered reporting period is in effect now.  While the rule applies directly to publicly traded companies, a far broader number of companies are involved in supply chain compliance efforts, because they are suppliers to those firms that have SEC reporting obligations.  And in addition to the SEC rule, market forces are bringing high level corporate attention to conflict minerals. 

The industry sectors most affected by the rule are:  industrial products and manufacturing, technology, retail and consumer, and automotive.  Nearly 13% of respondents reported that they have 5,000 or more suppliers and only 16.5% have fewer than 100.  The three biggest challenges companies see to compliance are identifying relevant suppliers, getting accurate information, and establishing a company-wide conflict minerals policy.  Companies that identify a risk from determining that their products contain conflict minerals list the following four consequences as their greatest concerns:  brand risk, possible loss of customers, shareholder backlash, and possible boycott of products.

The survey indicates that a great deal of work must be done in a relatively short time frame, but many companies are discovering that conflict minerals disclosure is driven not just by the SEC’s reporting deadline, but also by market pressures that are forcing even quicker action.  Last month’s widespread news reports of activists targeting Nintendo for lack of transparency in the level of conflict minerals in its products (see, for example, http://articles.washingtonpost.com/2013-06-19/business/40059748_1_conflict-minerals-policies-suppliers), have brought home to an ever-growing audience how real this issue is as a business risk factor for a large segment of U.S. companies.  While some businesses may be delaying their efforts in the hope that a pending legal challenge to the SEC rule (see http://sustainability-counsel.com/2013/05/28/conflict-minerals-in-the-spotlight-in-congress-and-the-courts/) will be successful, savvy businesses are already realizing that market forces may be an even stronger incentive to move ahead on auditing their supply chains and developing competitive strategies depending on the results.

Jane Luxton, Esq.

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