Op-ed: Conflict Minerals: Are Companies Sourcing From Conflict-Free Refiners & Smelters?

Note: This op-ed originally appeared on The Sentry’s Medium and was written by Sasha Lezhnev, Deputy Director of Policy at The Sentry.

Conflict Minerals: Are Companies Sourcing From Conflict-Free Refiners & Smelters?

Independent audits on conflict minerals have been around for a decade, but are companies actually using them in their supply chain decisions? According to new research by The Sentry, a majority of the largest electronics, jewelry, and automotive companies are still not requiring suppliers to source from conflict-free refiners and smelters. This is despite the fact that the US conflict minerals legislation—Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act—was passed over a decade ago. According to Dodd-Frank, companies with tin, tantalum, tungsten (the 3Ts), or gold in their products must report to the SEC on their due diligence steps regarding conflict minerals. Around 1,200 to 1,300 companies file reports with the SEC through Form SD annually on or around May 31.

Ahead of the upcoming 2021 filings, The Sentry analyzed the 2020 SEC filings of the largest electronics, automotive, and jewelry retail companies to assess whether the companies are sourcing from smelters and refiners that have been found to be conflict-free by credible, independent, third-party audits. Since industry conflict minerals auditing systems were set up in the early 2010s, there has been remarkable progress, with over 75% of gold and 3T smelters and refiners having undergone and passed the audits. We focused on this issue in particular in our review as smelters and refiners are critical chokepoints in minerals supply chains. There are only a few hundred of them in the middle of supply chains, whereas there are thousands of mines and end-user companies.

The Sentry’s study evaluated whether or not companies required or encouraged their suppliers to source from smelters and refiners that have passed conflict minerals audits, and whether the end-user companies were implementing their own requirements with suppliers. We surveyed the 50 largest electronics companies in the US according to the Fortune 500 index, the 15 largest jewelry retailers according to the National Jeweler $100 Million Supersellers list, and the 24 largest auto makers according to the Fortune Global 500 list.

The main findings of the Sentry’s new research include:

The Good

The number of companies sourcing only from conflict-free refiners and smelters has increased, which is encouraging, although they are still a small minority. 13 major electronics, jewelry, and automotive companies report that 99% to 100% of their supply chains are made up of conflict-free smelters and refiners that are conformant with credible, independent audits and that require their suppliers to source from conflict-free smelters. The companies were Apple, Google, Intel, Microsoft, IBM, Macy’s, Micron Technology, Nvidia, Signet Jewelers, Skyworks, Target, Tiffany & Co., and ON Semiconductor, and they deserve praise for these efforts. That is a significant achievement, as it is up from just a small handful in previous years.

The Bad

The majority of the largest companies in each sector still do not require their suppliers to source from conflict-free refiners and smelters. Among large electronics companies, this was 82% (41 out of 50 companies); in the jewelry sector, 73% (11 of 15 companies); and in the automotive sector, 100% (24 of 24 companies).

The Ugly

Shockingly, many of these companies continue to list smelters and refiners that have failed or have not undergone credible, independent conflict minerals audits in their supply chains. Additionally, there is still a sizeable number of companies that did not disclose their refiners and smelters at all, or that reveal very little about the due diligence they undertook to eliminate conflict minerals from their supply chains, which goes against the spirit of the Dodd-Frank legislation.

Additional Reflections

Mandatory reporting requirements matter—a lot. Companies that filed Dodd-Frank SEC reports disclosed a healthy amount of information that can be helpful to consumers: what steps they are taking on conflict minerals, what is or isn’t in their supply chains, and what areas they can improve. Companies that did not file SEC reports, by contrast, disclosed almost nothing on their websites or in annual sustainability reports. Reading those voluntary disclosures, which often included a vague sentence or two on conflict minerals, was a stark reminder of the critical importance of mandatory disclosures on environmental, social, and governance (ESG) issues.

Stemming the tide can only happen when most companies take the action. While Apple and the 12 other leading companies deserve credit, the incentives for conflict minerals traders will only really be changed when hundreds of companies decide to source from conflict-free refiners and smelters. Should that happen, unaudited refiners will lack buyers and be forced to change their business practices, embracing enhanced due diligence and turning away from sourcing smuggled conflict minerals.

What should consumers look for from companies in the new 2021 SEC filings?

As the new SEC filings start to come in next week, consumers can compare and contrast company efforts on conflict minerals with a couple of quick searches.

• Do companies require suppliers to source from conflict-free refiners and smelters? Search for “conformant” (corporate-speak for refiners that passed conflict minerals audits) and “require” and you will start to see strong differentiation among companies.
• Do companies list the smelters and refiners they source from? That’s a baseline indicator of the company’s transparency. Still, some companies still even don’t take that step.
• What steps did companies take this year that they didn’t take last year to mitigate conflict minerals risks? Companies usually list their efforts over the past year and their plans for 2021, if they are transparent. Comparing the answers to those questions can be instructive on where a company stands.