The potential social impacts that lie in product supply chains have been gaining media attention over the past few years. Conflict Minerals, found in many products, most commonly in electronics such as phones and laptops, are particularly scrutinised. Conflict Minerals are: Tin, Tantalum, Tungsten, and Gold (3TG). They are often mined in areas controlled by armed forces, by workforces with widespread child labour, forced labour, and modern slavery.
In a great step forwards, the European Conflict Minerals Regulation, which has been many years in the making, has now been approved by the European Council (on 3 April 2017). The new Regulation will be directly applicable to all EU member states. It will take effect in January 2021.
What is the Conflict Minerals Regulation?
The Conflict Minerals Regulation sets out certain rules for all importers into the EU of minerals or metals containing or consisting of any of the 3TG Conflict Minerals.
Significantly, recycled metals are exempt from the Conflict Minerals Regulation. In this case, “recycled” means reclaimed end-user or post-consumer products. Minerals that are partially processed, unprocessed, or a by-product of another ore are not considered to be “recycled”. Existing stocks of minerals, held before 1 February 2013 will not fall within the scope of the Regulation.
Who will be affected?
The Conflict Minerals Regulation will require EU smelters and refiners that process 3TG to conduct due diligence if they are sourcing 3TG from “conflict affected and high risk areas”. This definition is intended to cover “areas in a state of armed conflict or fragile post conflict as well as areas witnessing weak or non-existent governance and security, such as failed states, and widespread systematic violations of international law, including human rights abuses”. The Commission has suggested that it will provide a list of such areas and other guidelines in a handbook for business.
Notably, small volume importers will be exempt from due diligence requirements. Due diligence obligations are not imposed on transporters, other intermediaries, manufacturers, importers, and sellers of finished products and components. However, it should be part of your corporate social responsibility strategies to engage and influence your supply chain.
Smelters and Refiners will be required to do the following under the Conflict Minerals Regulation:
- Communicate to suppliers and the public, information on their supply chain policy, which must be consistent with the OECD Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance);
- Incorporate supply chain policies into contracts with suppliers;
- Ensure that senior management oversee supply chain due diligence and maintain appropriate records;
- Outline a grievance mechanism dealing with concerns relating to the due diligence process;
- Collect information relating to the source and nature of “in scope” 3TG. There are additional disclosure requirements for minerals from high risk areas;
- Assess risks in their supply chain based on available third party audit reports or procuring such audits when not available; and
- Make annual public disclosures about supply chain due diligence.
So, what next?
Enforcement of the Conflict Minerals Regulation will be delegated to EU member states’ authorities. These will then set out the potential sanctions for non-compliance. Interestingly, the proposed regulation includes the majority of the same basic provisions as the US rules under the Dodd-Frank Act. But, critically, several reporting obligations and the coverage of the regulation are wider than the US rules.
Businesses that lie within the scope of the new Conflict Minerals Regulation will now have to start putting in place the necessary mechanisms to comply with its requirements. Is it likely that your product may contain Conflict Minerals? Then it is up to you to influence and engage with your supply chain through robust responsible and ethical sourcing strategies.
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