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Wednesday, September 24, 2014

Strategic CSR - Conflict minerals (II)

The two articles in the urls below contain interesting perspectives on the Dodd-Frank requirement that firms investigate and report on the conflict mineral exposure within their supply chains. The first article comments on the consequences of this rule for U.S. firms. In particular, the article quantifies the extent of the work that is necessary for full compliance:
"Some 1,300 U.S.-listed companies recently filed reports on whether their suppliers used minerals from mines blamed for fueling violence in the Democratic Republic of the Congo and surrounding area. Companies screened an average of 743 suppliers each in their efforts to uncover any gold, tin, tungsten and tantalum from mines run by warlords in the Congo region. Many companies spent years and millions of dollars on their reviews, which were required by the Dodd-Frank Act. The deadline for their initial reports to the Securities and Exchange Commission was June 2."
While a number of companies screened only a few suppliers, at the extreme:
"Caterpillar Inc. said it had identified 38,700 suppliers who might potentially provide components containing conflict minerals, the highest number cited in the reports, while ABB Ltd. and General Dynamics Corp. listed more than 30,000 and more than 13,000, respectively."
The task of complying with the rule was clearly immense for those companies with the most potential exposure to the four "conflict minerals" (tantalite, tin, tungsten and gold). As a result:
"… most companies said they couldn't be certain if these metals and minerals were used by their suppliers. This month the Commerce Department also acknowledged it 'does not have the ability to distinguish' which refiners and smelters around the world are being used to fund militia groups."
The second article comments on the consequences of this rule for the African nations that contain the minerals used to supply the U.S. firms. In particular, as a result of the complexity involved in compliance:
"Many of the companies are voting with their feet, leading to a de facto boycott of mining in 10 African countries by some of the world's largest consumer-goods companies. African governments, eager to attract investment in their mineral sectors and integrate their primary products into global supply chains, now turn instead to Asian partners."
Ultimately, the effect of the law is limited given that:
"... private U.S. companies and foreign firms and their subsidiaries are not covered by the provision. Indeed, the law hands those companies a distinct competitive advantage over public companies in the U.S."
Perhaps worse is that U.S. firms are now paying more for the same materials—they are just having to source them from Asia, where their origin remains unclear:
"The perverse result is that as America's biggest competitors increasingly source these minerals in Africa, global traders and producers, especially in China and Russia, are buying the raw minerals, turning them into usable components and reselling them at a premium to the affected American companies."
Take care
David Chandler & Bill Werther
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Average U.S. Firm Screened Hundreds of Suppliers for Conflict Minerals
By Emily Chasan and Maxwell Murphy
September 16, 2014
The Wall Street Journal
Late Edition – Final

Dodd-Frank's Collateral Damage in Africa
By Rosa Whitaker
September 16, 2014
The Wall Street Journal
Late Edition – Final