Last month, the Conflict Free Sourcing Initiative (CFSI) published a new guidance document titled Five Practical Steps to Support SEC Conflict Minerals Disclosure. This guidance can be used by downstream SEC issuers, although suppliers may find it helpful in understanding what their customers are facing and needing with regard to conflict minerals disclosures and supporting information. Although the document may provide new approaches or thinking to some, for us it is business-as-usual, as our standard practices and typical advice are almost identical to what is set forth by CFSI. We note, however, that we had no involvement in the document or with CFSI.
Toward the goal of offering practical information, CFSI states that
a downstream company may use the relevant parts of the OECD Guidance to meet its SEC compliance and reporting requirements by correlating the OECD Guidance steps to the SEC compliance steps needed to meet U.S. reporting requirements.
The document is organized in parallel with the OECD Fives Steps of Due Diligence, and each section includes a specific narrative concerning the relationship of the OECD Step to the SEC regulatory process. Among the highlights are the following points made:
- Conflict minerals teams should represent a broad cross section of the company and its functions
- Companies may choose supplier prioritization factors, including 3TG content and annual spend (the two most common supplier screening factors identified in our study of the 2013 filings);
- Defining “risk” in terms of downstream companies, which focuses on the smelter/refiner, not the upstream factors originally contemplated by the OECD Due Diligence Guidance;
- Ground-truthing supplier information based on the issuer’s own internal expertise and expectations related to the product/materials obtained from suppliers, rather than blindly relying on supplier responses (particularly as this relates to 3TG content);
- Suggested information sources, other than CFSI, for obtaining country of origin information, although third party sources such as those offered by us and SourceIntelligence are not mentioned; and
- As we have stated for quite some time, CFSI also directly correlates a company’s RCOI efforts to Step 2 of the OECD framework, thereby distinguishing Step 2 and RCOI from “due diligence” in SEC reporting terms.
There are many other important points in the document and it is well worth the time to read.