Keeping Up With the Joneses on Conflict Minerals

As 2014 moves toward the end of the third quarter, many companies are stepping up activity in their conflict minerals programs.  Here are the Top 5 issues we are discussing or supporting clients with, in order of frequency.

  1. Smelter/refiner due diligence.  Last year, issuers appeared to rely completely on smelter/refiner information submitted through suppliers’ Conflict Minerals Reporting Templates (CMRTs).  Few issuers made efforts to independently review the incoming CMRTs to confirm the smelter/refiner information.  This was a major factor in reporting that the Central Bank of North Korea was a source of gold.  In CY2014, many issuers learned from this and are developing processes to conduct reviews on their own of the smelter and refiner information submitted to them.  Suppliers should be prepared for a significant increase in followup requests from customers, and issuers need to determine the confirmation approach that works best for them.  We will soon make a major announcement about an exclusive service offering to help companies improve their own smelter/refiner due diligence.
  2. Similarly, a number of companies plan to conduct additional verification in the form of supplier audits or interviews.  Although few issuers intend to pursue – nor do we recommend – stand-alone conflict minerals audits of suppliers, there are alternative solutions that are cost effective and far less intrusive.
  3. Benchmarking analyses are common, as would be expected.  We have written about our study, some initial findings and important considerations when assessing results.  Most of the benchmarking interest is in the CMR content.
  4. Reassessing products.  Given the legal uncertainty, lack of guidance and overall ambiguity of the requirements for 2013,  companies tended to take a conservative approach to identifying applicable products, components and materials.  For CY2014, however, many issuers are going back to the drawing board and revisiting their assumptions and results relating to product identification.  In some instances, this means that the number of relevant products is reduced, but in others previously unidentified products are being revealed.  Another aspect involves the somewhat controversial position that non-metallic forms of 3TG are not covered by the requirements.  There are different positions on whether companies are willing to rely on this interpretation given the SEC has not issued the interpretation directly.
  5. Data management needs.  A variety of data management approaches were implemented for the first year of the requirement.  These ranged from informal spreadsheets to sophisticated internally-developed databases to third party stand-alone IT platforms.  In many cases, these were successful – perhaps needing only minor tweaks for 2014.  But some companies have decided that a change is needed.  We are seeing clients move from internal spreadsheets/databases to formal data platforms because of unexpected data overload, reporting inadequacies or time drains on internal staff.  We also see companies who are dissatisfied with their current third-party IT solution who are looking to change to another.

Also noteworthy is an uptick in interest in conducting early IPSAs and specific preparations for an IPSA for CY2015.  We have already been selected to conduct one IPSA of an issuer’s CY2014 CMR, and are discussing IPSA preparations for several others.

Now is the time to move forward with program enhancements to ensure they are in place before supplier outreach/RCOI activities begin.

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