Tag Archives: financial disclosure

Elm Prepared for US Securities and Exchange Commission (SEC) Auditor Standards for Conflict Minerals Audits

The Elm Consulting Group International LLC (“Elm”) will deliver independent third-party Conflict Minerals Supply Chain Traceability Audit services aligned with the SEC mandates for auditor independence to companies across the range of industries impacted by the US Conflict Minerals Law, enacted as part of the Dodd-Frank Wall Street Reform Act.

In 2010, Elm was engaged by a leading US-based electronics manufacturer industry association to conduct the first independent third-party Conflict Minerals supply chain traceability audits supporting the association’s “Conflict Free Smelter” designation for tantalum. Those audits were the first of their kind, resulted in the first “Conflict Free Smelter” designations issued, and generated significant improvements to the initial audit tools/scope  created by other stakeholders.

Patrick Doyle, Managing Director in Elm’s New Haven, CT office: “Elm is a world leader in conducting Conflict Minerals supply chain traceability audits to support the new Conflict Minerals Law in the U.S.  We saw significant value in bringing our experience to assist a broad range of industries and companies.  However, we were concerned about potential conflicts of interest with being engaged by a trade association consisting of multiple corporate members that also may have relationships with other Elm clients.  In our 2011 strategic planning, we decided to withdraw from our relationship with the association and eliminate the conflict of interest risk for them, their members and Elm.  The association will continue to move forward using other available resources, so our withdrawal will not negatively impact their program.”

Lawrence Heim, Director of Elm in Atlanta, Georgia:  “The US Conflict Minerals Law empowers the SEC with authority for the law’s oversight and enforcement.  Therefore, related audit activities will be subject to audit standards under the SEC, the Government Accounting Office Government Accounting Standards (GAO GAS) and American Institute of Certified Public Accountants (AICPA) Statements on Standards for Attestation Engagements (SSAE).  Eliminating auditor conflict of interest is absolutely critical for conflict mineral reviews/audits. SEC’s December 15, 2010 proposed regulation gave specific direction on this.  We don’t feel this will change even with the extension of the comment period and possible delay in the finalization of the rule.”

Heim continued, “We are hearing from some companies that internal procurement standards are already mandating that material be purchased only from sources that have been audited and verified by independent third parties as ‘conflict free'”.

Since its inception in 2001, Elm has focused its business on independent health, safety and environmental auditing services.  “Conforming to the SEC auditing standards does not require us to do anything significantly different from our long-standing processes and procedures,” Doyle stated.

Conflict Mineral Law Signed as Part of Wall Street Reform Legislation

In case you missed it, the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law yesterday by President Obama also included new auditing and disclosure requirements for companies who use certain ores/minerals in their products.

The requirements apply to certain materials that originate from the Democratic Republic of the Congo – called “conflict minerals”.  These are defined as columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.

The text of the new legislation that was included in the Dodd-Frank bill signed into law is below.

SEC. 1502. CONFLICT MINERALS.

(a) SENSE OF CONGRESS ON EXPLOITATION AND TRADE OF CONFLICT MINERALS ORIGINATING IN THE DEMOCRATIC REPUBLIC OF THE CONGO.

It is the sense of Congress that the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo is helping to finance conflict characterized by extreme levels of violence in the eastern Democratic Republic of the Congo, particularly sexual- and gender-based violence, and contributing to an emergency humanitarian situation therein, warranting the provisions of section 13(p) of the Securities Exchange Act of 1934, as added by subsection (b).

(b) DISCLOSURE RELATING TO CONFLICT MINERALS ORIGINATING IN THE DEMOCRATIC REPUBLIC OF THE CONGO.

Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m), as amended by this Act, is amended by adding at the end the following new subsection:

‘‘(p) DISCLOSURES RELATING TO CONFLICT MINERALS ORIGINATING IN THE DEMOCRATIC REPUBLIC OF THE CONGO.

‘‘(1) REGULATIONS.

‘(A) IN GENERAL.

Not later than 270 days after the date of the enactment of this subsection, the Commission shall promulgate regulations requiring any person described in paragraph (2) to disclose annually, beginning with the person’s first full fiscal year that begins after the date of promulgation of such regulations, whether conflict minerals that are necessary as described in paragraph (2)(B), in the year for which such reporting is required, did originate in the Democratic Republic of the Congo or an adjoining country and, in cases in which such conflict minerals did originate in any such country, submit to the Commission a report that includes, with respect to the period covered by the report

‘‘(i) a description of the measures taken by the person to exercise due diligence on the source and chain of custody of such minerals, which measures shall include an independent private sector audit of such report submitted through the Commission that is conducted in accordance with standards established by the Comptroller General of the United States, in accordance with rules promulgated by the Commission, in consultation with the Secretary of State; and

‘‘(ii) a description of the products manufactured or contracted to be manufactured that are not DRC conflict free (‘DRC conflict free’ is defined to mean the products that do not contain minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country), the entity that conducted the independent private sector audit in accordance with clause (i), the facilities used to process the conflict minerals, the country of origin of the conflict minerals, and the efforts to determine the mine or location of origin with the greatest possible specificity.

‘‘(B) CERTIFICATION. The person submitting a report under subparagraph (A) shall certify the audit described in clause (i) of such subparagraph that is included in such report. Such a certified audit shall constitute a critical component of due diligence in establishing the source and chain of custody of such minerals.

‘‘(C) UNRELIABLE DETERMINATION. If a report required to be submitted by a person under subparagraph (A) relies on a determination of an independent private sector audit, as described under subparagraph (A)(i), or other due diligence processes previously determined by the Commission to be unreliable, the report shall not satisfy the requirements of the regulations promulgated under subparagraph (A)(i).

‘‘(D) DRC CONFLICT FREE.  For purposes of this paragraph, a product may be labeled as ‘DRC conflict free’ if the product does not contain conflict minerals that directly or indirectly finance or benefit armed groups in the Democratic Republic of the Congo or an adjoining country.

‘‘(E) INFORMATION AVAILABLE TO THE PUBLIC.  Each person described under paragraph (2) shall make available to the public on the Internet website of such person the information disclosed by such person under subparagraph (A).

‘‘(2) PERSON DESCRIBED.  A person is described in this paragraph if

‘‘(A) the person is required to file reports with the Commission pursuant to paragraph (1)(A); and

‘‘(B) conflict minerals are necessary to the functionality or production of a product manufactured by such person.

‘‘(3) REVISIONS AND WAIVERS. The Commission shall revise or temporarily waive the requirements described in paragraph (1) if the President transmits to the Commission a determination that

‘‘(A) such revision or waiver is in the national security interest of the United States and the President includes the reasons therefor; and

‘‘(B) establishes a date, not later than 2 years after the initial publication of such exemption, on which such exemption shall expire.

‘‘(4) TERMINATION OF DISCLOSURE REQUIREMENTS.  The requirements of paragraph (1) shall terminate on the date on which the President determines and certifies to the appropriate congressional committees, but in no case earlier than the date that is one day after the end of the 5-year period beginning on the date of the enactment of this subsection, that no armed groups continue to be directly involved and benefitting from commercial activity involving conflict minerals.

‘‘(5) DEFINITIONS.  For purposes of this subsection, the terms ‘adjoining country’, ‘appropriate congressional committees’, ‘armed group’, and ‘conflict mineral’ have the meaning given those terms under section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.’’.

(c) STRATEGY AND MAP TO ADDRESS LINKAGES BETWEEN CONFLICT MINERALS AND ARMED GROUPS.

(1) STRATEGY.

(A) IN GENERAL.  Not later than 180 days after the date of the enactment of this Act, the Secretary of State, in consultation with the Administrator of the United States Agency for International Development, shall submit to the appropriate congressional committees a strategy to address the linkages between human rights abuses, armed groups, mining of conflict minerals, and commercial products.

(B) CONTENTS.  The strategy required by subparagraph (A) shall include the following:

(i) A plan to promote peace and security in the Democratic Republic of the Congo by supporting efforts of the Government of the Democratic Republic of the Congo, including the Ministry of Mines and other relevant agencies, adjoining countries, and the international community, in particular the United Nations Group of Experts on the Democratic Republic of Congo, to

(I) monitor and stop commercial activities involving the natural resources of the Democratic Republic of the Congo that contribute to the activi- ties of armed groups and human rights violations in the Democratic Republic of the Congo; and

(II) develop stronger governance and economic institutions that can facilitate and improve transparency in the cross-border trade involving the natural resources of the Democratic Republic of the Congo to reduce exploitation by armed groups and promote local and regional development.

(ii) A plan to provide guidance to commercial entities seeking to exercise due diligence on and formalize the origin and chain of custody of conflict minerals used in their products and on their suppliers to ensure that conflict minerals used in the products of such suppliers do not directly or indirectly finance armed conflict or result in labor or human rights violations.

(iii) A description of punitive measures that could be taken against individuals or entities whose commercial activities are supporting armed groups and human rights violations in the Democratic Republic of the Congo.

(2) MAP.

(A) IN GENERAL.  Not later than 180 days after the date of the enactment of this Act, the Secretary of State shall, in accordance with the recommendation of the United Nations Group of Experts on the Democratic Republic of the Congo in their December 2008 report

(i) produce a map of mineral-rich zones, trade routes, and areas under the control of armed groups in the Democratic Republic of the Congo and adjoining countries based on data from multiple sources, including

(I) the United Nations Group of Experts on the Democratic Republic of the Congo;

(II) the Government of the Democratic Republic of the Congo, the governments of adjoining countries, and the governments of other Member States of the United Nations; and

(III) local and international nongovernmental organizations;

(ii) make such map available to the public; and

(iii) provide to the appropriate congressional committees an explanatory note describing the sources of information from which such map is based and the identification, where possible, of the armed groups or other forces in control of the mines depicted.

(B) DESIGNATION.  The map required under subparagraph (A) shall be known as the ‘‘Conflict Minerals Map’’, and mines located in areas under the control of armed groups in the Democratic Republic of the Congo and adjoining countries, as depicted on such Conflict Minerals Map, shall be known as ‘‘Conflict Zone Mines’’.

(C) UPDATES.  The Secretary of State shall update the map required under subparagraph (A) not less frequently than once every 180 days until the date on which the disclosure requirements under paragraph (1) of section 13(p) of the Securities Exchange Act of 1934, as added by subsection (b), terminate in accordance with the provisions of paragraph (4) of such section 13(p).

(D) PUBLICATION IN FEDERAL REGISTER.  The Secretary of State shall add minerals to the list of minerals in the definition of conflict minerals under section 1502, as appropriate. The Secretary shall publish in the Federal Register notice of intent to declare a mineral as a conflict mineral included in such definition not later than one year before such declaration.

(d) REPORTS.

(1) BASELINE REPORT.  Not later than 1 year after the date of the enactment of this Act and annually thereafter until the termination of the disclosure requirements under section 13(p) of the Securities Exchange Act of 1934, the Comptroller General of the United States shall submit to appropriate congressional committees a report that includes an assessment of the rate of sexual- and gender-based violence in war-torn areas of the Democratic Republic of the Congo and adjoining countries.

(2) REGULAR REPORT ON EFFECTIVENESS.  Not later than 2 years after the date of the enactment of this Act and annually thereafter, the Comptroller General of the United States shall submit to the appropriate congressional committees a report that includes the following:

(A) An assessment of the effectiveness of section 13(p) of the Securities Exchange Act of 1934, as added by subsection (b), in promoting peace and security in the Democratic Republic of the Congo and adjoining countries.

(B) A description of issues encountered by the Securities and Exchange Commission in carrying out the provisions of such section 13(p).

(C)(i) A general review of persons described in clause (ii) and whether information is publicly available about

(I) the use of conflict minerals by such persons; and

(II) whether such conflict minerals originate from the Democratic Republic of the Congo or an adjoining country.

(ii) A person is described in this clause if

(I) the person is not required to file reports with the Securities and Exchange Commission pursuant to section 13(p)(1)(A) of the Securities Exchange Act of 1934, as added by subsection (b); and

(II) conflict minerals are necessary to the functionality or production of a product manufactured by such person.

(3) REPORT ON PRIVATE SECTOR AUDITING.  Not later than 30 months after the date of the enactment of this Act, and annually thereafter, the Secretary of Commerce shall submit to the appropriate congressional committees a report that includes the following:

(A) An assessment of the accuracy of the independent private sector audits and other due diligence processes described under section 13(p) of the Securities Exchange Act of 1934.

(B) Recommendations for the processes used to carry out such audits, including ways to

(i) improve the accuracy of such audits; and

(ii) establish standards of best practices.

(C) A listing of all known conflict mineral processing facilities worldwide.

(e) DEFINITIONS.  For purposes of this section:

(1) ADJOINING COUNTRY.  The term ‘‘adjoining country’’, with respect to the Democratic Republic of the Congo, means a country that shares an internationally recognized border with the Democratic Republic of the Congo.

(2) APPROPRIATE CONGRESSIONAL COMMITTEES.  The term ‘‘appropriate congressional committees’’ means

(A) the Committee on Appropriations, the Committee on Foreign Affairs, the Committee on Ways and Means, and the Committee on Financial Services of the House of Representatives; and

(B) the Committee on Appropriations, the Committee on Foreign Relations, the Committee on Finance, and the Committee on Banking, Housing, and Urban Affairs of the Senate.

(3) ARMED GROUP.  The term ‘‘armed group’’ means an armed group that is identified as perpetrators of serious human rights abuses in the annual Country Reports on Human Rights Practices under sections 116(d) and 502B(b) of the Foreign Assistance Act of 1961 (22 U.S.C. 2151n(d) and 2304(b)) relating to the Democratic Republic of the Congo or an adjoining country.

(4) CONFLICT MINERAL.  The term ‘‘conflict mineral’’ means—

(A) columbite-tantalite (coltan), cassiterite, gold, wolframite, or their derivatives; or

(B) any other mineral or its derivatives determined by the Secretary of State to be financing conflict in the Democratic Republic of the Congo or an adjoining country.

(5) UNDER THE CONTROL OF ARMED GROUPS. The term ‘‘under the control of armed groups’’ means areas within the Democratic Republic of the Congo or adjoining countries in which armed groups

(A) physically control mines or force labor of civilians to mine, transport, or sell conflict minerals;

(B) tax, extort, or control any part of trade routes for conflict minerals, including the entire trade route from a Conflict Zone Mine to the point of export from the Democratic Republic of the Congo or an adjoining country; or

(C) tax, extort, or control trading facilities, in whole or in part, including the point of export from the Democratic Republic of the Congo or an adjoining country.

The Elm Consulting Group International, LLC and Sentiment360 Announce Solution to Reputational Risk Component of SEC Interpretive Guidance on Climate Risk Assessment

Use of New Technology Tracks Public Perception of Companies’ Sustainability/Climate Programs

In the Federal Register dated February 8, 2010 (75 Fed. Reg. 6290), The Securities and Exchange Commission (SEC) published its Interpretive Guidance on financial disclosure/reporting requirements as they apply to climate change matters, which is EFFECTIVE IMMEDIATELY.  Among the specific risk factors that SEC highlighted in this Interpretive Guidance is the potential business risk associated public opinion/reputational risk.  SEC stated:

Another example of a potential indirect risk from climate change that would need to be considered for risk factor disclosure is the impact on a registrant’s reputation. Depending on the nature of a registrant’s business and its sensitivity to public opinion, a registrant may have to consider whether the public’s perception of any publicly available data relating to its greenhouse gas emissions could expose it to potential adverse consequences to its business operations or financial condition resulting from reputational damage.

In response to this SEC mandate, The Elm Consulting Group International, LLC has partnered with Sentiment360, a global online monitoring company that delivers new media business intelligence SaaS solutions. With offices in the US, UK and the Philippines, Sentiment360 has a proven track record in collecting, analyzing, understanding and responding to online content, be it social media (mircrosites, blogs, forums, etc.), traditional media, video sites, image sites, and more.  Sentiment360 analysis can be delivered on-demand via a wide variety of customizable web dashboards.

“Combining the leading edge data tracking and analytics of Sentiment360 with Elm’s sustainability, climate and risk assessment expertise creates a unique solution to meeting SEC’s requirements,” said Lawrence Heim, Director in Elm’s Atlanta office.  “Our team can aggregate real-time unfiltered public opinion data without the need for surveys, screen it for relevance to sustainability/climate, and frame it in a business risk context. This will provide clients with ready-to-use information in a dramatic labor- and cost-saving manner.”

Heim continued, “Publicly-traded companies that sell products or services outside the US must assess their climate reputation risk globally to adequately determine their business risk and potential reporting needs.  Sentiment360’s worldwide data aggregation and tracking capabilities make this easy.  Elm’s global sustainability and risk expertise can assist in understanding cultural contexts of the subject matter as well.”

Sentiment360, with offices in the US, UK and the Philippines, delivers new media business intelligence SaaS solutions. As a spin-off from the Global Reach group of outsourcing companies, S360 has been offering new media analysis solutions through indirect channels since 2006. As of January 2010, S360 has begun selling directly to end-user clients under the Sentiment360 brand.

As a provider via 3rd party partners we have delivered new media analysis for a variety of entities including advertising and PR agencies, manufacturers, governments, law enforcement and more. As of January 2010, we have become the preferred provider for several global communications firms. More information is available at www.sentiment360.com.

SEC Votes to Require Public Disclosure of Financial Risk of Climate Change

The Securities and Exchange Commission (SEC) today voted to require public companies to disclose the financial risks they face related to climate change.

In her opening remarks, SEC Chairman Mary Shapiro emphasized that

we are not opining on whether the world’s climate is changing; at what pace it might be changing; or due to what causes. Nothing that the Commission does today should be construed as weighing in on those topics.

The Commission is also not considering amending well-defined rules concerning public company reporting obligations, nor redefining long-standing interpretations of materiality.

The vote requires that the SEC develop and issue an “interpretive release” – guidance that can help public companies in determining what does and does not need to be disclosed under existing rules.

Specifically, the SEC’s interpretative guidance highlights the following areas as examples of where climate change may trigger disclosure requirements:

  • Impact of Legislation and Regulation: When assessing potential disclosure obligations, a company should consider whether the impact of certain existing laws and regulations regarding climate change is material. In certain circumstances, a company should also evaluate the potential impact of pending legislation and regulation related to this topic.
  • Impact of International Accords: A company should consider, and disclose when material, the risks or effects on its business of international accords and treaties relating to climate change.
  • Indirect Consequences of Regulation or Business Trends: Legal, technological, political and scientific developments regarding climate change may create new opportunities or risks for companies. For instance, a company may face decreased demand for goods that produce significant greenhouse gas emissions or increased demand for goods that result in lower emissions than competing products. As such, a company should consider, for disclosure purposes, the actual or potential indirect consequences it may face due to climate change related regulatory or business trends.
  • Physical Impacts of Climate Change: Companies should also evaluate for disclosure purposes the actual and potential material impacts of environmental matters on their business.

Although the Commission ultimately voted in favor of the mandate, The NYT reported that Commissioner Kathleen L. Casey said it made little sense to issue such guidance “at a time when the state of the science, law and policy relating to climate change appear to be increasingly in flux.”

The SEC’s interpretive release will be posted on the SEC Web site as soon as possible.

Once the guidance is available, companies will need to review and evaluate the current risk assessment and reporting framework to determine if it is robust enough to comply with the new SEC action.  With our substantial experience with EHS risk assessment and management that extends well beyond basic regulatory compliance, Elm is uniquely suited to assist companies with this.  Please feel free to contact us to discuss further.

Will SEC Heed $500 Billion?

Under current SEC regulations, companies are required to disclose material information or information that an investor should posses in order to decide whether to buy a company’s stock.  But these companies do not routinely include climate-related risks in their filings, nor is the information consistent when it is provided at all.

The California Public Employees Retirement System, which manages $202 billion of assets, and the California State Teachers’ Retirement System, which manages $130 billion of assets, are among 20 investors and groups that petitioned the U.S. Securities and Exchange Commission to issue guidance telling companies to include risks related to climate change in their quarterly and annual filings.

“The SEC should strengthen and enforce its current requirements so investors’ decisions fully account for climate change’s financial effects,” Calpers Chief Executive Anne Stausboll said in a statement.

The initiative hopes to make the most out of the Obama administration’s renewed emphasis on environmental protection, climate change rhetoric and plans to propose an emissions reduction target at the December climate change conference in Copenhagen.

SEC Commissioner Elisse Walter, one of five members who makes decisions on federal securities rules, has said she believes that climate change is a very serious issue and this is the time for the SEC to issue so-called ‘interpretive guidance’ on this topic.

“This (petition) will be taken seriously and be one more piece of influence on the commission, to perhaps get bit more instructive on considering these issues,” said David Martin, a former SEC director of corporation finance — the division in charge of overseeing corporate disclosures. Martin is now in private practice at law firm Covington & Burling.