Tag Archives: NAM

The Best Sustainability Seminar in 20 Years – National Association of Manufacturers (NAM) Leading Edge Executive Forum

Yesterday I attended one of NAM’s new Leading Edge series of forums. The session was held in Chicago on the topic of generating real economic value from sustainability.  In 20 years of working in the sustainability space, this was by far the best meeting on the topic I have attended. There have been good ones in the past, certainly. But those typically include folks (ahem, usually consultants) trying to sell the idea of artificially bulking up financial benefits of sustainability initiatives by using soft numbers and intangibles in the ROI.

That is exactly the kind of fluff that destroys the business credibility of sustainability – which we have written about and commented on to the SEC as well. In stark contrast to fluff, BS and soft value, the NAM panelists spoke to how they quantify the real dollars from their various sustainability initiatives.  And I do mean real.  No attempts at assigning a value to reputational damage or brand image, no estiamated avoided contingent risks.  These were business initiatives that, oh by the way, also happen to fall within the scope of sustainability.

Yesterday’s gathering was set up in conversation style rather than a typical presentation, which allowed each speaker to discuss their approach to, or obstacles encountered in, a moderated topic. Speaking were representatives from Ecolab, Microsoft, Pfizer, BASF, Smithfield Foods, ArcelorMittal and Alcoa, with a wrap up from Subaru of Indiana.

One point that stood out came from Subaru, who showed the sustainability timeline for their manufacturing plant in Indiana, which began in 1994.   Back then, they developed a business case for a particular project based on real dollars that was successful.  By doing so, they set the foundation for future sustainability initiatives that probably would not have seen the light of day if the business foundation set in 1994 was unsound.

I’m not sure if NAM will repeat the session, but if they do we highly recommend attending.  If you would like to convince them to hold it again, please send us a note and we will forward it to the NAM program manager.

ALERT – No Appeal to SCOTUS to be Filed for Conflict Minerals Rule Wording

In our update yesterday on the status of a potential appeal to the US Surpreme Court by the Securities and Exchange Commission  in the SEC v. NAM suit, we outlined the possibility that no such appeal would be filed.  Today, we learned that an appeal will indeed not be filed, as explained in this March 6, 2016 letter from Attorney General Loretta Lynch to House Speaker Paul Ryan.  The letter seems to generally support the position that the government sees no need in fighting a bigger battle than necessary in the context of the conflict minerals rule.

Again, this has no impact on the efforts required to develop and submit the CY15 filing, and the April 29, 2014 Statement from the Division of Corporation Finance remains in effect for purposes of product determination language and IPSA trigger.

 

Update on SEC Appeal to SCOTUS of Conflict Minerals Disclosure

Today, April 7, 2016, was the deadline for the SEC to file an appeal of the DC District Court decisions concerning First Amendment violations of the SEC conflict minerals rule use of the product determination wording “DRC Conflict Free” and “not having been found ‘DRC Conflict Free.'”

According to the Court Clerk of the US Supreme Court, as of 5:15pm today, no appeal document had been delivered to the Court.  However, a document may be postmarked with today’s date and delivered tomorrow, or may be hand delivered to the Court after hours and still be considered as filed by the deadline.

We think it is possible that no appeal will be filed.  The legal issue has grown far beyond the conflict minerals rule, and the Commission may not feel it is necessary to fight a bigger fight than is required at this time, especially in light of the criticism they faced for the legal defense costs already spent on this rule.  With the passing of Justice Scalia, the possibility of a 4-4 decision is very real, in which case we understand that the holding of the lower court would rule – remanding the rule back to the SEC to amend only the product determination wording.  As for the IPSA trigger, it would make sense (and be consistent with the legislative language) to eliminate any conflict element and simply require an IPSA if 3TG do originate, or may have originated, from the Covered Countries.  Period.

Will the Commission choose to defer fighting a matter of importance that has now far transcended the original rule?  Or are they prepared to wage a long term war along a wide front?

We will continue to track this and will post any update.

The Conflict Minerals IPSA Trigger May Be Delayed

UPDATES: We discussed this with the SEC staff, who agreed with the position described below, citing the language of the April 29, 2014 stay – “Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.”  However, in those cases where an issuer is planning for an IPSA, we strongly recommend reading this important information.

_______

There has plenty of coverage on the legal twists and turns of the National Association of Manufacturers (NAM) lawsuit against the Securities and Exchange Commission’s conflict minerals disclosures. The latest filing by NAM, dated December 29, 2014, is available here and provides a brief summary of the legal issues.  As of this writing, the SEC has not issued any further guidance or interpretations concerning the disclosure, and the April 29, 2014 administrative stay of the requirement to use the specific product determination phrases remains intact. Therefore any use of the “magic words” (as we call them) is still voluntary.

Because the wording was not required for 2013, 50% of filers who conducted due diligence (and therefore filed a CMR) chose not to use any of the magic words. Of the remaining issuers, 22% did not file a CMR and the rest (27%) did choose to use “DRC Conflict Undeterminable”. These figures are based on our study of the 2013 filings.

Against this background, issuers face the end of the two-year temporary category (“DRC Conflict Undeterminable”) this year along with the associated deferral of certain filing requirements and the Independent Private Sector Audit (IPSA). And like much else in the realm of conflict minerals, this leads to ambiguity and confusion on an important matter: given the current suspension of the mandate to use the term “DRC Conflict Undeterminable”,  does the deferral actually end?

The relevant language of the Instructions to Item 1.01 (page 354 of the final release) states:

Beginning with the third or fifth reporting year calendar year, as applicable, a registrant with products manufactured or contracted to be manufactured that are “DRC Conflict Undeterminable” must describe those products have having not been found to be “DRC Conflict Free” and must provide the information required in paragraph (c) of this item including the audit report.

For last year’s filing, some issuers looked to Item 1.01(c)(1)(iii) (page 347) when crafting their CMR content and chose to exclude certain elements tied to “DRC Conflict Undeterminable”. This instruction applies only to products classified as “DRC Conflict Undeterminable” and required disclosure of steps taken, or that will be taken, “to mitigate the risk that [the issuer’s] necessary conflict minerals benefit armed groups, including any steps to improve its due diligence.”  Where the words  “DRC Conflict Undeterminable” were not used by the issuer to describe products, a description of due diligence improvements was not required.

Is it not reasonable that the same logic would apply to the language describing the temporary deferral expiration?  Time will tell.  At the same time, we are seeing a much greater demand from customers to have their publicly-traded suppliers obtain an IPSA for the 2014 filing.  On one hand, we see the IPSA deadline being pushed a year ahead of the requirements, and on the other hand we see the possibility of the deadline extending beyond the 2014 filing year.

 

US Court of Appeals Upholds Meat Labeling, Confirms Conflict Minerals Disclosures

Yesterday, the US Court of Appeals for the District of Columbia handed down their decision on American Meat Institute v. US Department of Agriculture.  This case was closely linked to the portions of the US Securities and Exchange Commission (SEC) conflict minerals disclosure requirements that the same court held violated the First Amendment.

Upheld 3-2, each judge filed their own opinion, creating a complete document of 71 pages.  Given the lengthy document, its complex legal nature and the fact that we are not lawyers, we don’t offer a comprehensive review of the opinions.  However, one passage we did find particularly relevant may offer insight into a potential remedy for the SEC:

… AMI objected to the word “slaughter” in its reply brief. Though it seems a plain, blunt word for a plain, blunt action, we can understand a claim that “slaughter,” used on a product of any origin, might convey a certain innuendo. But we need not address such a claim because the 2013 rule allows retailers to use the term “harvested” instead, 78 Fed. Reg. at 31,368/2 …

In our view, this validates the approach for the SEC to reword the specific conflict minerals product classifications that were stricken by the Court.

The complete document is available for download here.

 

Packaging and Organotin – In or Out of SEC’s Conflict Minerals Regulations?

Anyone who has been involved with SEC’s conflict minerals regulations for any amount of time is well aware of its confusing nature, overly complex and labyrinthine sentences and significant substantive ambiguities.  Among these, two matters seem to be rising to the top in popularity – due to the sweeping nature of the applicability:

  • Is packaging within the scope of the regulation as something that is “necessary to the functionality or production” of a product?  In some cases, packaging may serve little more than a product container to convey the product to the market or consumer in a convenient manner.  In other cases, packaging could be seen as preventing the degradation of the product, and therefore arguably contributing to its functionality.
  • Is organotin – as well as other non-metallic forms of 3TG – considered a different/specific “derivative” of cassiterite that is not intended to be regulated in the same manner as the specifically-named derivative “tin”?  In the preamble of the final rule (77 Fed. Reg. 56284 – 56285), SEC addressed the matter of organotin without bringing full clarity to their views on the matter.

There may – or may not – a glimmer of insight into the Commission’s potential interpretation on these two topics.  Take a few minutes and read Footnote 9 in SEC’s Respondent Brief filed in the NAM/US Chamber lawsuit.

Then we invite you to post your thoughts, interpretations and comments here to encourage more discussion and views.

 

A Clue to SEC’s Final Conflict Minerals Rule and More Fireworks in the Comments

A letter from Congressional leaders published by SEC today indicates that the final conflict minerals rule may indeed be promulgated soon.  The letter dated February 16, 2012 and signed by Senators Leahy and Coons, along with Congressmen Berman, McDermott, Payne, Meeks and Bass, contains two notable comments.

  • First, in relation to the status of the regulations, the letter mentions “the outlines of the final rule”.  This is the first credible and concrete indication that a version of the final rule has been both drafted and made available to key Washington officials.
  • Second, the letter expresses concern “about the economic cost estimate contained in the final rule.  The Commission’s estimate should only rely on those submitted estimates that use credible and publicly cited data, methodologies of companies in the field, and comparisons to costs of truly similar regulations.”

We find this second statement particularly intriguing in light of new comments from industry associations IPC and National Association of Manufacturers (NAM), also made public today.