Tag Archives: RCOI

Why RSN’s Conflict Minerals Report Scores Went Down

Responsible Sourcing Network (RSN) published their Mining the Disclosures 2017 report.  Although RSN states that the same KPIs from last year were used, there are some important changes.

First, 206 companies were assessed rather than 202 the prior year.  That is quite minor, but we point it out anyway.

Of far more importance is the change in RSN’s scoring approach.  The score for essentially every company went down, some significantly.  A few scores did increase.  RSN noted:

In the 2017 rating, 85% of the sample group is in the three lowest categories (Adequate, Minimal, and Weak), while in 2016, it was only 64% of the sample group… dramatic score changes occur regarding the capacity of companies to identify and manage their risks

What happened to drive scores down, when many companies used the same format and content as the previous year that provided higher scores?  The answer is somewhat buried in the report – indeed it is the final paragraph of the report (excluding the End Notes and advertisements).  So to help folks, here it is:

After four years of reporting, RSN is increasing its expectations of the quality of companies’ disclosures. Therefore for 2017, the document/ location expectation, where information for each indicator is to be found, is being strictly enforced. Similarly, some indicators like the response verification, the in-scope determination, and others, are being weighted with higher expectations. Last, RSN is being meticulous with KPI score determinations to stay aligned with the proactive and improvement-based due diligence process. This rigorous approach likely contributed to the general decrease in the majority of companies’ and industries’ 2017 scores.

In other words, although the indicators stayed the same year-over-year, the weightings did not.  As RSN’s expectations for improvements increase, scores for companies focused on compliance decrease.

On one hand, there is some logic in the idea of increasing performance over time.  However, it makes year-over-year apples-to-apples comparisons impossible, especially since RSN’s scoring methodology has changed each year of the report.  And it doesn’t take into account that many companies view SEC filings only as regulatory compliance documents and limit narrative to the compliance “script.”  As we have said for years, the CMR is not really the place to tell your story – save that for your website of CSR report.

RY2016 Conflict Minerals Disclosure Analysis Now Available From Development International

Dr. Chris Bayer, PhD of Development International has released the latest comprehensive analysis of the SEC conflict minerals disclosures for the 2016 reporting year.  Elm Sustainability Partners is pleased to be one of the report’s sponsors this year.

The report is available to download for free.


Is 2017 the Time to Think About 2021?

This may sound like a US presidential election campaign, but thankfully it’s not. The EU conflict minerals directive is now final and reporting is required beginning January 1, 2021 – three and a half years from now. If you aren’t familiar with the upcoming EU conflict minerals due diligence and reporting obligations, take a moment to read what we think is a good, plain-language overview.

We have had many conversations about what the EU Directive means for companies right now. Below is a table of the more common discussion points that may be helpful to those grappling with whether to begin program development and implementation now or wait until the deadline is closer.



Third party service provider costs are low at this time due to maturity of conflict minerals reporting in US Program implementation costs and effort not yet necessary
Limited incremental costs for EU companies already reporting conflict minerals information to US customers or the SEC Program implementation costs and effort not yet necessary; regulatory uncertainty exists until member states adopt their own supporting mandates.
Flexibility in reporting Reporting format unknown at this time; regulatory uncertainty exists until member states adopt their own supporting mandates.
Potential competitive advantage may be gained with customers and corporate reputation Market awareness may be low currently, so investment now may not show a return
Acquire experience and correct program errors and gaps in advance of legal deadline, reduce risk of fines, penalties, customer pressure and reputational damage Further options and third party information sources likely to develop and improve over time, leading to better reporting at legal deadline


Feel free to contact us with any questions.

Conflict Minerals is Dead! Long Live Conflict Minerals!

The deadline for filing the CY2016 SEC conflict minerals disclosure has now passed, although there are likely to be a few late filers. It is too early to glean anything from the filings and at least three analyses will be conducted, including the Development International study, which is the most comprehensive of them. We all anxiously await these reports.

The future of the SEC disclosure requirement is murky and there is a chance that this may be the last year of mandated filing in the US. Many clients and others are asking us questions about the future of conflict minerals, and what the past results have been. These are our thoughts.

Looking forward, we do not know what is in store for the SEC rule. There are many moving parts politically and publically. We will know what happens when it happens. I’d like to think there will be adequate advance notice to those impacted, but even that is not assured.

But the review mirror tells a story too. While aspects of the rule’s impact are hotly debated, one thing is indisputable – it resulted in much greater visibility into material sourcing and other companies deep in supply chains. This has allowed some companies to reduce business risk by optimizing their supply chains – concentrating spending power or diversifying their supply base to manage potential disruptions. Companies identified that, unbeknownst to them, entities sanctioned by the US Department of Treasury Office of Foreign Asset Control (OFAC) may have been present in their supply chains. Supplier audits/screening improved in many cases.  Appropriate auditor qualifications in light of global reliance on audit results has also become a major question in the scheme of things.

Of course, the rule brought human rights abuses in the DRC and other countries out of the shadows and into the light of the public. But has the population of the DRC benefitted? Experts continue to argue both sides of the question. Without taking sides, earlier this year we attempted to evaluate one major criticism of the SEC rule – that it directly resulted in hundreds of thousands, if not millions, of jobs lost in the 3TG mining sector. The question we posed ourselves was what impact did the 2008 – 2010 global economic recession have on artisanal and small miner (ASM) job losses which are currently attributed only to Dodd-Frank Section 1502? Did the timing of 1502 coincidentally occur at a time when mining jobs were already in decline because of pre-existing macroeconomic conditions?

Our intent was to rely on existing literature rather than creating original research as this was an unfunded effort on our own part. After a few months, we ran into two insurmountable obstacles:

  • The existing DRC-specific literature we found does not acknowledge or give any consideration to potential impacts of the 2008 – 2010 global economic recession. Yet analyses from The World Bank, the World Economic Forum (WEF) and the International Finance Corporation (IFC) demonstrate that global economic downturns play a major role in commodity prices and mining jobs worldwide, including ASM.
  • The DRC has a uniquely major informal economy which some literature indicated accounts for up to 80% of the country’s total economic activity annually. There is a significant gap in available information on DRC’s informal economy and what is available was sometimes inconsistent with other data on the same matter or irrelevant to our study.

We found only two sources referencing global 3TG price influence on prices paid to DRC ASMs.  Other data supported the position that a very large number of ASM miners in DRC move between multiple jobs based on income potential, so when ore prices were low in the past, miners moved to agriculture or other income sources. There was a meaningful amount of anecdotal information supporting the hypothesis that several factors other than Section 1502 (such as the DRC’s own taxation and mining policies) had a direct effect on DRC ASM job losses within the timeframe of interest, but we were not willing to rely on non-empirical information. We put down our pen (or mouse) and moved on to other things.

So the debate will continue.

There have been developments beyond just the SEC rule. The European Union adopted their own version of a conflict minerals due diligence rule that impacts a different class of companies and goes into effect in 2021. And the application of the OECD Due Diligence Framework is expanding into other materials (such as cobalt) and other geographies. At the moment, that appears to be just the beginning of that trend and that future is unknown as well.

In the end, what can be said about Section 1502 in consideration of it’s possible end? It all depends on your perspective, but it ain’t over till it’s over.  And it ain’t over.

UPDATED ALERT: Piwowar Issues New Statement on Conflict Minerals Rule in Response to Closure of NAM v. SEC Lawsuit, Stein Pushes Back

SEC Acting Chairman Michael Piwowar and the SEC Division of Corporation Finance Staff both issued statements today (April 7, 2017) on the conflict minerals rule in light of the final Court action in NAM v. SEC.

The statements from both Staff and Acting Chairman Piwowar clarify that the Commission does not intend to recommend enforcement against any issuer that does not file a CMR or conduct due diligence of its smelters/refiners.  The statements do not amend the language of the rule itself to eliminate the CMR and due diligence requirement – they only clarify that no enforcement action will be taken if an issuer triggers the CMR/due diligence mandate, but files only the basic Form SD.

Reuters reported that the only other currently-sitting Commissioner, Kara Stein, took issue with Piwowar’s unilateral action :

The move sparked backlash from SEC Democratic Commissioner Kara Stein, who accused Piwowar of acting beyond his authority to gut the meat of a rule mandated by Congress, adopted by the SEC and reviewed by the courts.

“It is unprecedented for one commissioner, acting alone and without official notice and comment, to engage in de facto rulemaking,” she said.  “It represents a troubling attack not only on the Commission process, but also on the restraints of government power.”

We will continue to monitor new developments and keep you informed.  In the meantime, please do not hesitate to contact us with any questions.

CY2016 Conflict Minerals Reports: Ready… Set… IPSA!!

How many conflict minerals IPSAs will be conducted for the CY2016 SEC filings given that nothing has changed from last year (or the year before) concerning the IPSA trigger?  Certainly you recall the April 29, 2014 Statement from the SEC’s Keith Higgins (who today announced that he will depart the SEC next month) clarifying that, until further specific action by the SEC, an IPSA is required only when an issuer voluntarily chooses to use the wording “DRC Conflict Free” when describing their products.

There has been no further action on the matter from the SEC.  Yet more companies are already asking us for proposals to conduct an IPSA even where the company doesn’t plan on making a “DRC Conflict Free” determination.  Such an IPSA could do more than meet the SEC audit objectives.  As a voluntary and perhaps “unofficial” audit, the scope can be more flexible and address substantive issues concerning program effectiveness and conformance to the OECD Due Diligence Guide or SEC requirements, helping the company to answer important questions about the quality and robustness of their due diligence program.  This kind of IPSA would provide much more value especially as due diligence programs are rapidly expanding beyond 3TG and the DRC.

It is worth serious consideration.

Another approach was very popular last year – our auditability reviews.  This gives clients a detailed understanding of how an IPSA auditor will likely interpret CMR language and approach an official IPSA.  We have identified much unintended – or unexpected – broadening of the IPSA scope and cost for clients and provided detailed insight as to how an auditor is likely to apply sampling and audit evidence elements of the Performance Audit standards to draft CMR language.  Our IPSA auditability reviews are a low cost, low risk alternative to a mock audit.

And what of those 12 companies called out by name in the Development International report as not filing an IPSA even though they classified at least one product as “DRC Conflict Free”?  We will see.

Cobalt is the New Conflict Mineral

Conflict minerals information requests from customers increasingly include cobalt.  While cobalt is not an official conflict mineral, and the basis for the recent public attention is not the funding of armed groups, it is nonetheless being included in conflict minerals CMRT requests.

But cobalt is not one of the CMRT metals, and the CFSI smelter/refiner lists and audits do not include cobalt.  What do you do?  You can build on your existing conflict minerals program, but you need new data collection/verification tools, business criteria and customer reporting methodologies.

These are fundamental issues that every company will have to resolve before meaningful responses to customers can be provided, and it will likely take time.

For Conflict Minerals, It’s Spring in October

In past years, most companies really geared up their conflict minerals supplier engagement activities after the first of each year.  This allowed companies to fully capture the complete calendar year of manufacturing and generally provided adequate time to meet the SEC filing deadline of May 31.

This year is different.  There are a significant number of companies who began their reasonable country of origin processes in earnest last month.  They are facing a new and earlier deadline for their conflict minerals information – from their customers.  A deadline that is 7 months sooner than the regulatory filing date presents its own challenges.  Among other things, it is now more critical that the RCOI and due diligence programs be efficient and that risk mitigation strategies are used and function as they should.

More than ever, additional and knowledgable support is needed for many of these companies facing customer-required early deadlines.  We can help.  Give us a call to discuss.

Conflict Minerals IPSA Objectives, Country of Origin Identification Criticized

The highly respected duo of Mike Loch and Dr. Chris Bayer published a pointed article exposing several flaws in company conflict minerals reporting and the Independent Private Sector Audits (IPSAs) for CY15.  Based on their analysis of the findings, companies:

… failed basic plausibility tests concerning the Tin, Tantalum, Tungsten and Gold (3TG) Country of Origin (COO) and the 3TG Smelter or Refiner (SOR) countries.

Examples include references to DRC as the location of smelters/refiners  (“As far as we know, no smelter or refiners processing tin, tungsten, tantalum and gold ore are located in the DRC”).  Further, they found “a considerable number of companies, over 250, cite countries as the source of their 3TG that are highly unlikely to be the actual source.”

In our view, these are legitimate concerns, indicating a widespread over reliance on a single source of smelter/refiner data with no substantive review or consideration given to the data by the issuers themselves.

With regard to the IPSA,

… among the companies submitting implausible COO, four (4) companies made a “DRC conflict free” product determination and underwent an IPSA.  These four IPSA’s were performed by three different audit firms.

These findings illustrate the fact that the two IPSA objectives in the SEC Rule do not take into account the accuracy of the content and conclusions …

At first glance, this may be taken as a critique of the three audit firms – but in reality it is not.  Rather, Mike and Chris point out – as we ourselves have stated many times – the specific IPSA objectives offer very little assurance with respect how thoroughly or how well companies conduct their due diligence.  Other critiques of IPSAs and auditors have incorrectly placed blame on audit firms for following the legally-mandated objectives.  Even though Elm was not one of the three audit firms indicated, we – as do Mike and Chris – do not believe the auditors are at fault in any way.

Latest GAO Annual Report on Conflict Minerals Regulation Efficacy

In case you haven’t already heard, the US GAO issued its latest annual report on the SEC conflict minerals regulation.  GAO is required to provide these reports under Section 1502(d) of the Dodd-Frank Act.

Among GAO’s most important findings:

  • An estimated 67 percent of SEC conflict minerals filers reported they were unable to confirm the source of the conflict minerals in their products, and about 97 percent of them reported that they could not determine whether the conflict minerals financed or benefited armed groups in the Democratic Republic of the Congo (DRC) and adjoining countries.  Our view:  These numbers are reflective of filer’s wide reliance on the CFSI smelter/refiner audits and related information.
  • As of July 2016, the Department of Commerce (Commerce) had not submitted a report that was required in January 2013, assessing the accuracy of the Independent Private Sector Audits (IPSA) nor had it developed a plan to do so. Ten companies filed the audits between 2014 and 2015 as part of their Conflict Minerals Reports, none of which Commerce has assessed. Commerce officials said they established a team in March 2016, but they noted that they did not have the knowledge, skills, or expertise to conduct IPSA reviews or to establish best practices.  Our view:  Commerce is indeed exploring the topic in detail and assessing how to approach the reporting requirement.  Our meeting with them this past summer was a part of their exploration.
  • Facilities that process conflict minerals pose challenges to the disclosure efforts of companies filing a Form SD because (1) these facilities generally rely on documentary evidence about the origin of conflict minerals, which may be susceptible to fraud; and (2) multiple levels of processing operations introduce fraud risk and may increase the cost associated with disclosures.  Our view: Fraud risk has been a common theme and concern from the beginning of the various conflict minerals schemes.  While some physical mechanisms exist in an attempt to eliminate fraud, we don’t know what mechanisms or training are in place for identifying documentation fraud in the various audits/checkpoints in the supply chain.

Finally, Elm is known for our candor and being vociferously critical about excessive fees and misrepresentation of the requirements by some advisors and service providers.  We were pleased that GAO  included our comments on this point:

… because of the uncertainty about IPSA requirements and best practices, some consulting firms were misrepresenting the scope of IPSA services that are needed for compliance in order to justify excessive fees for SEC-filing companies.

As in the past, this latest report provides valuable commentary and we consider it to be a “must read” for all in the conflict minerals space.