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.

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