Uncovering Opportunity in Conflict Mineral Compliance

By Kirsten Wallerstedt March 18, 2014

Metals essential to the manufacture of products such as consumer electronics, cars, clothing, aerospace equipment, medical devices, and jewelry can source from the Democratic Republic of the Congo (DRC) region of Africa, which is rife with armed conflicts and human rights abuses. Ores of the metals — tantalum, tin, tungsten, and gold — are known as “conflict minerals” and are the subject of laws and regulations in the United States and other countries.

Virtually no industry is immune to conflict minerals risk — for example, to corporate reputation — or to regulatory compliance requirements. However, with a comprehensive understanding of the regulatory environment, organizations can equip themselves to see into their supply chains and determine whether or not their products contain conflict minerals. Organizations use the same resources and techniques to develop a scalable supplier engagement system.

The Securities and Exchange Commission voted in 2012 for rules implementing Section 1502 of the Dodd-Frank Act (2010). The rules require all publicly traded companies in the United States to disclose publicly whether the minerals in their products are from the conflict region defined in the law. With the date of first disclosure quickly approaching on June 2, companies are grappling with the compliance process and its associated costs. For most organizations, achieving compliance with the conflict mineral regulations seems like a daunting task and a drain of corporate resources. It’s not easy to find out whether anyone in the supply chain is using conflict minerals at any point in the production process. But there is a silver lining.

The process of capturing, comprehending, and communicating information about the supply chain —raw materials, products, processes, and packaging — requires businesses to reevaluate the production and distribution of their products and to identify areas that need improvement. As they gain a better understanding of the inner workings of their supply chains, businesses may also explore alternative options that may increase profitability.

For example, investigating suppliers may uncover less expensive sources for the same material or provide an opportunity to renegotiate pricing with an existing supplier. Also, a company that concludes its products are free of minerals may gain a competitive advantage in the marketplace. Truly savvy companies are wise to invest in building a conflict minerals compliance program that they can use or adapt for other supply chain risk management areas.

To mitigate the risks of conflict minerals compliance, companies need to adopt a comprehensive approach. That involves adopting best practices in supplier engagement and education, using data analytics technologies to help manage the due diligence process, and viewing conformance as an opportunity rather than a burden. While compliance may cause some pain, it also can provide gain: the opportunity to protect a corporate reputation and to manage the supply chain for an enhanced bottom line.

For more information about the importance of reducing risk though an active compliance program, check out the recent edition of Verisk Review.