No one wants to think that the money they just spent on a shiny new iPad or smartphone is putting a machine gun in the hands of a Congolese rebel. That's the image that activists have used to scare U.S. tech companies into getting off of what they call "conflict minerals," namely tantalum, tin, gold and tungsten sourced from mines in the Democratic Republic of Congo, and surrounding regions, that are, in many cases, controlled by armed militia. Last year, amidst the financial regulations included in the Dodd-Frank Wall Street Reform and Consumer Protection Act was a requirement that the Securities Exchange Commission (SEC) require companies to report their sources of certain conflict minerals.
Although it seemed like a small, albeit odd, addition to a major financial reform packet at the time, Section 1502 is having an industry-wide impact in the tech sector. The language of the regulation expresses a Congressional concern that "the exploitation and trade of conflict minerals originating in the Democratic Republic of the Congo and adjoining countries (together called ‘DRC countries’) 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…”
The SEC has yet to finalize its rules on the matter, but in the meantime U.S. tech companies, eager to avoid a P.R. nightmare, are moving away from Congolese suppliers.
Apple was made the poster-child for conflict-free minerals last year, after a Yes Men prank advertised a conflict-free iPhone. Although company spokespeople noted that not only is Apple far from the only company to source such minerals, but also that conflict minerals are not necessarily the root of the Congo's troubles (true on both counts), the company nonetheless moved quickly to address the issue in its 2011 Supplier Responsibility progress report, and to join others in the industry, such as HP and Intel, in strategizing a solution. Nokia is the latest company to be hit with bad P.R. over conflict minerals, thanks largely to its starring role in the documentary Blood in the Mobile.
While some companies are looking to simply opt out of the Congo's resources, the problem with simply pulling out of the region is two-fold: First, there is not necessarily an abundance of conflict-free minerals available elsewhere, and second, in the absence of customers, mines are shutting down and workers are losing their jobs, adding fuel to the conflict and making the "solution" a part of the problem.
In an effort to craft an alternate approach, the Electronics Industry Citizenship Coalition (EICC, the largest electronics industry trade group) has launched several initiatives aimed at converting Congolese mines to conflict-free sources, and improving transparency of the supply chain from mine to smelter to export product. With leadership from Apple, Intel, HP and others, the EICC has created a common reporting template, which will help companies capture data from their suppliers, and from their suppliers' suppliers. The template has been made available for free to all companies, both within the electronics industry and beyond it.
These metals are relevant to many companies," says Jay Celorie, supply chain energy program manager at HP, which has been heavily involved in the push for conflict-free minerals. "Any product that uses electrical current, from a hair dryer to a toaster to a microwave to cars and airplanes, is going to have these minerals. Then you’ve got the metallurgy industry, as well, so steel manufacturers and the jewelry industry, for example. I know the attention on conflict minerals has been disproportionately focused on laptops and mobile phones, and that's unfortunate, because we need all industries to do their part."
The EICC also is pinpointing conflict-free smelters in the region, starting with a list of compliant tantalum smelters and eventually adding tin, gold, and tungsten. Together, both tools will help companies meet the regulations outlined in Dodd-Frank (and expected to be mirrored in the SEC provisions), which don't disallow the use of minerals from the Congo, but do stipulate that companies must report where their minerals are sourced, and that companies with audited conflict-free supply chains may label their products as "conflict-free."
Now tech companies are beginning to throw their collective weight behind the new Public-Private Alliance for Responsible Minerals Trade, an alliance between private companies, the U.S. State Department, the U.S. Agency for International Development, various industry trade associations, non-governmental organizations working in the regions, and the International Conference on the Great Lakes Region (ICGLR). So far Intel, Sony, and HP have all indicated their intent to join the Alliance, which is expected to officially launch by the end of the year.
We joined the alliance to join with other stakeholders to convene resources, and work with the State Department to sponsor mostly existing initiatives in the region that need funding," Celorie explains. "The goal is to help create responsible trade between the mines, concentrators, traders, smelters and exporters. As these minerals go from a mine in the jungle through the smelter to the export point, that’s where the risk of illegal or armed militia taking advantage of these minerals comes in. We want to create a responsible mineral trade in-region that allows smelters to source conflict-free minerals, with auditing and documentation that certifies that the minerals are conflict-free, which then allows those materials to enter our supply chain."
While the first companies to voice support of the Alliance are in the electronics industry, the hope is that the PPA will eventually include those in other industries as well. In addition to the SEC rulings, the industry will likely be expected to adhere to the due diligence guidelines put forth by the Organization for Economic Cooperation and Development (OECD). The OECD's due diligence guidance on conflict minerals, with supplements for tin, tungsten, and tantalum has been released, and HP has agreed to a one-year pilot implementation of the guidance, after which time they will provide feedback that the OECD will use to improve the guidance. The supplement on gold is still in the draft stages, and the jewelry industry has been more involved with its drafting, given the importance of gold to its products.
Whether or not going conflict-free in the Congo will translate to higher consumer electronics prices (and, as some industry watchers point out, more trouble competing with China), remains to be seen. The SEC estimates that compliance costs could total over $71,000,000 and impact over 5,000 companies.
However, HP's Celorie says that as exploitation of the minerals is reduced, the conflict-free system will be self-funding. "If everyone is getting their fair piece of the pie as the metal makes its way from mine to export, the cost of the metal is driven by the world market, and smelters will source minerals where they can get them, but they won’t source from the Congo unless they can find conflict-free minerals there," he explains. "The PPA is really aiming to jump-start that, with the expectation that it will be self-sustaining once you eliminate the extortion happening now. In terms of an issuer, doing compliance reporting, this just becomes part of our business cost."
