Six years ago, the Responsible Sourcing Network (RSN) began evaluating companies’ activities to address conflict minerals, including risk management, human rights impact and reporting quality. Published in the organization’s annual “Mining the Disclosures” report, the findings focus on corporate compliance under Special Disclosure Section 1502 of the Dodd-Frank Act and on companies’ propensity to take action and report their practices publicly.
According to RSN’s latest report, due diligence by companies with respect to tin, tantalum, tungsten, and gold (3TG) are falling short from the intent of the law and the expectations of stakeholders. With a 2019 average score of 40.1 (down from 40.3 in 2018), the scores of the sample group of companies analyzed by RSN keep decreasing.
Implemented in 2012, Section 1502 of the Dodd-Frank Act includes a requirement that companies using gold, tin, tungsten, and tantalum make efforts to determine if those materials came from the Democratic Republic of Congo (DRC) or an adjoining country. Should those materials originate in DRC, the company must carry out a “due diligence” review of its supply chain to determine whether their mineral purchases are funding armed groups in eastern DRC.
Not Meeting Requirements
If RSN’s new report is any indication, companies aren’t keeping up with their end of the bargain when it comes to conflict minerals. “The comparison between 2018 and 2019 regrettably shows the lack of efforts of a large number of companies, highlighted by the decline or stagnation of 59.8% of the sample and, even more regrettably, 63% of the sample scores at mediocre levels (categories of minimal and weak),” RSN reports.
“After six years of implementation of the law, these results continue to weaken efforts to tackle the financing of armed groups in the Democratic Republic of Congo (DRC),” it continues. This may in part be attributed to the SEC’s Division of Corporation Finance 2017 statement saying it would not recommend enforcement action of Section 1502, which has eliminated the incentive for companies to implement the law.
On a positive note, RSN says Intel, Microsoft, Apple, Alphabet, Ford, HP and Dell Technologies have adopted “proactive, due diligence-based strategies,” for dealing with conflict minerals. The group applauds Apple’s integration of broad-based impact investments in research, on-the-ground projects and multi-stakeholder groups for dealing with conflict minerals, but notes that laggards in 2019 include entities in the oil and gas, steel and business services sectors.
Addressing a New and Concerning Trend
During its research, RSN picked up on what it’s calling a “new and concerning” trend: the provision of the exact same disclosures to the SEC from the year before by many companies in the report’s sample. “This trend is disconcerting and demonstrates the relegation of 3TG due diligence to a lesser corporate concern and a blatant disregard to implement U.S. federal legislation,” RSN points out.
Comparing the same 199 companies from its 2018 sample, RSN says 74 scores increased, 13 companies saw no change, 87 lost fewer than five points and 25 dropped by more than five points. This analysis highlights that 63% of companies in the sample remained stagnant or lost points, it adds, reiterating a worsening trend of companies’ lack of actions to address and report on conflict minerals.
In 2019, companies performing under 60 out of 100 points—meaning in the three lowest categories (weak, minimal, and adequate)—represented 87% of RSN’s survey sample (vs. 88% in 2018 and 85% in 2017). Although the sample size is roughly 20% of the total number of companies that filed disclosures with the SEC, the group points out, the companies in this study’s sample are the largest market cap companies in their sectors.
“There is a general perception that larger companies are going to have more resources to address human rights abuses buried in their supply chains, which means small and medium-sized companies are likely doing even less on this issue,” RSN concludes. “The statistic of relative inaction in this report should raise red flags for investors and consumers, encouraging them to demand more efforts by companies to address the harm of violence and rape linked to the conflict minerals embedded in their products.”
