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What does an issuer expect from its supplier in the conflict mineral survey?

The first criteria to complete a conflict mineral survey successfully is to have the supplier conduct a similar survey at its level in the supply base to understand the origin of conflict minerals in its products. Supplier should be able to identify the parts supplied by them to the listed company who asked for this survey and analyze and confirm whether those products contain 3TG. The supplier should have also established a decent level of due diligence within its organization to ensure that it does not fall under a risky supplier category.

The responses which are made through the should be based on the factual research the supplier has conducted. If the report is provided at product level, the supplier should be able to identify the parts/products and confirm whether the research was conducted by them. The report should also contain the smelter names which they have identified in their supply base which constitute the maximum percentage of supply of the conflict minerals.

Supplier Training and support- A tool to motivate the suppliers to provide better declarations

is a new regulation in US. Most suppliers are unaware about the details of the compliance requirements. In most cases, issuers who are affected by the SEC filing requirement have a vast supplier base spread across different parts of the world. This makes it more difficult to get responses as there is nothing legally binding the supplier to provide information. In several cases, replacing the non-responding supplier is not an easy task.

Most studies in the industry confirm that issuers who invested more resources in the front end communication, training and support have managed to reduce their overall conflict mineral compliance cost. A training delivered in a supplier conference or through a webinar will act as an effective tool for improving supplier responses and quality of responses.

A seminar/ webinar focusing on the regulation, its applicability, reporting process and tools (if any) will help suppliers to engage with the issuer more closely in this compliance process. Supplier training should be refreshed every year due to change of resources in the supply base and update them about the recent development and changes in the reporting process.

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We reviewed the SD form submissions of several publicly listed companies to understand the nature of research done that led to the 鈥榗onflict mineral declaration of 2014鈥�.

We observed, towards the end of 2013 and beginning of 2014 all companies frantically sent out and started collecting responses from their supply base. Also most of the companies gave out their CMRT forms at a company level without effectively identifying the smelters in their supply chain. Additionally the effort done on implementing the due diligence process was very limited. This resulted in responses that were similar across the supply base and comprised very limited mineral traceability information. The final outcome was, most companies provided their compliance status as 鈥楿nknown鈥�.

We understand that the process is expected to evolve further in the coming years, hence in this article we are sharing a few areas of primary concern for the companies:

• The upcoming challenge in conflict mineral compliance will be to show incremental progress in the efforts on a year-on-year basis.
• Most companies will have to invest effort in identifying smelters in their supply chain.
• Identifying the product chemical composition and driving product level CMRT declarations from the suppliers will be a crucial step for companies to channelize their efforts towards high impact suppliers, who account for the major percentage of conflict minerals in their products.
• The due diligence process implementation will have to be performed in alliance with expert consulting companies.

Because of the already existing regulations in compliance (including ROHS, REACH, WEEE and Prop 65), most electronic companies will have to reach out to their supply base to collect diverse information. Due to the vast depth of efforts and the evolving nature of conflict minerals compliance, most companies might resort to end-to-end conflict mineral solution providers rather than running this as a special project within their finance or compliance department. Most software solution providers in the environmental compliance area have already extended their solution to include conflict mineral modules which will make this consolidation more easy and achievable. The ideal strategy for the industry will be to consolidate these activities with the conflict mineral RCOI.

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