The first conflict minerals filings are trickling in, with 39 of them filed as of May 28, but an influential advocate of the Securities and Exchange Commission requirement isn't pleased by what it has seen thus far. A statement issued by the activist group Global Witness describes the first batch of disclosures as “disappointing” and lacking substance.
Public companies in the U.S. that manufacture products containing tin, tantalum, tungsten and gold from the Democratic Republic of the Congo and surrounding areas have until June 2 to file their first Conflict Mineral reports with the SEC, which created the new Form SD to meet Congressional requirements laid out in the Dodd-Frank Act. Covered companies must report on the due diligence taken to check their supply chains and assess risk.
In a statement, Global Witness expressed concerned that a number of the conflict minerals reports already filed with the SEC do not contain adequate detail. “While some firms have made strong submissions, most reports filed to date don't include enough information to show that companies are doing credible checks on their supply chains,” said Sophia Pickles, a campaigner for Global Witness. “The failure by some companies to disclose meaningful information suggests they have not taken the necessary steps to find out what is really going on along their supply chains.”
Specific concerns include:
- Some companies have published minimal, if any, information on their efforts to determine which countries the minerals in their products are sourced from.
- The majority of companies have not demonstrated how they assess their suppliers' due diligence practices.
- The majority of companies have not demonstrated the steps they have taken to identify and mitigate the risks in their supply chain.
Only one company, Intel, has so far obtained an audit of its conflict minerals report, the group said, urging companies “to step up their act” and “submit comprehensive, clear and detailed information about their supply chain due diligence” in line with international standards set out by the Organization for Economic Co-operation and Development. This should include an audit of the due diligence section of the report, it says, calling independent audits “a critical part of the OECD framework.”
“Companies that do not provide adequate detail on the systems they have put in place to source responsibly risk breaching U.S. law,” Pickles said.
Companies however, even at this late date, still face legal and regulatory uncertainty. Earlier this month, the SEC's Division of Corporation Finance issued a partial stay of the rule and said companies will not be required to declare whether their products do, or do not, contain the minerals by the current deadline. For now, no company is required to describe its products as “conflict free,” having “not been found to be conflict free,'” or “conflict undeterminable.”
That decision follows an April 14 opinion issued by the U.S. Court of Appeals for the District of Columbia Circuit in the case of National Association of Manufacturers v. SEC. Plaintiffs, which also included the Business Roundtable and U.S. Chamber of Commerce, prevailed in their claim that requiring companies to report to the SEC and on their Web site that products are not “DRC conflict free” was compelled speech that violated First Amendment protections.
A further review of the rule, focused on constitutional issues, is currently underway in district court, as ordered by the Court of Appeals. That review isn't expected until June 5 at the earliest, three days after the first filings are due, prompting the SEC to delay the full scope of its disclosure requirements.
The SEC, however, denied a motion filed by the plaintiffs for a stay of the entire rule. It only acted on the requirements that drew constitutional scrutiny. For companies that are required to file a Conflict Minerals Report, the report, still due on June 2, should include a description of due diligence the company undertook.