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AIAG – Developing A Responsible Supply Chain for Conflict Minerals

BY IN INDUSTRY HIGHLIGHTS

Companies around the globe are preparing to report the use of conflict minerals in their products.

In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law. Section 1502 of the law required the U.S. Securities and Exchange Commission (SEC) to impose reporting requirements on manufacturers if their products contain metals derived from minerals defined as “Conflict Minerals.” This definition currently includes Cassiterite (the metal ore from which Tin is extracted), Columbite-tantalite (the metal ore from which Tantalum is extracted), Wolframite (the metal ore used to produce Tungsten), and Gold. Other minerals may be added at the discretion of the Secretary of State.

The new requirements are intended to reduce an important stream of funding for armed conflict by eliminating the use of materials sourced from mines under the control of violent forces in the Democratic Republic of Congo (DRC) or the surrounding countries. These requirements apply to a broad range of manufacturing companies in multiple industries, including the automotive industry.

The SEC finalized the rules for complying with Conflict Minerals on August 22, 2012. Companies subject to the rule are required to report annually on a calendar year from Jan. 1 to Dec. 31 using the new Form SD. The first reporting period is Jan. 1, 2013 through Dec. 31, 2013. An estimated 280,000 companies worldwide are required to comply.

The Challenge
The process of identifying, tracking, and disclosing the origin of all minerals across multi-layered supply chains is inherently complex and dynamic, with many intermediate steps between extraction of raw materials and completion of a final product.

Cooperation throughout the supply chain will be necessary to determine whether products and assemblies contain conflict minerals. Clear understanding and accurate reporting can only be achieved through engagement and transparency throughout the supply chain. To support accurate reporting, suppliers will have to determine which parts/assemblies incorporate one or more of the identified minerals or their derivatives, map the supply chains associated with those parts/assemblies, and engage with their suppliers to identify the smelters used to process the raw materials (or validate the origin of materials as recycled scrap).

The Automotive Industry Responds
The automotive industry fully supports the intent of the legislation and is developing tools to help companies ensure that the parts and assemblies in their vehicles and products—regardless of where they are assembled or sold—do not contain conflict minerals.

The AIAG Conflict Minerals Work Group (CMWG), formed in Q4 of 2010 to understand the impact of Conflict Minerals to the automotive industry and address due diligence activities, has met bi-weekly for the last 18 months. Led by OEMs and Tier-One suppliers, the CMWG participated in the SEC’s Conflict Minerals panel in April 2011, continues to monitor both legislative and cross-industry developments regarding Conflict Minerals, and has actively engaged with industries including electronics, aerospace, jewelry, and others to maximize collaboration with those who are working to address the same issue.

In April 2011, a joint letter was issued by six OEMs and AIAG asking industry members to begin assessing their products for one or more of the identified conflict minerals; review the impacted products/parts/assemblies for action; and engage their suppliers to begin to identify the smelters used in the supply chain to process the Conflict Minerals. This letter was cascaded by select Tier-One members of the CMWG to their suppliers.

In conjunction with the Electronics industry, the AIAG CMWG collaborated with the Global e-Sustainability Initiative (GeSI) and the Electronic Industry Citizenship Coalition (EICC) to develop the EICC/GeSI Reporting Template. This framework was developed to facilitate the exchange of data related to due diligence and smelter information between companies in the supply chain.

In addition, AIAG contracted with iPoint to develop the iPCMP system, a web-based tool designed to manage data from the EICC/GeSI Reporting Template. The tool complements the EICC-GeSI Template and enables supply chain participants to aggregate and roll up their Conflict Minerals information throughout the supply chain without compromising confidentiality. This tool was developed by iPoint along with select members of the OEM and Tier-One supplier communities. The CMWG has formed a Governance Committee and system documentation sub-groups to address the details of managing the iPCMP solution for all industries.

Throughout these efforts, CWMG members have attended meetings, events, and seminars including:

  • Organisation for Economic Co-operation and  Development (OECD) (bi-annual meetings, Interim Governance Committee, surveys)
  • EICC/GeSI (Extractives Due Diligence Workgroup, Communication Workgroups, bi-annual workshops)
  • Conflict Smelter Program (Audit Review Committee membership and pre-audit smelter visits)
  • Public Private Alliance (Governance and Communication Committees)

Get Involved
AIAG’s stakeholder engagement strategies include diligently monitoring legislative and cross-industry developments; attending stakeholder meetings and seminars including OECD meetings and EICC/GeSI extractives workshops, and monitoring public and private alliance meetings.

Many companies have already begun the significant task of developing their compliance plans. The steps include:

  • Assembling a cross-functional team
  • Evaluating current due diligence policies and developing new ones
  • Evaluating supporting IT tools
  • Implementing policies and gathering information
  • Working with third parties to review use of conflict minerals and to satisfy reporting requirements
  • Sharing best practices/peer reviews within industries

Frequently Asked Questions

  • What is the status of the final SEC rule?
    • A proposed rule was issued in December 2010.  The final rule which has been delayed several times was finalized on August 22, 2012.  The final rule states that every company with an SEC filing obligation will be required to file the new Form SD with the SEC by May 31, 2014 for the January 1, 2013 to December 31, 2013 calendar year.  Subsequent filing is required by every May 31.
  • If my company does not file or register with the SEC, do I need to worry about Conflict      Minerals?
    • While you may not be required to report to the SEC, your customers, or your customers’       customers may have reporting obligations. Those entities may require you to conduct similar inquiries and due diligence activities for purposes of their own conflict minerals obligations.
  • What does the form SD require?
    • Form SD requires that the issuer conduct a “reasonable country of origin” inquiry to       determine the source of the Conflict Minerals in its products.  The issuer is required to disclose those findings of the inquiry in the Form SD.
    • Based on the outcome of the inquiry, a company may be required to attach a Conflict       Minerals report as an exhibit to the Form SD.
  • What are the elements of a Conflict Minerals Report?
    • A description of any of its products containing conflict minerals that are not DRC conflict free
    • The facilities used to process those conflict minerals
    • The country of origin of the conflict minerals
    • A description of the due diligence standard that the company used in making the above       determinations
    • The report must be accompanied by an independent private sector audit, and must be       available on the company’s website
  • Will IMDS be used to collect this data from the supply chain?
    • IMDS is not equipped to manage country of origin information.  IMDS was designed to manage the chemical composition of products up and down the supply chain regardless of chemical, material, or component country of origin.
    • The IMDS Steering Committee has deemed Conflict Minerals to be out of scope for the system.
    • In many companies, the department / person responsible for managing and/or executing the IMDS process is not equipped to provide country of origin data for the chemicals they are reporting.
  • Should companies avoid minerals from the DRC altogether?
    • The aim of section 1502 was to stem the human suffering resulting from the years-long conflict in and around the DRC.  A de facto embargo would have the unintended consequences of damaging an important industry and source of income in the DRC.
  • When would the first report to the SEC be due?
    • On or before May 31, 2014 for all reporting companies, regardless of fiscal year.

More Conflict Minerals Resources
To learn more, click here for additional resources including:

  • Developing a Responsible Supply Chain for Conflict Minerals
  • iPoint Conflict Minerals Platform
  • News & Insight on SEC Final Rule
  • EICC-GeSI Template
  • AIAG Executive Summary Post-Rule
  • Conflict Minerals Frequently Asked Questions
  • Conflict Minerals in Cars
  • IMDS Summit Conflict Minerals Presentation

For additional information, contact Program Development Manager, Corporate
Responsibility Tanya Bolden at (248) 213-4646 or
tbolden@aiag.org.

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