Executives Struggle with New Conflict-Minerals Reporting Rule

Time is running out for manufacturers to begin reporting on the presence of conflict minerals from the Democratic Republic of the Congo in their supply chains.

Beginning May 31, 2014, publicly traded companies will be required to declare to the U.S. Securities & Exchange Commission whether or not their products or components contain tin, tungsten, tantalum or gold—dubbed “3TG” materials—from mines in the DRC that are engaged in human rights abuses.

The requirement was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in July of 2010. It has taken nearly four years, however, for the SEC to gather public comments and clarify the rule. And the May 31 deadline is just the beginning of a two-year phase-in.

Nevertheless, many businesses have been dragging their feet on preparations for complying. According to a survey conducted by PricewaterhouseCoopers LLC in the spring of 2013, at least a third of executives were still unsure as to whether it applied to their operations. Even today, many have yet to create a reporting structure with their suppliers, contract manufacturers and other supply-chain partners, according to Greg Dickinson, chief executive officer of risk-management specialist Hiperos.

Minerals covered by the rule are found in countless consumer goods, including electronics products, automobiles, packaging and medical devices. Given that the average public company works with between 2,000 and 10,000 first-tier suppliers, and many thousands more further up the supply chain, the task of tracing product content all the way back to the mine is a daunting one.

The cost of compliance promises to be huge. The SEC has estimated that companies will spend a total of between $3 billion and $4 billion in the first year alone, and between $200 million and $600 million a year after that. But industry sources claim the actual number will be much higher. Tulane University Law School’s Payson Center for International Development has pegged first-year costs at nearly $8 billion.

The actual cost “is all over the map, in terms of how aggressive a company wants to be in getting to a conflict-free kind of message,” says Howard Heppelmann, general manager of supply chain management with software and services provider PTC.

The rule dictates a multi-step process. First, public companies must determine whether any of their products could contain one or more of the 3TG materials from the DRC or an adjoining country. Then they must conduct a “reasonable” inquiry into the country of origin of those items, and gather the appropriate information. After that comes a determination of the materials’ impact on their supply chains and products. Finally, they must submit annual reports that disclose the presence of any conflict minerals from the DRC and surrounding countries. (There are exceptions for recycled materials.)

In addition to filing the report with SEC, companies must publish the information on their websites.

View the full article from Forbes.

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Photo by Spencer Platt/Getty Images

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