Transparency in supply chains: The Conflict Minerals Regulation
Published on 6th Jul 2017
The EU Conflict Minerals Regulation comes into force on 9 July 2017. The Regulation sets out supply chain due diligence obligations for EU importers of materials such as tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas around the world such as the Democratic Republic of Congo and neighbouring states. The Regulation was published in the Official Journal on 19 May 2017 though many of its obligations on importers are due to apply from January 2021.
Conflict Minerals Regulation: key points
The minerals and metals which fall within the Regulation are used in the production of many high-tech devices within the automotive, electronics, aerospace, packaging, construction, lighting, industrial machinery and tooling industries. The Regulation aims to bring transparency to the supply practices of EU importers from conflict-affected and high-risk areas and accordingly aims to reduce the indirect funding of conflict by EU importers.
The substantial points of the Regulation will not apply until January 2021. However, the Regulation requires organisations to take a number of steps before that date, so organisations should focus on how to comply with their obligations in advance.
The Regulation distinguishes between ‘upstream’ companies, which search for and extract raw materials (commonly mining companies) and ‘downstream’ companies, who process metals produced during the upstream stage into a finished product. There are differing obligations for companies involved at the different extraction and production stages of the minerals. The downstream stage includes the sale of the product to other businesses, governments or private individuals. These are typically the high profile technology businesses which are producing electronic goods to a mass consumer market.
Downstream companies fall into two categories:
- Those importing metal-stage products, which have to meet mandatory due diligence rules.
- Those operating beyond the metal stage, which do not have to meet mandatory due diligence rules, but are expected to use reporting and other tools to make their due diligence procedures are more transparent.
As of January 2021 importers of metals will need to:
- Identify risks in their supply chain
- Comply with due diligence obligations
- Adopt a compliant supply chain policy for high risk areas
- Communicate the supply chain policy to suppliers and the public
- Comply with risk management obligations
- Receive auditing by independent third parties
- Disclose audit reports to their designated member state authority.
Authorities in EU member states will have overall responsibility for ensuring compliance with the Regulation. Those national authorities will be given the power to enforce the Regulation by issuing fines for non-compliance, but it will be up to individual member states to set the level of those fines . However, for many businesses, the real driver to comply with the Regulation will be the potential reputational damage if they are found to be non-compliant.
Organisations within member states may apply for existing accreditation and certification schemes (or future supply chain due diligence schemes) to be granted the status of equivalent recognition to the Regulation. These schemes will then be periodically reviewed against the requirements of the Regulation.
Small importers (for example jewellers and dentists) which do not meet the minimum thresholds of imports will be exempt, as will the majority of recycled materials. The spotlight of the Regulation is on larger importers with substantial buying power in the mineral and metal marketplace, since it is this buying power that the Regulation is seeking to use as a driver for change in the supply chains. In this respect, the transparency in supply chain requirements fulfil a similar role to those under the UK’s Modern Slavery Act, which aim to harness the purchasing power of big businesses to eradicate modern slavery and improve labour practices in developing countries.
Prior to January 2021, adherence to the OECD Guidance remains best practice rather than a mandatory requirement. However, as the obligations under the Regulation broadly reflect the OECD Guidance, in anticipation of the Regulation businesses should review their supply procedures and policies in light of the OECD Guidance.
What should businesses do now?
- Ensure there are clear supply chain policies in place and review these policies in light of the OECD Guidance (available here).
- Speak to current and prospective suppliers to ensure it is clear how and where minerals and metals are sourced.
- Consider putting in place proactive due diligence procedures for assessing how far suppliers comply with the OECD Guidance.
- Have early discussions with procurement and purchasing departments to discuss the impact of the Conflict Minerals Regulation.