A new study, Mining the Disclosures: An Investor Guide to Conflict Minerals Reporting, published by Responsible Sourcing Network (RSN) analyzing company performance on a major human rights risk, found mixed results in last year’s inaugural round of filings to the U.S. Securities and Exchange Commission (SEC) required by Section 1502 of the 2010 Dodd-Frank Act.
From a sampling of the 1,315 companies filing conflict minerals disclosures in 2014, the study found that all industries on average fell considerably short of the mark in terms of meeting key performance indicators, with strong scores from some companies in leading industries being offset by very weak ones from laggards in other sectors.
The pilot study set out to make sense of the huge quantity of data that was submitted in the SEC filings, but which lacked standardized language or format. In doing so, RSN’s aim was to provide investors with a transparent and scalable methodology for measuring company social performance as part of an integrated approach toward environmental, social, and governance reporting.
Working with research provider Sustainalytics, RSN created 18 performance indicators grouped into four measurement areas: Assessing Exposure and Responding to Risk; Policies and Management Systems; Transparency and Reporting; Promoting a Conflict-Free Minerals Trade. Analysts evaluated companies’ SEC conflict minerals disclosures and reviewed relevant websites and citizenship reports, awarding points, weighted according to risk exposure, up to a possible total of 100.
The study found a low average score among the 51 companies evaluated, with most achieving less than half of the total possible points. Several companies in the Information Technology sector such as Intel, Qualcomm and Apple “set the bar higher” scoring in the 80s and 90s by showing “innovation and good faith in reporting” among other best practices RSN hopes to capture so that other companies can possibly emulate them. So-called laggard industries (which in fact were most of the companies reviewed) were those with scores averaging below 35 points, a group including Energy Equipment and Services, Containers and Packaging, and Healthcare Equipment and Supplies.
Among the key recommendations the report sets out for companies in the future are:
- Use the legislation as an opportunity to discover operational benefits from greater supplier engagement.
- Be more transparent with product exposure, smelter or refiner (SOR), and country of origin information.
- Encourage suppliers to source only from conflict-free SORs, without pressuring suppliers into a destructive ‘embargo’ approach.
The report concludes by noting that every day consumers and businesses around the world use products containing minerals from the Democratic Republic of the Congo and adjoining countries (DRC region), where armed groups may benefit from the sale of conflict minerals. Advocating an international, multi-stakeholder approach to ending the humanitarian crisis in the DRC region, RSN reminds companies and investors that they “can use their downstream leverage to drive the market away from minerals that are contributing to human rights abuses. Together, we can help break the ties between minerals and conflict around the world.”
Click here to download the report (registration is required).
Note: Last week, members of the European Parliament voted in favour of a strong and binding law to tackle the deadly trade in conflict minerals. Discussions on details of the final regulation are underway with EU member states.