assent compliance supply chain summit series the · pdf filethe conflict minerals landscape...

The Conflict Minerals LandscapeAssent Compliance Supply Chain Summit SeriesNovember 17, 2016

The Conflict Minerals LandscapeCopyright © 2016 Deloitte Development LLC. All rights reserved. 2

Agenda

➢ The history and background of conflict minerals legislation

➢ Leading practices and challenges in applying the OECD Framework1

➢ Form SD and Conflict Minerals Report (CMR) reporting leading practices and recommendations

➢ Leveraging conflict minerals programs to manage other regulatory advances

1Organisation for Economic Cooperation and Development’s (OECD) Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas, Third Edition (OECD Framework)


The history and background of conflict minerals legislation


OverviewThe history and background of conflict minerals legislation

3TG

’s

Map of countries in scope or “covered countries”Background

Dodd-Frank ActSection 1502signed 7/21/10

• The intent is to deter — through increased transparency of companies’ sourcing practices — the extreme violence and human rights violations in the Democratic Republic of Congo (DRC) and adjoining countries funded by the exploitation and trade of certain minerals.

Conflict minerals definition

‘Conflict mineral’ is defined as: • Columbite-tantalite, also known as coltan (the metal ore from which tantalum is extracted)

• Cassiterite (the metal ore from which tin is extracted)• Gold • Wolframite (the metal ore from which tungsten is extracted); or their derivatives

• Or any other mineral or its derivatives determined by the secretary of state to be financing conflict in the DRC or an adjoining country

SEC finalrulingissued 8/22/12

• Three-step process for evaluating the use of conflict minerals• Follow the OECD Framework when performing its country of origin inquiry or supply chain due diligence

• File Form SD describing the country of origin process and in certain circumstances include a CMR and have an Independent Private Sector Audit (IPSA) performed

• Form SD is filed on a calendar-year basis and due on May 31 of each year

Examples of products affected

• Aircrafts• Appliances• Automobiles

• Cell phones• Circuit boards• Clothing

• Computers• Jewelry• Toys

Central African Republic

AngolaZambia

Rwanda

TanzaniaBurundi

South Sudan

Uganda

Republic of the Congo

DRC


The legal timelineThe history and background of conflict minerals legislation

October 2012

January 7, 2014

July 29, 2014

July 23, 2013

April 14, 2014

June 2, 2014

National Association of Manufacturers (NAM), the US Chamber of Commerce, and the Business Roundtable (the “plaintiffs”) filed a lawsuit challenging the Final Rule

The lawsuit to overturn the Final Rule was brought to the US Court of Appeals for the District of Columbia Circuit (the “Appellate Court”)

The Appellate Court upheld the constitutionality of the USDA regulations (First amendment), American Meat Institute v. US Department of Agriculture

The US District Court for the District of Columbia (the “District Court”) upheld the Final Rule on conflict minerals by rejecting the October 2012 lawsuit

The Appellate Court ruled that parts of the Final Rule were unconstitutional

Appellate Court rejected emergency motion to stay the entire Final Rule

November 18, 2014

The Appellate Court granted request for rehearing by SEC and Amnesty International in a case decided in April by the same panel

August 22, 2012

Final Rule is issued

April 29, 2014

SEC Staff provided guidance to registrants following the Appellate Court decision

May 2, 2014

The SEC issued partial stay of the Final Rule to reinforce 4/29 SEC Staff guidance

In connection with the rehearing, parties filed supplemental briefs discussing three specific questionsDecember 8: SEC filingDecember 29: NAM filing

December2014

The Appellate Court reaffirmed its decision from April 14, 2014 and remanded the case to the District Court

August 18, 2015

The District Court denied the petitions of the SEC and Amnesty International seeking rehearing en banc of the Appellate Court’s August 2015 decision

November 2015

SEC declined to seek Supreme Court review of the Appellate Court’s decision

April 2016

The case was assigned to a District Court Judge

October 2016


What’s happening in the European Union (EU)The history and background of conflict minerals legislation

June 15, 2016: the EU (i.e., European Commission, European Parliament and EU Council) reached a political understanding with respect to the conflict minerals regulation:

Regulation elements include:Similarities to SEC Final Rule• Align due diligence to the OECD Framework • Transition period • US: Two-year transition period for the IPSA • EU: Transition period before mandatory

compliance• Applies to 3TG*

Differences from SEC Final Rule• Requires due diligence of EU smelters and refiners (SORs) that process conflict minerals as well as direct importers of those conflict minerals (small volume importers exempt) • Downstream companies: Voluntary due

diligence and reporting• In-scope regions: conflict-afflicted and high-risk areas worldwide

*The US secretary of state can add other minerals determined to be financing conflict in the DRC or an adjoining country. No such caveat within EU regulation.


The registrant must comply with the Final Rule if:• It files reports with SEC under the

Exchange Act• Conflict minerals are “necessary to

the functionality or production” of a product manufactured or contracted to be manufactured by the registrant− Only applies when a conflict

mineral is contained in the final product

− Also applies to foreign private issuers

SEC three stepsThe history and background of conflict minerals legislation

Determine whether compliance is required

If unable to determine conflict minerals origination or if conflict minerals originated from DRC countries:• Conduct supply chain due

diligence in accordance with the OECD Framework

• File Form SD and, in certain circumstances, a CMR as an exhibit:− Not required to describe products

as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable”

− Pending further action, an IPSA is not required unless a registrant voluntarily elects to describe a product as “DRC conflict free”

Report conflict minerals(due diligence)

If the Final Rule applies, perform a RCOI to determine whether conflict minerals originated in DRC countries.If conflict minerals did not originate from DRC, originated from scrap or recycled sources:• File Form SD and disclose

conclusion and a brief description of the inquiry and due diligence process

Determine origin of conflict minerals (RCOI) and resulting

disclosure


The nationally or internationally recognized frameworkThe history and background of conflict minerals legislation

Managementsystems

Identify and

assess risks

Respondingto risks

Publiclyreport

Auditsmelters

OECD Framework


Leading practices and challenges in applying the OECD Framework


An overview of the five-step frameworkLeading practices and challenges in applying the OECD Framework

1. Management systems 5. Publicly report2. Identify and assess risks

3. Responding to risks 4. Audit Smelters

• Adopt a conflict minerals policy

• Assemble an internal team to oversee due diligence, with senior management support

• Establish systems of controls and transparency over mineral supply chain - engage relevant first-tier suppliers

• Strengthen engagement with relevant suppliers

• Maintain related records for at least five years

• Establish grievance mechanism

• Identify suppliers that supply products which contain conflict minerals

• Request information from suppliers to understand the SORs in the supply chain

• Review SOR information or other information provided against your company’s Policy

• Compare SORs used against independently verified list (e.g. the Conflict Free Sourcing Initiative’s (CFSI) Conflict Free Smelter Program (CFSP))

• Report findings of supply chain risk assessment to designated senior management

• Design and implement capability building for suppliers

• Devise and adopt a risk management plan to mitigate the risk that relevant suppliers fail to cooperate with expectations

• Implement the risk management plan, monitor, track, and report progress to senior management

• Support the development and implementation of independent 3rd party audits of SORs’ sourcing (e.g., CFSP)

• Document and communicate company’s practices and due diligence

• Report on risk assessment and mitigation

• Although not part of the public report, respond to customers as requested (via the Conflict Minerals Reporting Template (CMRT))

OECD Guidance: Five-step framework for downstream implementation (extract)

Source: OECD (2016), OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: Third Edition, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264252479-en

http://dx.doi.org/10.1787/9789264252479-en

http://dx.doi.org/10.1787/9789264252479-en


Marketplace observationsLeading practices and challenges in applying the OECD Framework

Challenges• No definition of “reasonable” or “in good faith”• No specific RCOI steps outlined — flexible approach,

but must disclose RCOI undertaken• Complexity of global supply chains• Supplier wherewithal and responsiveness • Quantity & quality of responses received from

suppliers • Product versus company level CMRT responses• Limited internal data (e.g., material disclosures) • Work with intermediaries (e.g., assemblers,

distributors) • Limited resources to perform RCOI and due diligence• Ongoing litigation and limited SEC guidance combined

with uncertain political climate

Leading practices• CFSI membership and participation• Industry working group membership and participation• Technology solution• Use of CMRT• Train suppliers and internal personnel• Incorporate conflict minerals into code of conduct and

supplier acceptance/onboarding • Include conflict minerals in contracts• Begin to build full material disclosure database • Integrate conflict minerals into broader supply chain

compliance efforts


The good news from conflict mineralsLeading practices and challenges in applying the OECD Framework

WTa AuSn

There have been unintended benefits of conflict minerals compliance:

Enhanced visibility into supply chains

Better information on risks

Increased cooperation from suppliers


Form SD and CMR reporting leading practices and recommendations


Form SD disclosuresForm SD and CMR reporting leading practices and recommendations

Form SD with no CMR required based on RCOI

results

Form SD with no CMR required based on due

diligence results

Form SD when attaching a CMR as

an exhibitItem 1.01 Conflict Minerals Disclosure and Report (heading)

Conflict Minerals Disclosure (heading)

• Determination disclosure —

• RCOI description — —

• RCOI and due diligence description — —

• RCOI results — —

• RCOI and due diligence results — —

Reference to CMR Not applicable Not applicable

Link to website

Item 2.01 Exhibits (heading) Not applicable Not applicable

Exhibit 1.01 CMR Not applicable Not applicable

•Include required disclosures

•Provide sufficient detail

•Avoid repetitive disclosures when attaching a CMR

•Signature of executive officer

•Remember the website link! (and make it a direct link)


CMR disclosuresForm SD and CMR reporting leading practices and recommendations

The following are required under the Final Rule, as modified by the partial stay2 by the SEC:

Registrants voluntarily describing their products as “DRC conflict free”?

Yes No

• Description of the measures the registrant has taken to exercise due diligence on the source and chain of custody of the conflict minerals

• Statement that the registrant has obtained an IPSA of the CMR

• Identification of the independent private sector auditor, if not identified in the audit report

• IPSA report prepared by the auditor is required to be provided

• Description of the measures the registrant has taken to exercise due diligence on the source and chain of custody of the conflict minerals

• Description of products that contain necessary conflict minerals (i.e., consistent with 10K disclosure)

• Description of the facilities used to process the conflict minerals, if known

• Country of origin of the conflict minerals, if known, and the efforts to identify the mine or location of origin of conflict minerals with the greatest possible specificity

• Steps the registrant has taken or will take to mitigate the risk that its necessary conflict minerals benefit armed groups, including any steps to improve its due diligence

2 The Statement on the Effect of the Recent Court of Appeals Decision on the Conflict Minerals Rule: No company is required to describe its products as “DRC conflict free,” having “not been found to be ‘DRC conflict free,’” or “DRC conflict undeterminable.” If a company voluntarily elects to describe any of its products as “DRC conflict free” in its Conflict Minerals Report, it would be permitted to do so provided it had obtained an independent private sector audit (IPSA) as required by the rule. Pending further action, an IPSA will not be required unless a company voluntarily elects to describe a product as “DRC conflict free” in its Conflict Minerals Report.The legal action (National Association of Manufacturers, et al. v. SEC, et al.) is still outstanding.


CMR exampleForm SD and CMR reporting leading practices and recommendations

Conflict Minerals Report (excerpt) Exhibit 1.01I. Introduction[Can include an introductory section, although not required.]

II. Product Description[If not declaring “DRC conflict free”, describe in scope products.]

III. RCOIOECD Step 1: Establish Strong Company Management Systems

A. Adopt and commit to a supply-chain policy

Activities performed: [Disclose RCOI activities]

IV. Due DiligenceDue Diligence Design: [Include an assertion in the CMR that due diligence conforms to/is consistent with specific steps of the OECD Framework.]Due Diligence Measures Performed:OECD Step 3: Design and implement a strategy to respond to identified risks.

A. Report finding to designated senior management

[Disclose due diligence measures performed for calendar year]

V. Due Diligence Results[Disclose results of due diligence as well as product determination. Refer to Appendix where SORs and country of origin are disclosed.]VI. Future measures[Disclose steps the company will take to mitigate the risk that its necessary conflict minerals benefit armed groups]

• Organize the CMR with the use of labels

• Distinguish RCOI from due diligence – and include important program information

• Align to the OECD Framework

• Distinguish the design assertion from the due diligence measures performed

• Be precise and use plain English

• Should not suggest products are conflict free unless declaring “DRC conflict free” and obtaining an IPSA

• Consider disclosing SORs in the supply chain, if such facilities are known

• Present specific numbers to help articulate the improvements made


Leveraging conflict minerals programs to manage other regulatory advances


Essential components of a supply chain social compliance program Elements of a supply chain social compliance management system

1. Policies and program governance Establish a steering committee and cross-functional execution team to lead the development of relevant polices to drive program goals and address applicable regulations and public commitments. Establish expectations for both employees and suppliers.

Key program components include:

2. Training and support Align company culture to respect the company’s social commitments and continuous messaging from the senior leadership. Build internal and external awareness (e.g., employees, suppliers, others) via quality training programs and a strong commitment to them.

3. Supplier expectations Establish supplier requirements to drive policy compliance through the supplier code of conduct and contractual terms and conditions.

4. Risk management Assess environmental, social, & governance risks as an organization (not separately in business units or functions) and throughout the supply chain. Develop corrective actions for suppliers.

5. Public disclosure Establish public disclosure program, informed by applicable regulatory requirements and policy commitments.

The elements of supply chain social compliance management systems should be broad across the entity to foster collaboration and integrated thinking.

About DeloitteDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a detailed description of DTTL and its member firms. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting.

Copyright © 2016 Deloitte Development LLC. All rights reserved.36 USC 220506

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

http://www.deloitte.com/about

http://www.deloitte.com/us/about

assent compliance supply chain summit series the · pdf filethe conflict minerals landscape...

Documents