Specialist information on conflict minerals
Conflict minerals: resource and danger
Conflict minerals (more generally: “conflict commodities” or “conflict resources”) are goods such as raw materials or even natural resources that are often mined or extracted illegally and without state control in conflict regions and high-risk areas. Systematic violations of human rights and international law go hand in hand with this. Therefore, it is a topic for corporate social responsibility (CSR) and due diligence of companies.
Specifically, conflict minerals are tin, tungsten, tantalum and gold – collectively referred to as 3TG because of the terms tin, tungsten, tantalum. The ores of these raw materials include cassiterite (tin ore), wolframite (tungsten ore), coltan (tantalum ore). These ores are used in particular for electronic devices such as computers or mobile phones.
In order to prevent human rights violations in the mining of critical raw materials, there are various international legal requirements. Adhering to the requirements or avoiding conflict minerals in products can be a significant competitive factor, strengthens CSR and can also determine the success of a company.
Since 21 January 2021, there has been a due diligence obligation in the European Union with regard to conflict minerals based on the OECD Guidelines for Multinational Enterprises. It is based on EU Regulation 2017/821, which already came into force in 2017, although due diligence, management and risk management obligations and control mechanisms have only applied since 2021. All “conflict and high-risk areas” are considered countries of origin. A list of affected countries is regularly updated and published at www.cahraslist.net.
Due diligence obligations for companies listed in the USA that use conflict minerals have already existed since 2014. They go back to the so-called Dodd-Fank Act. Similar to the Kimberley Process, which has restricted the trade in blood diamonds since 1998 through state certificates of origin, companies are to be encouraged to acquire these minerals in a responsible manner and to follow legitimate trade routes. The aim is to stop financially supporting armed conflicts in the countries of origin. For the purposes of the Dodd-Frank Act, countries of origin are the Democratic Republic of Congo (DRC) and adjoining states: Angola, Burundi, Central African Republic, Republic of Congo, Rwanda, South Sudan, Tanzania, Uganda and Zambia.
Since 31 May 2014, all companies listed in the USA are required to file an annual report with the US Securities and Exchange Commission (SEC) if they use conflict minerals. This stems from Article 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by the US Congress in July 2010. In their report, companies must disclose whether they use Conflict Minerals in their products, whether they are necessary and exactly where they come from. The companies must also publish the results from the reporting and disclosure obligations on the internet.
If, in the first step, a company discovers that it is processing conflict minerals, it must investigate where these originate according to the standard of good faith. If the minerals were imported from one of the above-mentioned states, the company must prepare a conflict mineral report on the entire supply chain. In addition to the results, the measures taken to determine the origin must be recorded. An independent private company checks whether the rules have been complied with.
Important to know: Under the Dodd-Frank Act, it is not prohibited to use so-called DRC minerals. However, since companies have to disclose this, the “name and shame” principle applies. This means that for prestige reasons alone, US-listed companies will make a point of avoiding the relevant minerals in their products. This is because “Corporate Social Responsibility” (CSR) is increasingly valued by the public.
Regulation (EU) 2017/821, published by the EU Parliament and the European Council on May 19, 2017, created a legal framework in the EU to restrict trade in tin, tantalum, tungsten, their ores and gold. This so-called Union system is intended to ensure international transparency and security with regard to the delivery practices of Union importers, smelters and refiners. EU importers of conflict minerals are required to perform certain due diligence, i.e. avoid damage in the affected areas and monitor and regulate their purchases and sales according to the five steps of the OECD due diligence guidelines:
- Set up reliable management systems in companies.
- Identify and assess the risks in the supply chain.
- Develop and implement a strategy for dealing with the identified risks.
- Conduct an independent third-party assessment of due diligence at identified points in the supply chain.
- Prepare a due diligence report.
The guidelines are not legally binding for companies, but a new, stricter complaints and mediation procedure has been set up.
The US-listed companies pass the disclosure obligation through the supply chain. German and other European companies can therefore be indirectly affected as suppliers. In their material reporting, they must make declarations about the critical raw materials used and their origin. If a European company is itself listed on the US stock exchange, it is even directly affected by the regulations. For its part, it must keep a record of the use and origin of conflict minerals throughout the entire supply chain.
The report must show whether tin, tantalum, tungsten, their ores or gold originate from the Democratic Republic of Congo (DRC) or its neighbouring countries (“DRC countries”), and to what extent they are actually “necessary” for the product. If this is the case, companies must explain exactly where the critical minerals come from. If the minerals actually come from one of the DCR countries, a “conflict minerals report” must be prepared. It explains in detail what efforts have been made to clarify the origin of the conflict minerals and to ensure that the trade does not directly or indirectly support an armed conflict. This report must also be independently verified. Affected companies must account for the previous calendar year, regardless of the end of their financial year. The report is due on 31 May each year for the previous year.
Through global supply chains, it is estimated that around 195,000 companies internationally are affected by the US reporting requirement.
The EU regulation also requires traders and importers of tin, tantalum, tungsten and gold to conduct due diligence. There are sanctions for non-compliance. Producing companies with more than 500 employees will be required to voluntarily disclose their supply chain. A brief guide in English (PDF) lists, among other things, the countries affected in each case, as the regulation applies to all “conflict and high-risk areas”.
To meet US due diligence requirements, it is not sufficient for companies to simply check the ingredients of their own parts and materials. Rather, they must report annually on whether conflict minerals that are “necessary” for the function or manufacture of a product come from DRC countries. Whether this is the case depends, among other things, on whether the mineral is an indispensable component of the end product and was deliberately used there, i.e. did not result from the contamination of another product, as may be the case with tin residues in steel, for example.
Some companies inform their supply chain about the legal requirements and ask suppliers to identify those parts that contain conflict minerals or their derivatives. The supply chains of the parts and the smelters associated with them should then be identified. Finally, it is important to check whether the identified materials have been extracted from scrap or recycled material, or actually come from conflict mines.
Companies can also use it positively for strengthening their CSR to comply with the requirements on conflict minerals in an exemplary manner. We would be happy to advise and support you in this. Simply contact us for an initial consultation for orientation!
Cobaltis a heavy metal that was initially used mainly for coloring glass and ceramics. However, since the 1990s it has also been used in batteries and now it is used in almost all lithium-ion batteries.
It is currently found in most electric cars and cell phones or smartphones. The new German Supply Chain Due Diligence Act obliges companies from the beginning of 2023 to ensure they do not commit any human rights violations. This includes cobalt mining and affects both producers and their suppliers. For this reason, many electric vehicle manufacturers are currently looking to secure long-term supply agreements for what is termed “clean cobalt”. In addition, many manufacturers are now developing cobalt-free batteries. Nevertheless, demand for cobalt still remains high and is set to double by 2026 compared to 2017 levels, according to estimates by the German Raw Materials Agency DERA.
Cobalt is mostly mined in the Democratic Republic of Congo as it is home to more than 50 percent of the world’s known cobalt deposits. As is the case with the 3TG conflict minerals, mining often takes place under problematic conditions. As early as 2017, a report by Amnesty International on child labor in the supply chain drew attention to the issue.
It was originally planned that cobalt would become the fifth conflict mineral, along with the 3TGs, whose use was to be regulated by the Dodd-Frank Act (Sec. 1502). However, this ended in failure as it was contested by numerous companies because it is very expensive to carefully check the source of this product. Since cobalt was initially processed primarily as a by-product of copper and nickel mining, smelters could not be readily identified and validated.
Human rights organizations and companies have increased their due diligence efforts on conflict minerals like cobalt in recent years. For example, an American human rights organization sued the American automaker Tesla at the end of 2019. Meanwhile, Tesla is working in partnership with the Swiss Glencore Group, which is one of two mining companies operating in the Democratic Republic of Congo that belong to the RMI, according to the Financial Times. American automotive manufacturer General Motors (GM) also followed suit with a long-term agreement with Glencore. GM is now working with suppliers to build an “electric mobility ecosystem focused on sourcing essential raw materials in a safe, sustainable way.”
Many other companies have now voluntarily committed to disclose their entire cobalt supply chain as part of their CSR. Under the OECD guidelines, reporting covers all conflict and high-risk areas (CAHRAs). This is not the case for the Dodd-Frank Act which covers the 3TGs.
Cobalt (CAS No. 7440-48-4) also falls under REACH regulations because it can have long-lasting adverse effects on aquatic life and can cause an allergic skin reaction as well as allergies, asthma, or respiratory problems when inhaled. Manufacturers and importers must therefore provide guidance for safe use and take necessary precautions.
Many everyday products in the Western world contain a virtually unknown substance that has suddenly come into the public eye following the introduction of the new German Supply Chain Due Diligence Act. Now everyone is talking about mica. Almost every electronic device, car paint, paint, battery, lipstick, and other types of cosmetics contain these minerals, which often come from illegal mines in India. The mining of mica in India primarily takes place in an area covering some 800 villages in the states of Bihar and Jharkhand. About 30 percent of the world’s supply comes from here, followed by China.
Mica is a collective term for 37 different minerals. The most commonly used are muscovite and phlogopite. It is used in a wide range of applications: both to insulate heat and electricity and to provide a shimmer or sheen in products – often in very small amounts. In a car, for example, mica makes up only about 0.1 percent, although it is a component of a large number of car parts, including paints, cables, dashboards, and bumpers. Mica is also found in electronic devices such as cell phones, computers, and coffee machines, especially in circuit boards, semiconductors, cables, and lithium-ion batteries. The substance is even found in cosmetics such as nail polish, shampoo and in children’s toothpaste, which is particularly unfavorable.
On World Day against Child Labor on June 12, 2022, the human rights organization Terre des hommes highlighted that child labor, corruption, and concealment often occur in the mica supply chain. In India alone, it is said that some 30,000 children are forced to work in mica mines, suffering frequent injuries, illnesses, and even death. The problem has been exacerbated by the COVID-19 lockdowns because poor Indian day laborers, in particular, have forced their children to work. The organization’s research “Behind the glittering facade” revealed that the origin of products from illegal mines is often concealed by middlemen.
Terre des hommes is a co-founder and member of the Responsible Mica Initiative, which now has more than 70 company members, including the Volkswagen Group and Daimler. The initiative provides higher incomes and improved educational opportunities in 100 villages in the Indian mica mining area. However, the RMI does not have a mandatory standard by which companies can be certified to or even any form of monitoring. It merely provides a voluntary platform for companies to carry out lobbying and project work.
However, following the introduction of the German Supply Chain Due Diligence Act, from January 1, 2023, companies with more than 3,000 employees in Germany will be required to assess human rights risks among their business partners. This consequently affects German automotive manufacturers and electronics companies. In terms of the use of mica, they are obliged to contact companies that export paints or coatings in India or manufacturers of components in China. However, the obligation to conduct a human rights risk analysis only applies if the company has received reports of violations. This is documented for some mica mining areas such as India or Madagascar but not for China, Brazil, or other major world markets.
The legal provisions on conflict minerals put thousands of companies internationally under pressure to provide evidence. For many companies, it is difficult to meet their due diligence obligations, as there are numerous complex individual steps between the extraction of raw materials and the production of the end product. Conflict minerals add to the myriad of enquiries from the supply chain about processed materials. Hardly any company can still manage the answering, administration and reporting manually.
This is where imds professional can help with comprehensive services, expertise, contacts and sound know-how in the field of material research and material compliance management. We support companies in meeting the legal requirements regarding conflict minerals and strengthening their CSR. This saves valuable time and avoids mistakes that have a negative impact on the company’s reputation. Many companies already trust our years of expertise in material compliance and let us advise and support them on the topic of conflict minerals.
|SEC website with information on the Dodd-Frank Act||Link|
|Dodd-Frank Wall Street Reform and Consumer Protection Act|
Relevant: SEC. 1502 (PP. 369-375)
|General definition according to Wikipedia||Link|
|Press release of the SEC||Link|
|Website of the Responsible Minerals Initiative (RMI)||Link|
|Regulation (EU) 2017/821 of the European Parliament and of the Council||Link|
|Further information on the European regulation||Link|
|Commission Recommendation (EU) 2018/1149 on non-binding guidance for the identification of conflict and high-risk areas||Link|
|Due Diligence Guidance: Towards conflict-free mineral supply chains|
|ZVEI position paper on conflict minerals||Link|
|Conflict Minerals: List of Member State Competent Authorities designated under Article 10(1) of Regulation (EU) 2017/821|
|OECD Due Diligence Guidelines|
|Overview of countries of origin (CAHRAs)||Link|
|DIHK Fact Sheet on the Dodd-Frank Act|
|Website of the Responsible Mica Initiative||Link|
Manual reporting: Conflict Minerals Reporting Template
New reporting template for conflict minerals such as cobalt and mica (EMRT)
Conflict minerals in the IMDS (for the automotive industry)
Conflict minerals in the
CDX system (cross-industry)
Product Stewardship Network (PSN) with Conflict Mineral Scenario (CMS)
Services around conflict minerals
Do you need more information on the tools described or support? To ensure your due diligence and strengthen CSR, it pays off – usually also very quickly financially – to enlist the help of professionals.
Simply contact us, our experienced professionals will be happy to help!
Or are you looking for training? At our ipCampus you will find trainings worldwide and in many languages.