Conflict Minerals: Responsibility falls to the Ultimate End Users

The concept of conflict minerals is becoming increasingly topical. In particular, as cobalt scarcity increases, a closer eye is being kept on the cobalt supply chain and cobalt originating from the DRC’s artisinal miners.

On the 19th of January, Amnesty International and Afterwatch broke the news of child labour being used in Huayou Cobalt and its subsidiaries’ mining operations.  The report goes on to explain how this cobalt was then on-sold to three battery component manufacturers in China and South Korea who supply technology and vehicle majors, including Apple, Daimler, Microsoft, Samsung, Sony and Volkswagen.

Unsurprisingly, only one company admitted to being connected to these battery component manufacturers.  Five companies denied the connection, while four others were unable to confirm whether they were purchasing cobalt from either Huayou Cobalt or other DRC-based cobalt producers.

The “unable to confirm” group is the one I find particularly interesting.  In August 2015, the Wall Street Journal reported that of the 1,262 US firms to file conflict-free reports with the Securities Exchange Commission (SEC), 90% of these firms indicated that they “could not determine with certainty whether their minerals were conflict free.”

How is it possible that a company is unaware that it is indirectly supporting heinous crimes against humanity by conducting business deals with entities, all of whom are placing lives in jeopardy, through the funding of warlords, the utilization of artisanal miners, or the exploitation of child labour?

 In the past, final commodity end-users such as technology or vehicle manufacturers were able to remain in the dark as to the provenance of their raw materials.  In truth, sadly many of these companies are still in the dark as to understanding their supply chains and being able to trace the source of their raw materials.  However, legislation and public/consumer pressure are forcing these firms to become the “custodians of their supply chains” (CSC’s TM).

By the end of May 2014, companies that are registered with the US Securities and Exchange Commission (SEC) should have disclosed the use of conflict minerals sourced from the Democratic Republic of Congo or its neighboring countries under the US Dodd Wall Street Reform and Consumer Protection Act.

Meanwhile, the European Union also has a voluntary scheme under which European Union (EU)-registered smelters that sell materials sourced from conflict zones could be certified as “conflict-free.”

Companies themselves are also making efforts to regain control over their supply chains and ensure that minerals are sourced from conflict-free zones. Intel pledged that it would ensure that by January 2016 no conflict minerals would be used in the manufacture of its microprocessors, and the entire supply chain would be “conflict free.”  To this end, the company has visited and vetted over 80 smelters in 21 countries to verify whether their supply chain is conflict-free.

However, at present, there are not sufficient conflict-free smelters to meet the needs of technology and automotive companies, which have become increasingly reliant on critical materials that are traditionally found in war-torn areas.  This presents two issues with respect to supply security; namely, the ability to find sufficient resources to satisfy the current demand and ever-evolving new technologies, and the ability to find clean, conflict-free supply sources.

Core Consultants, an independent commodity consultancy firm, has assisted major technology firms to form alliances with “clean” supply partners.

In 2014/15 Core Consultants assisted a US multinational technology firm that designs, develops and sells consumer electronics and computer software to understand their options for sourcing cobalt in the DRC. The chosen cobalt producer(s) had to be able to supply around 6,000 tonnes per annum of cobalt concentrate and be reputable.

With this in mind, Core Consultants set up a list of criteria that prospective suppliers had to meet in order to be considered as a potentially ethical business partner for our client. We then conducted an inquiry using a hybrid of desk-top analysis and on-the-ground sources to evaluate whether these producers were operating on an ethical basis.

Other technology firms have since approached  Core Consultants for assistance in evaluating their supply chains and sourcing potentially ethical partnerships.

Indeed, if we consider the chart below that was updated in 2012, the technology sector still has a long way to go with respect to ensuring 100% conflict-free supply chains, but it is refreshing to see major end-users, which were previously removed from their upstream operations, stepping into the role of supply chain custodians (CSCs).

Screenshot 2016-01-27 22.10.07

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