Apr 20, 2024
The Conflict Minerals Regulation Demystified: All You Need to Know
Navigate the complexities of EU’s Conflict Minerals Regulation.
The EU Conflict Minerals Regulation came into force in 2021, aiming to promote responsible sourcing of four particular minerals. The conflict minerals in question are tin, tungsten, tantalum, and gold, often called 3TG collectively.
These four resources are used in a range of items from cars to smartphones, but are often mined in politically unstable countries where the proceeds from supplying the 3TG minerals can be used to fund war, corruption, and human rights abuses and violations.
For this reason, human rights organization Amnesty International launched a campaign ahead of the 2015 vote on the law in the European Parliament. The group wrote an open letter to members, stating:
“Tackling the highly lucrative trade in conflict minerals will not, on its own, put an end to conflict, corruption or abuse. However, it is critical to securing long-term peace and stability in some of the most fragile and resource-rich areas of the world. As long as an illicit industry can flourish unchecked, the trade in conflict minerals will supply funds and motivation to violent and abusive actors.”
The countries in question include the Democratic Republic of the Congo, Nigeria, and South Sudan. However, these are regularly reassessed on a list of conflict-affected and high-risk areas (CAHRAS).
What is the EU Conflict Minerals Regulation?
The EU Conflict Minerals Regulation is a piece of legislation aimed at breaking “the nexus between conflict and illegal exploitation of minerals,” according to EU Trade Commissioner Cecilia Malmström.
The regulation:
Obliges companies that import 3TG minerals into the EU meet OECD standards for responsible sourcing.
Requires smelters and refiners working with 3TG minerals, wherever they are based, to source responsibly if they are importing to the EU.
This aims to break the link between conflict and the exploitation of mineral resources, as well as facilitating the end of exploitation and abuse of mine workers and their communities.
As the EU is a major market for the minerals in question, the regulation has the potential to positively affect the supply chain and drive change in the way that minerals make their way from the ground to the end product.
Read on to discover how this new piece of legislation is shaping conflict minerals compliance.
What are the objectives of the EU Conflict Minerals Regulation?
Promote responsible sourcing from conflict-affected and high-risk areas
The key element of the regulation is to ensure that, if companies import minerals from high-risk regions, they do so using a supply chain that is committed to only sourcing from legitimate suppliers and where the transaction will not fund criminal activity.
Break the link between mineral trading and financing of armed conflicts
By working only with responsible suppliers, the industry will cut off funding for those groups using the proceeds from minerals to carry out warfare, torture, money laundering, and corruption.
Harmonise global standards
In the US, the Dodd-Frank Act created a range of compliance requirements for American companies with regard to sourcing conflict minerals, and the EU’s legislation brings European companies in line with the drive to create a more sustainable supply chain.
Support the development of local communities
By only working with responsible suppliers, it empowers local communities to thrive away from the fear of being controlled and abused by armed groups.
Enhance transparency of mineral supply chains
The regulation applies throughout the mineral supply chain, ensuring that at each stage the various entities understand where the 3TG minerals come from and that they are not using natural resources derived from criminal sources.
Encourage cooperation between EU and non-EU countries
Although the Conflict Minerals Regulation is a piece of EU legislation, it does not only cover companies based in the bloc. It applies to all companies that import 3TG minerals into a member state, wherever they are based in the world.
Broaden the scope of affected countries
The American legislation has been criticized for concentrating on only the Democratic Republic of the Congo and its surrounding nations. The EU law applies to any conflict-affected or high-risk area, wherever it is in the world. This allows it to battle exploitation, conflict funding, and human rights offenses relating to mineral trade, wherever they happen.
Which companies are affected?
The regulation applies to any EU importers of tin, tungsten, tantalum, and gold. This is estimated to be between 600 and 1,000 businesses. Annex I of the regulation sets out the compliance threshold for volumes of each of the 3TG elements imported in both metal and mineral states.
It stipulates the amount of each resource that a company can import in a variety of forms, after which the company must abide by the regulation. The EU predicts that this will cover no less than 95% of the total imports into the EU of these minerals.
In addition, it also affects 500 refiners and smelters who supply EU companies, no matter where they are based.
Compliance requirements of the EU Conflict Minerals Regulation
Due diligence obligations
Companies in the scope of the regulation should perform adequate checks to ensure that the products or resources they buy have not funded conflict, abuse, or other illegal actions. They should follow the OECD’s five-step process to achieving this:
Establish strong company management systems
Identify and assess risks in the supply chain
Design and implement a strategy to respond to identified risks
Carry out an independent third-party audit of supply chain due diligence
Report annually on supply chain due diligence.
Here are the actions companies should take to ensure they fulfill the EU’s conflict minerals due diligence requirements:
Implement a supply chain policy
Companies are not just examined for their part of the mineral journey, but also for ensuring their supply chains are working in a responsible and compliant manner. It is therefore essential for importers to create a policy relating to the sourcing of minerals from conflict-affected and high-risk areas. This is a key element of the requirement to establish storing company management systems.
The policy should be shared along the supply chain. It should set in stone the principles for extracting, handling, trading, processing, smelting, refining, alloying, and exporting the 3TG minerals at every step of the way in accordance with the law.
The company can then assess the performance of all entities in the chain against this policy, spotting risks and contraventions early and mitigating them effectively.
Understand potential risks
The supply chain of the 3TG minerals comes with multiple risks when attempting to source responsibly. This is why companies are obliged to both identify and mitigate the potential issues that they will face.
The first step is to understand the exposure the company has to conflict minerals. This allows you to assess the level of risk and identify those areas where you could potentially be in breach of the regulation. Take an evidence-based approach, create a risk management plan, and monitor your performance against it.
Ensure timely risk management and mitigation
Make sure to keep communication lines open across your supply chain. By being able to contact those stakeholders easily, you maintain a focus on the importance of compliance and the expectations that you have.
Better engagement breeds trust and transparency, which reduces the risk of nefarious activity within the supply chain. Share best practices and communicate challenges to crowdsource solutions that maintain compliance.
Conduct third-party audits
Importers should instigate a third-party audit of smelters and refiners to ensure they are working with responsibly sourced minerals. To make this process more streamlined, the EU is developing a list of global responsible smelters and refiners.
The audit should compare the practices at the smelter or refiner against the company’s supply chain policy and in accordance with the regulation. This includes how the smelter or refiner carries out its own due diligence and the information it passes down the supply chain relating to the materials with which it works.
Auditors should inspect the facilities of the smelter or refiner, as well as those of their suppliers. They should also meet with representatives of the firm and consult with local government bodies to better assess how responsibly sourced the materials are.
Report annually
Either create a separate report or include in your annual ESG reporting an assessment of your due diligence measures and your performance in relation to them. This helps both authorities and potential investors establish whether you are on the right track and generates public confidence.
Your reports should include details of the systems you have in place, the risk assessment you have made, and the measures you have in place to manage that risk.
Ensure that the language is transparent and clear and that you publish these documents on a regular basis and without delay.
In their conflict minerals reports, companies should disclose the following information:
The identity of the refiners and smelters they use in their conflict mineral supply chain. This allows other stakeholders to check that they have the correct due diligence practices in place.
Their own due diligence policies relating to the entire supply chain. This provides accountability for their actions and helps the public understand the practices in place to ensure conflict minerals are sustainably sourced.
Requirements for different companies
The OECD refers to upstream companies as the supply chain from the extraction to the refinement stage. Downstream companies are those following the refining stage, including manufacturers and retailers.
There are different rules regarding the obligations of organizations, depending on their place in the supply chain. This explains more:
Upstream: Conduct a risk-based due diligence process on the supply chain.
Downstream companies importing products at the metal stage: Conduct a risk-based due diligence process on the supply chain, report on the steps taken to identify smelters and refiners, and assess their compliance.
Downstream companies importing products beyond the metal stage: No obligation to report, but are advised to carry out due diligence on the supply chain for the sake of transparency and accountability.
What happens if a company doesn't comply with the regulation?
If companies discover conflict minerals in their supply chain, they should include this information in their report. This should include details of the mine of origin and the taxes, royalties, and fees paid in relation to the products.
Member states are responsible for ensuring compliance, with the ability to carry out on-the-spot inspections of organizations they suspect to be non-compliant.
If this is the case, the authorities can set a deadline to rectify the issue and then follow up to ensure that the organization is compliant.
FAQ
Why does the EU regulation only cover four minerals?
The EU is in line with other legislators around the world, such as in the US Dodd-Frank Act, by identifying tin, tungsten, tantalum, and gold as being the resources most closely associated with conflict and human rights abuses in high-risk areas. This is why laws regarding conflict minerals revolve around the 3TG elements.
Will the regulation only apply to companies based in the EU?
Although the regulation only directly applies to EU companies, it will indirectly apply to supply chain entities including refiners and smelters wherever they are based. The EU business has an obligation to ensure the entire supply chain meets the standards set out in the regulation.
Who checks whether companies comply with the regulation? And how?
Member States are responsible for ensuring compliance and have the power to inspect company sites for contraventions of the law. They can then order firms to change their practices accordingly to rectify the situation if found to have conflict minerals in their supply chains.
Conclusion
The EU Conflict Minerals Regulation is in place to protect some of the most vulnerable people on the planet in some of the most volatile environments and conflict-affected areas. Armed gangs have exploited the trade in these precious commodities for many years, with the funds derived from them contributing to suffering on a large scale. By implementing this new law, the EU is encouraging businesses to help change their practices and source minerals responsibly, with that message sent up and down the supply chain.
Communication is key in this situation, and that is why using a supply chain management system like Beebolt is essential. Beebolt is next-generation supply chain control tower software that acts as a collaborative space. On the platform, you can engage with your suppliers, building a bond of trust and a culture of transparency. Book a demo of Beebolt today and see how it can streamline your supply chain.