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What the EU conflict minerals rule means for EU companies

This week the EU Parliament formally adopted mandatory due diligence for mineral importers. This could have a significant effect on EU based companies. Following the announcement, we have pulled out several highlights for mineral importing companies, and brands that use 3TG material to be aware of:

Checking country of origin will not be sufficient

Importers of ‘conflict minerals’ – tin, tantalum, tungsten and gold – will be required to undertake mandatory due diligence checks of their material. We note that country of origin is not the only indicator that should trigger DD: information on transit or an irresponsible supplier should also prompt a background check.

This suggests to us that gold importers especially, will now be required to dig a little deeper when buying from known transit areas such as Dubai or India. However, 3Ts likewise, will need to demonstrate that material bought from China, for example, has not simply transited directly from a high-risk country such as DRC or Myanmar.

Small businesses and recycling are exempt, but there is scrutiny on the gold sector. This is welcome news as the gold sector continues to be rocked by successive scandals of either smuggling or fraud (see the recent Global Witness exposé).

New performance indicators are coming

Large companies (with over 500 employees) will be encouraged to report on their sourcing practices based on new performance indicators.

How serious is this? We can only go from the suggested text in the 20 May 2015 version which provides the following amendment: “(11a) Directive 2014/95/EU of the European Parliament and of the Council 1a requires companies with more than 500 employees to disclose information on a number of policies including human rights, anti-corruption and supply chain due diligence.

This Directive provides for the Commission to develop guidelines in order to facilitate the disclosure of this information. The Commission should consider including in those guidelines performance indicators with regard to responsible sourcing of minerals and metals.[Our emphasis]. “Requires” would suggest that this is far from voluntary – but it’s unclear at this stage what reporting will be required.

Existing schemes will be brought up to the OECD Due Diligence Standards

Existing industry and other OECD due diligence guidance conformant schemes will be used – but they will be checked to ensure they meet the standards of the OECD Guidance. As RCS works with all major industry schemes either as advisors or auditors we know that most have been heading this way in anticipation of this move. The OECD itself is working with the CFSI, RJC, ITSCI, LBMA, and DMCC on an alignment exercise and independent schemes like the Better Sourcing Program have already moved to bring their program in alignment with the OECD Guidance. However, the existing industry schemes that struggle to meet OECD alignment will have some work to do to ensure they meet minimum standards.

Defining and appraising definitions around conflict affected and high-risk areas

It’s good to see the commission take on the thorny issue of trying to define conflict affected and high-risk areas. This has the potential to highlight a number of regions and issues beyond Africa. We hear that this came about because the compulsory nature of the rule resulted in business groups insisting that the EU define high risk areas, rather than leave the assessment to companies themselves – as the OECD Guidance recommends.

To do this, the EC plans to select experts to draw up a list of areas and due diligence issues. The law will also be reviewed every two years, and this review may include a review of other minerals. We hear the OECD itself is likely to be instrumental in defining which minerals are likely to be high risk

Conclusion

If you are an EU based importer of 3TG – you need to get your due diligence program in alignment with the OECD Guidance. As a first step, if you have done nothing, consider working with RCS Global to map your supply chain and understand where you might be exposed to 3TG risk.

For those importers already with a due diligence program up and running – you should consider undergoing a CFSI Downstream Audit, which RCS Global has developed in partnership with the CFSI. The audit allows you to demonstrate compliance and you will be listed on the CFSI’s publicly accessibly registry of compliant companies. It is highly recommended that you demand your suppliers also undergo this audit to facilitate your own due diligence implementation.

CFSI and RCS Global will hold a webinar on December 8, 2016 from 11-12pm Eastern Standard Time to provide an overview of the audit, including a general Q&A session. To join the webinar contact Hillary Amster, CFSI Audit Program Manager, at [email protected]. To schedule an audit or to discuss the program, contact Michèle Brülhart, Head of Global Audit Practice at RCS Global, at [email protected].

If you don’t have a due diligence program, you need to start now.

Now, more than ever, large EU businesses and manufacturers will be expected to have mapped their supply chain exhaustively, and reviewed responsible sourcing policies and practices. Not only should these practices now be in alignment with the OECD Due Diligence Guidance, but the same should be expected of a company’s suppliers.

RCS Global can help with this process. We are already working with many leading manufacturers to bring their due diligence programs up to the industry standards being set in the EU, the US and globally.

For a free consultation, please email Harrison Mitchell, RCS Director for Responsible Sourcing at [email protected]. We look forward to discussing your case and your options in greater details.

About RCS Global

RCS Global is one of the world’s leading responsible raw material supply chain audit and advisory groups. We empower upstream, midstream and downstream operators to demonstrate the highest standards of responsible supply chain due diligence and compliance. Together with our clients, we are making industry more ethical, accountable and transparent.

RCS Global has established an unrivalled position as the bridge between actors at each stage of the value chain, from major EU and US regulators and corporations to global manufacturers, processors, mining companies and artisanal mining communities. Our senior staff
each have over a decade of experience in supply chain auditing, advisory, technical assistance and research and our brand reputation is built on our team’s performance since 2008. We currently work with the OECD, CFSI, BetterCoal, CCCMC, RJC and other industry bodies, as well as world leading companies.

Our position means that we have:

  1. The experience, expertise and confidence
 to guide you through your next steps in implementing the OECD Due Diligence Guidance’s requirements. Whether that is obtaining more insights through research, making sure your management systems are robust, managing your supplier engagement and training, or undertaking supplier validation audits.
  2. A decade of boots on the ground experience. With our representation in China and Africa we have an in-depth understanding of mineral supply chains, from multinational downstream actors to micro-scale artisanal mining operations, as well as the governance realities these supply chains have to function in.
  3. A profound understanding of the risks in these supply chains and the standards that govern responsible supply chains worldwide – including regulatory and voluntary standards in North America, Europe and China.

Excellent professional networks, from companies, to implementing bodies and governments, NGOs and the media.

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