Understanding the EU Conflict Minerals Regulation
After years of negotiations between the EU Commission, EU Parliament, and the EU Council, along with pressure from Non-Governmental Organizations (NGOs) and special interest groups, the European Union agreed on legislation to regulate the usage of 3TG, otherwise known as conflict minerals, in their member states. As a result of this agreement, the EU Conflict Minerals Regulation was signed into law in June of 2017 and implemented on January 1, 2021. The legislation applies to companies that import 3TG into the EU. Continue reading to learn more about conflict minerals and the EU regulation.
What are Conflict Minerals?
The term conflict minerals, as defined by the EU Conflict Minerals Regulation, refers to the extraction of minerals that support, prolong, and cause conflicts in their originating countries. Profits from extracting conflict minerals are used to purchase weapons and pay combatants. This cycle perpetuates war, regional instability, and human rights violations in multiple regions across the globe. Currently, tantalum, tin, tungsten, and gold are considered conflict minerals and are often referred to as 3TG.
What is the EU Conflict Minerals Regulation?
The EU Conflict Minerals Regulation oversees the sourcing of conflict minerals brought into the EU from conflict-affected and high-risk areas (CAHRAs). The EU defines CAHRAs as areas experiencing armed conflict, weakened post-conflict areas, and areas lacking sufficient governance and security. Whether 3TG is imported as mineral ores, concentrates, or processed metals, it is subject to regulation.
Starting the regulatory process when 3TG enters the EU eliminates significant work involved in tracing up the supply chain. Importers of 3TG into the EU must conduct the due diligence process of tracing the minerals back to their smelter or mine of origin to ensure they are not funding or supporting armed groups. All importers also must follow the Guidance established by the Organization for Economic Cooperation and Development (OECD).
EU Conflict Minerals vs. U.S. Conflict Minerals
The EU Conflict Minerals Regulation is similar to the US Dodd-Frank Regulation in the sense that both regulations cover 3TG minerals, but the EU regulation has some key differences:
- The EU regulation affects companies that import 3TG into the EU, while the U.S. regulation affects companies that sell products that may contain 3TG.
- The EU regulation applies to imported products containing 3TG from smelters anywhere in the world. Alternatively, the U.S. regulation only applies to products containing 3TG from smelters in the high-risk area of the Democratic Republic of the Congo. Reporting requirements for the EU regulation are more challenging and rely on data input from multiple areas of the supply chain.
- A mandatory certification system is required for importers, smelters, and refiners, which means reporting is focused further up in the supply chain.
- Reporting on sourcing practices by EU manufacturers and sellers is currently voluntary. However, companies associated with importers violating the regulation will be affected.
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How Should Companies Report EU Conflict Minerals Information?
As previously mentioned, companies that import 3TG into the EU must follow the OECD Guidance. The OECD Guidance was compiled by governments, international organizations, industry leaders, and civil society to protect human rights and limit contributions to armed conflict. The Guidance requires an importer to follow the five steps outlined below.
What is the OECD Guidance Process?
1. Establish Strong Company Management Systems
The first step requires importers to adopt and communicate to the suppliers and the public a “company policy for the supply chain of minerals originating from conflict-affected and high-risk areas.” Companies must structure internal management to support supply chain due diligence, establish a system of controls and transparency over the supply chain, strengthen company engagement with suppliers, and establish a grievance mechanism as an early-warning risk-awareness system.
2. Identify and Assess Risk in the Supply Chain
Companies must identify risks in their supply chain and assess those risks of adverse impacts per the Guidance.
3. Design and Implement a Strategy to Respond to Identified Risks
Findings from the supply chain risk assessment must be reported to senior management, and one of three steps must be taken depending on the circumstances. Companies must either continue trade while using risk management techniques, temporarily suspend trade with the supplier, or disengage from the supplier completely.
4. Conduct Independent Third-Party Audits of Supply Chain Due Diligence at Identified Points in the Supply Chain
Companies must have their due diligence efforts audited by an independent third party.
5. Report on Supply Chain Due Diligence
It is recommended that companies publicly report on their supply chain due diligence practices. They can expand their sustainability, corporate social responsibility, or annual reports to accommodate the due diligence reporting. Each EU member state dictates the enforcement of the EU regulations.
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