CSR: From 'Blood Diamonds' to 'Conflict Minerals'

In 2006, there was a movie entitled "Blood Diamonds" starring Leonardo DiCaprio (before he became blubberized and American-sized) that brought popular attention to the titular cause. For those of you covering corporate social responsibility (CSR), the issues should be familiar: Repressive governments and militiamen have been accused of using proceeds from the mining of these diamonds to fund their bloody conflicts in Africa. Nowadays, the cause celebre is the Democratic Republic of Congo. 

As it turns out, diamonds are but one product of extractive industries which have been identified in funding African conflicts. The problem that many American firms perceive with proposed Securities and Exchange Commission (SEC) laws is that many of these other minerals are found in everyday products you find at the strip mall--the archetypal symbol of American consumerism: canned goods, lightbulbs, jewelry, MP3 players, flat-screen TVs and so on:

Big retailers including Target and Wal-Mart may largely escape a costly new rule that requires U.S.-listed companies to disclose whether their goods contain so-called conflict minerals that are blamed for fueling violence in central Africa. Retailers lobbied to be exempted from the requirement, which will affect manufacturers of a range of products, including smartphones, light bulbs and footwear.

The Securities and Exchange Commission had proposed an earlier version of the rule that would have applied to retailers carrying products sold under their own brand names (store brands alike Archer Farms at Target or Kirkland at Costco), but which are typically produced by outside contractors. On Wednesday, however, the SEC voted 3-2 to adopt a final rule that would exempt companies that don't exert direct control over the manufacture of such products.

The rule, which was mandated by the Dodd-Frank financial overhaul, have been a source of friction between the SEC and companies ever since the law was passed in 2010. Companies have said the requirement would be burdensome and expensive. Indeed, the SEC on Wednesday sharply raised its estimate of the rule's financial impact, saying it would cost companies a total of $3 billion to $4 billion upfront, plus more than $200 million a year. The SEC initially had said the cost of compliance would be just $71 million. It said it revised its estimate based on comments from the business community and others.The SEC estimates around 6,000 U.S. and foreign companies would have to comply with the conflict-minerals rule, which covers products containing tin, tantalum, tungsten and gold [my emphasis].

NGO Global Witness is naturally dismayed with the SEC ruling. It should be pointed out here that the conflict minerals law will need to be implemented eventually to meet OECD standards. The point of the law, of course, is to discourage funding ongoing conflicts instead of caving in to powerful retailer's associations:

Global Witness is disappointed that the rule will allow companies to describe the origin of their minerals as ‘undeterminable’ for a period of two years – or four years for small companies.

“The minerals trade is fuelling violent conflict and human rights abuses in the eastern DRC and delays in implementing the law postpone the moment at which companies take responsibility for the impact of their purchases, jeopardising efforts to stop minerals funding conflict, and seriously undermining the aim of the law. By allowing companies to say ‘I don’t know where my minerals are from’, the regulators are effectively inviting issuers to evade all of the substantive measures required by the law. The incentive for companies to plead ignorance will be overwhelming,” says Global Witness.

Meanwhile, SEC staff made it clear that the Organisation for Economic Cooperation and Devel- opment’s (OECD’s) five-step due diligence framework is the benchmark against which companies’ due diligence should be measured.

So this "grace period" may be one of obfuscation as dishonest firms simply say they cannot identify where their tin, tantalum, tungsten and gold comes from in cases where they do indeed come from conflict-ridden regions.That said, others even argue that the law may instead have the effect of depriving poor communities of their livelihoods due to overzealous policing.