cfsi conflict minerals due diligence presentation

The Conflict-Free Sourcing Initiativewww.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect

Introduction & Background

Conflict-Free Sourcing Initiative

What Are Conflict Minerals?

• Illegal mining and trading of certain ores in the DRC has been exploited to fund armed conflict and serious human rights abuses.

– Columbite-tantalite refined into tantalum (Ta)

– Cassiterite refined into tin (Sn)

– Wolframite refined into tungsten (W)

– Gold (Au)

• As defined in §1502 of Dodd-Frank Act

– Regardless of origin

– Regardless of whether connected to armed groups

Conflict Free Sourcing Initiative (CFSI) 2

Obligations

3 major bodies of work address conflict minerals reporting:

– The United States Dodd-Frank Act of 2010

– The related Securities and Exchange Commission final rule on

compliance with Dodd-Frank

(SEC final rule); and

– The OECD Due Diligence Guidance for Responsible Supply Chains of

Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance)

Future – EU Regulation (2015)

3

In-Region Programs

Conflict-Free Smelter Program (CFSP)

Company Assurance

Finished Product

MINE SMELTER/REFINERY OEMS

4

Conflict-Free Sourcing Initiative (CFSI) Overview

The Conflict-Free Sourcing Initiative | www.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 5

Upstream

Smelters / Refiners

Downstream

Conflict-Free Smelter(CFS) Program

Raw Materials

Finished Products

Conflict-Free Smelter Program (CFSP)

Supply Chain Pinch-Point

5

Why Here?Conversion of distinguishable starting material

into an indistinguishable productSmall Numbers – tantalum, tin, tungsten and

gold smelter/refiners total less than 500 companies globally

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Company Mass Balance- Includes all inventory- Includes all facilities

Ore / Concentrate

Recycled / Scrap

Toll Customer

Finished Products

Toll Supplier

ConflictFree

Policy

Intermediates

Unfinished Products

Company Program Validation- Conflict Free Policy- Conflict Free Sourcing Systems

Sourcing Processes Validation

CFSP: Audit Focus

CFSI Standard Smelters


Ta Sn W Au Totals

2011 17 47 12 62 138

2012 18 52 16 78 164

2013 25 63 23 87 198

2014 46 79 40 114 279

0

50

100

150

200

250

300

Compliant Smelters


Ta Sn W Au Totals

2011 10 0 0 0 10

2012 15 3 0 11 29

2013 23 9 1 31 64

2014 40 22 7 52 121

0

20

40

60

80

100

120

140

2011 2012 2013 2014

Active and Compliant

• The number of legitimate smelters listed as CFSP active or compliant over the total number of legitimate smelters

TOTAL: 61% (178/294)

* 90% (38/42) including TI-CMC members progressing towards CFSP Validation

The Conflict-Free Sourcing Initiativewww.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 9

Metal December 2014

Tantalum 96% (44/46)

Tin 57% (50/87)

Tungsten 40% (17/42)*

Gold 57% (68/119)

Smelter Engagement Team

• Smelter validation

• Smelter master list

• Smelter outreach


Due Diligence Data Collection Team

• Develops revisions and updates to the CMRT

• Acts as CMRT usergroup


Supply Chain Survey

Development, integration and maintenance of tools and processes which support a down-stream company’s management system and risk assessment activities:

– Conflict Minerals Reporting Template• Tool to collect information about a supplier’s due diligence

processes and sources

– Establishing resources and processes to support data collection and analysis

Conflict Minerals Reporting Template Flow

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Smelter Smelter

Smelters

Sub-Suppliers

Sub-Suppliers

Sub-Suppliers

Template User

Direct Suppliers

Direct Suppliers

Direct Suppliers

1. Sends request to direct suppliers

2. Sends request to sub-suppliers

3. Cascades through supply chain until smelters identified. Sub-suppliers return template to suppliers.Direct

SuppliersDirect

SuppliersDirect

Suppliers

Original User

Customer

4. Direct suppliers return aggregated roll up template

5. User returns final aggregated roll up template

Membership!CFSI Partner Members 2013 CFSI Partner Members 2014 Total Membership

22 106 238


0

50

100

150

200

250

2013 2014

Partner Members

EICC-GeSIMembers


CFSI’s Knowhow

Responding Strategies on

Conflict Minerals

CFSI Due Diligence Practices Team

A forum for best practice sharing and

education on due diligence activities.

• Guidance documents

• White papers

• FAQs

• Internal surveys


Responding Strategies on Conflict Minerals –

CFSI’s Knowhow

• When and what should I survey my suppliers?

• How do I find out which smelters are in my supply chain?

• How much I should implement due diligence for customers?



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Smelter Smelter

Smelters

Sub-Suppliers

Sub-Suppliers

Sub-Suppliers

Template User

Direct Suppliers

Direct Suppliers

Direct Suppliers




SuppliersDirect

SuppliersDirect

Suppliers

Original User

Customer



When and what should I survey my suppliers?

• Annually (minimum)

• Ask for voluntary updates

• CMRT or equivalent – IPC 1755 Data Exchange Standard

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How do I find out which smelters are in my supply

chain?• Validation

• Communication

• Honesty


How much I should implement due diligence for

customers?• Business relationship

• Reliable

• Accurate

• Timely


What do your colleagues think?



Conflict Minerals Reporting

Template Workshop

Company Assurance

Development, integration and maintenance of tools and processes which support a down-stream company’s management system and risk assessment activities:

– Conflict Minerals Reporting Template• Tool to collect information about a supplier’s

due diligence processes and sources

– Establishing resources and processes to support data collection and analysis

Data Collection

Casting a Net: Wide or Narrow?All participants have thousands of suppliers

Some have tens of thousands

• Narrowing the focus– Direct Material Supplier only? Within % of spend?

– Products most likely to contain conflict minerals which they arrived at by working with materials engineering

• Or Not: ALL DIRECT SUPPLIERS– “Who would have ever thought that conflict minerals can turn up in things

like foam?

– Even an educated guess may not be that educated

Data Analysis


Determining High Risk Suppliers & Follow-up

• Using Materials Engineering to identify suppliers with products containing conflict minerals – 3TG

• Cross referencing against other sources

• Evaluating each suppliers response, or lack of a response

• “More than how many respond, it’s the quality of response”

• Some companies do not plan to perform due diligence at the Tier 2 level and beyond. Going to rely on suppliers

Data Collection & Analysis Advice


• Lessons Learned

– Prioritize based on Risk Assessment• Whether or not you cast a wide net, or narrow you will still need to

prioritize high-risk suppliers for outreach and/or follow up

– Establish a Supplier Point of Contact• Including a dedicated email address such as

conflict [email protected]

– Be Patient – But Persistent• There is widespread confusion among suppliers beyond Tier 1 about the

details of the conflict minerals compliance rule and whether it applies to them.


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Smelter Smelter

Smelters

Sub-Suppliers

Sub-Suppliers

Sub-Suppliers

Template User

Direct Suppliers

Direct Suppliers

Direct Suppliers




SuppliersDirect

SuppliersDirect

Suppliers

Original User

Customer




Company Info

Due Diligence Questions Pt. 1


I Have No Idea!

Due Diligence Questions Pt. 2


I Have No Idea!

Company-Level Questions


Product List


Validation Step 1


• Identify and Assess Risk in the Supply Chain– Collect supplier data

• Conduct a supply-chain survey (CMRT)

– Review and respond to unreasonable responses

• Assess CFS information for RCOI determination

• Potential validation information resources

– Other recognized industry approach

– Participation in in-region sourcing program(s)

– Information attained from industry initiative program(s)

– Information attained directly from a smelter

– Other indirect information (smelter location)

Validation: Step 2

• Make Covered Country sourcing conclusions from ‘all’ applicable information sources

• Aggregate smelter/refiner data

• Determine smelter/refiner’s information:– Country of origin information (CC or non-

CC)

– Utilize CFSP or other recognized industry approach

– Solely recycle/scrap

How Does This Really Work

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Smelter Smelter

Smelters

Sub-Suppliers

Sub-Suppliers

Sub-Suppliers

Template User

Direct Suppliers

Direct Suppliers

Direct Suppliers




SuppliersDirect

SuppliersDirect

Suppliers

Original User

Customer



What Was Learned?


• Reliability• Validation• Relationships• And…

OECD: Step 3• Risk Management

– Compliant smelters’ source of origin information available to members

– If the smelter or refiner (SoRs) sources from covered country or unknown implement OECD Due Diligence

• Compare smelters to CF independent audit program reference lists (e.g. CFS, LBMA, RJC)

– DRC CF: Listed smelters

– DRC conflict undeterminable: smelters not yet ‘listed’

– Identify additional/future activities to improve DD

Goal: identify smelters and rely on industry program

OECD: Step 4 & 5

Smelters or Refiners

– Utilize CFSP to determine

• Country of origin information for successfully audited SoRs

• Conflict-Free status information

Report!

• EICC or GeSI Membership– Full Membership provides access to CFSI and all EICC/GeSI WG’s

( http://www.eicc.info/Membership_Application.shtml )( http://www.gesi.org/Membership/tabid/59/Default.aspx )

• CFSI Partner Company Participation( http://www.eicc.info/documents/ExternalWGMembers-Companies.pdf )– $5K fee annually– Voting rights, access to all Work Groups, access to RCOI information

• CFSI Partner Association Participation( http://www.eicc.info/documents/ExternalWGMembers-Organizations.pdf )

– $20K fee annually– Voting rights (one vote for organization)– Up to two participants to CFSI Meeting or CFSI Work Groups, responsible for

disseminating all information (staff or constituent members welcome)

• White Paper on the Extractives WG (now the CFSI) available (www.conflictfreesmelter.org)

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Join us!

http://www.eicc.info/Membership_Application.shtml

http://www.gesi.org/Membership/tabid/59/Default.aspx

http://www.eicc.info/documents/ExternalWGMembers-Companies.pdf

http://www.eicc.info/documents/ExternalWGMembers-Organizations.pdf

http://www.conflictfreesmelter.org/


Overview & update

Conflict-Free Sourcing Initiative

What’s Next?

Year 2 reports to SEC due May 31, 2015

• Likely to include demonstrated improvements over last year

• Companies sometimes confuse reasonable country of origin with due diligence

• Companies likely to probe deeper into the supply chain, looking for risks– More companies reporting on response rates, rather than surveys sent


How can you do more?• Access to Reasonable Country of Origin (RCOI) data and Country of Origin

information associated with facilities that are validated through the Conflict-Free Smelter Program.

• Opportunity to shape industry response to conflict minerals reporting requirements and other expectations from stakeholders.

• Access to cutting-edge insight, tips and a like-minded community of industry professionals and issue experts developing solutions by companies, for companies.

• Facilitated engagement with stakeholder groups, including civil society organizations, socially responsible investor groups, governments and multilateral institutions and to ensure your company and organization have all the relevant perspectives as you make choices about your supply chain practices.

• Ability to contribute your perspectives to the development of new tools and resources from the CFSI, such as white papers on conflict minerals due diligence and training on conflict minerals reporting.


What’s Next?

• EU Regulation– Voluntary self-certification for importers

– Public procurement incentives for using “responsible” smelters

– Timeline looks like 2018 or later

• CFSP– Closer alignment to OECD Due Diligence Guidance

– Global applicability

– Reporting requirements


What’s Next?

• EU Regulation timeline– April/May vote after amendment collection and debate

– European Commission likely to issue implementation guidance in 2016

– Includes 2 year implementation period and potential 2 year application period

– Therefore, unlikely to come into force until 2018 or later

• EU Distinguished from Dodd-Frank– Voluntary v. mandatory

– Emphasis on importers v. downstream

– Global applicablility


What’s Next?

• CFSI shifting to adapt to EU proposal

• Specific changes:– Global applicability

– Consistent reporting requirement application

• Continued emphasis on validating, engaging, and auditing smelters

• High-risk & Low-risk smelter distinction with greater flexibility for low risk facilities


What’s Next?

Stronger relationships and collaboration

• ITU-T proposal

• ICGLR audit committee

• Cross-industry resource hub– AEM, AIA, AIAG, NAM, RILA,


cfsi conflict minerals due diligence presentation

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