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A CFSI Update for the 2016 Conflict Minerals Compliance Year
December 14, 2106
ADVANCED SUPPLY CHAIN COMPLIANCE SERIES
Michael Littenberg
Michael R. Littenberg Partner T +1 212 596 9160 F +1 646 728 2554 [email protected]
Michael Littenberg is a partner in the securities & public companies practice group at Ropes & Gray.
As part of his practice, for more than 25 years, Michael has been active in advising leading public and private companies on supply chain and corporate social responsibility matters, including relating to, among other areas, anti-human trafficking and conflict minerals and other commodities, and he is widely viewed as the leading practitioner in this emerging area.
Michael advises a significant number of companies on compliance with the US Conflict Minerals Rule, the pending EU Conflict Minerals regulation, the California Transparency in Supply Chains Act, the UK Modern Slavery Act, the FAR anti-human trafficking rule, REACH, RoHS and other supply chain regulations. Michael advises clients on, among other things, disclosure and compliance with legal requirements, the construction and implementation of compliance programs, mitigating customer, litigation, NGO and socially responsible investor risk and in their interactions with these constituencies.
Michael was previously a partner at Schulte Roth & Zabel.
The Conflict-Free Sourcing Initiative www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect
Conflict-Free Sourcing Initiative: Progress and Updates December 14, 2016
The Conflict-Free Sourcing Initiative | www.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect 2
2008 2014 2016 2017 MEMBERS 65 200 350 ?
COMPOSITION Electronics Multi-industry Multi-industry Multi-industry
DRIVERS NGO DFA, OECD DFA, OECD, EU, China, NGO, Members
DFA, OECD, EU, China, NGO,
Members, SRIs +
MINERALS tin, tantalum, cobalt 3TG 3TG 3TG +
GEOGRAPHIC SCOPE DRC Covered Countries Global CAHRAs Global
RISK SCOPE Conflict Conflict OECD Annex II risks
OECD MNE Guidelines, UN
Guiding Principles
RECOGNITION New initiative Dodd-Frank Compliance Global 3TG Due Diligence
Global Raw Materials Due Diligence
Evolution of an Initiative…
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 3
AIAG, JEITA, USFIA, VDA
Assent Compliance, Gensuite, iPoint, Source Intelligence, Total Parts Plus
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 4
2010 2011 2012 2013 2014 2015 2016Au 0 0 11 31 56 78 89W 0 0 0 1 9 29 40Sn 0 0 3 9 22 56 65Ta 2 10 15 23 43 46 47Totals 2 10 29 64 130 210 241
0
50
100
150
200
250
300
Num
ber o
f Com
plia
nt S
mel
ters
YOY Trend of CFSP Compliant Smelters
5
Smelter/Refiner Participation
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ta 2015 Ta Today Sn 2015 Sn Today W 2015 W Today Au 2015 Au Today Total2015
TotalToday
Active Compliant Other
Smelter/Refiner Research
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 6
324, 12%
719, 26% 1690,
62%
2015
Eligible Alleged Not Eligible
319, 11%
471, 16%
2,175, 73%
2016
Eligible Alleged Not-Eligible
OECD Alignment Assessment Objective • To evaluate the alignment of industry programmes’ standards and systems with the
OECD Guidance • To evaluate the alignment of the industry programmes’ implementation efforts with
the OECD Guidance Tools and results • Methodology (assessment tool and instructions) – available online • Report on assessment of industry programmes (Q1 2017)
New CFSP Protocol Components Scope
– Includes all OECD Annex II risks – Level 3 conflict-affected and
high risk areas, including but not limited to Covered Countries
Key areas of focus
– Internal Management Systems – Identification and assessment of
supply-chain risk(s) – Risk management – Public reporting on supply-chain
due diligence The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 8
OECD Due Diligence Guidance Application for CFSP Audit
Step 1: Strong Management Systems
All smelters
Step 2: Identify and assess supply-chain risk(s)
All smelters
Step 3: Risk Management Only if Step 2 identified risks
Step 4: Third Party Audit of Due Diligence
Conducted by the CFSP
Step 5: Reporting on Due Diligence
All smelters
System Strengthening and Support
• EICC Foundation
• Support upstream due diligence systems initiation and continual improvement
• Leverage public funding for development of publically-available resources
• Grievance Mechanism
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 9
Plausibility….3TG Production Figures by Country
• Production volumes by metal and country –Minerals UK, USGS, TIC, ITRI, TI-CMC, World Gold Council, etc.
• Useful for: – CFSP for additional cross-checks of
audit data and macro-analysis of material flows
– Auditors for review of Country of Origin information
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 10
Upstream Incident Review Process
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 11
• Raising awareness about upstream incidents, reporting processes, and outcomes to companies further downstream
• Facilitating active involvement of supply chain actors to encourage attention
and action around key trends and issues, at the appropriate level
• Generating discussion by international actors from industry, civil society, government and international organizations
NEW! Risk Readiness Assessment
• EICC/CFSI roll-out in 2017 • Identifies risks in upstream
supply chains • Inform the use of
appropriate standard(s) • Support risk-based
reporting • Align industry efforts to
leverage collective action
12
NEW! Responsible Raw Materials Initiative
• Mining is an intensive process involving potential social & environmental risks
• Growing body of research points to risks beyond the tin, tungsten, tantalum and gold (3TG)
• Governments, NGOs, investors, customers and other stakeholders are increasing their expectations on private sector
• The “downstream” voice lacks organization creating the opportunity for a new type of initiative in this space
• Launched at the EICC/CFSI 2016 Annual Conference
• Developed in collaboration with informal EICC and CFSI member work group and input from external stakeholders
• Purpose is to prioritize and act on salient responsible raw material sourcing issues for the industry
• EICC/CFSI members join with non-binding ‘Declaration of Support’
Responsible Raw Materials Initiative (RRMI)
15
Attribute RRMI Mineral scope All metals and minerals Risk scope All risks
Geographical scope All geographies
Core objective Organize the demand (downstream) voice for responsible mining
Annual Funding Requirement Free with EICC or CFSI membership
Membership Composition Private sector membership with stakeholder advisory group
Participating entities (as of Nov 29, 2017) 17 companies
Responsible Raw Materials Initiative (RRMI)
• We have an opportunity and responsibility to include prioritized raw materials in our responsible sourcing strategies.
• We acknowledge the challenges of achieving a state where industry can collectively understand and agree to its part in advancing responsible sourcing of raw materials.
• We support the RRMI‘s goal of understanding and contributing to mitigating the salient social and environmental impacts of extraction and processing of raw materials in supply chains.
• Contact Bob Mitchell for more information: [email protected]
RRMI Supporting Principles
Downstream companies within the tin, tantalum, tungsten and gold supply chains who seek validation of their sourcing practices yet are not eligible to participate in
the Conflict Free Smelter Program (CFSP).
NEW! CFSI Downstream Audit
Procures 3TG products to transform, process or treat
the material. Not considered a “smelter” or “refiner” under the CFSP
Audit Protocol.
Trade 3TG products without transforming, processing or
otherwise treating the material and who do not include the
material in a product.
Sources 3TG products indirectly from smelters
or refineries to be used in the company’s products.
CATEGORY ONE CATEGORY TWO (To be developed)
CATEGORY THREE
Processor Trader Manufacturer
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 18
Determination of Scope • The audit reviews the company's process to
determine the products and suppliers included in the effort to identify smelters and refineries in the supply chain to confirm that the scope is correctly defined.
Supplier Management (category 1 and 2 only) • An assessment of the process to select, approve and
monitor suppliers of 3TG or products containing 3TG.
• Review of a sample of supplier files to confirm the implementation of the process.
Supply Chain Transparency (category 1 and 2 only) • Review the process to monitor transactions of 3TG
received and to maintain adequate documentation to confirm the origin of 3TG or 3TG containing product.
Due Diligence • An assessment of the company's
management systems, risk assessment and risk mitigation process.
CMRT Review (limited to company CMRT for category 1) • The audit reviews the process to gather,
review supplier CMRTs. • An assessment of the process to follow up
and address any and all reporting errors in supplier CMRTs.
• Review of the process to aggregate supplier data and prepare the company's own CMRT
Audit Activities
Meet customer requirement to demonstrate responsible sourcing practices
Streamline conflict minerals audit requests
Provide independently validated information to downstream customer on due diligence activities
Prepare for the upcoming EU regulation
Improved due diligence systems facilitate responsible sourcing practices
International recognition by being listed on public registry
CFSI Downstream
Audit Program
What are the Audit Benefits?
Interested downstream companies and auditors please contact:
Hillary Amster CFSP Audit Program Manager
Michèle Brülhart Head of Auditing, RCS Global
2017 Strategic Priorities
20
Key Priority Area Examples
Market Acceptance - Program Credibility
OECD Conformance ISEAL Full Membership Grievance Mechanism
Upstream incident review process (iTSCi)
Audit Programs and Workgroups
Online audits Public reporting
Due diligence training leadership Downstream Audit Program (EU market applicability)
Partnerships and Public Affairs Bridge to needs in European Union and China EPRM, PPA, iTSCi, BSP, etc.
Effectiveness, Success, Impact Audit and supply chain data analytics Monitoring and evaluation of new metrics and KPIs
Business Model - Financial Sustainability Increasingly diversified and growing member base Rebranding to reflect scope of program
Emerging Issues Responsible Raw Materials Initiative Enhanced risk identification and assessment tools
WORKGROUP REGULAR CALLS
CFSI PLENARY BODY 3rd Wednesday 11:00 AM, Monthly
CFSI MULTI-STAKEHOLDER GROUP 1st Monday 11:00 AM, Monthly
MARKET ACCEPTANCE TEAM Tuesday 11:00 AM, Twice a Month
GOLD TEAM 3rd Tuesday 12:00 PM, Monthly
CMRT TEAM Wednesday 12:00 PM, Twice a Month
SMELTER DATA MANAGEMENT TEAM Wednesday 3:00 PM, Twice a Month
SMELTER ENGAGEMENT TEAM Thursday 2:00 PM, Twice a Month
DUE DILIGENCE PRACTICES TEAM Friday 11:00 AM, Twice a Month
The Conflict-Free Sourcing Initiative | www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect 21
The Conflict-Free Sourcing Initiative www.conflictfreesourcing.org | @EICCoalition | @GeSIConnect
Thank you Contact: [email protected]
QUESTIONS & ANSWERS