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)
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In-Region Programs
Conflict-Free Smelter Program (CFSP)
Company Assurance
Finished Product
MINE SMELTER/REFINERY OEMS
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Conflict-Free Sourcing Initiative (CFSI) Overview
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Upstream
Smelters / Refiners
Downstream
Conflict-Free Smelter(CFS) Program
Raw Materials
Finished Products
Conflict-Free Smelter Program (CFSP)
Supply Chain Pinch-Point
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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
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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
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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
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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
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Due Diligence Data Collection Team
• Develops revisions and updates to the CMRT
• Acts as CMRT usergroup
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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
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0
50
100
150
200
250
2013 2014
Partner Members
EICC-GeSIMembers
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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
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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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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
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
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How much I should implement due diligence for
customers?• Business relationship
• Reliable
• Accurate
• Timely
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What do your colleagues think?
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The Conflict-Free Sourcing Initiativewww.conflictfreesourcinginitiative.org | @EICCoalition | @GeSIConnect
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
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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
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• 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.
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
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Company Info
Due Diligence Questions Pt. 1
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I Have No Idea!
Due Diligence Questions Pt. 2
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I Have No Idea!
Company-Level Questions
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Product List
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Validation Step 1
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• 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
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
What Was Learned?
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• 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!
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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
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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.
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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
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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
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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
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