Language Has Been Lost but the Conflict Minerals Rule Remains in Full Force

Earlier this week the U.S. Court of Appeals for the District of Columbia Circuit released its decision to uphold its previous ruling that requiring companies to declare their products as “not found to be DRC (Democratic Republic of the Congo) conflict free” is in violation of the First Amendment. While this decision is a blow to those who wanted to see this specific designation (if warranted) in companies reporting to the Securities and Exchange Commission (SEC), all of the other reporting requirements regarding conflict minerals remains intact. The bigger question on the minds of many, especially our sustainable and responsible investors (SRI) colleagues is, ‘Will this ruling make it more difficult to ask for corporate transparency on any number of environment, social, and governance (ESG) issues?’

It is critical and needed for companies to be required to report in a standardized format on their connections to egregious human rights abuses in the world; then, the leverage of companies working together can address these atrocities. By having Dodd-Frank Section 1502 on Conflict Minerals implemented, Responsible Sourcing Network (RSN) has started to recognize and reward companies on their social performance. Our analysis can be viewed in our pilot report, Mining the Disclosures, which looked at companies’ 2014 disclosures to the SEC, and our report evaluating 150 companies’ 2015 disclosures is due out this fall.

While the bigger question about transparent reporting on ESG issues is yet to be determined, we at RSN are grateful that the vast majority of the conflict minerals law and its implementing final rule, remain intact. The disclosures themselves must still include all the same information, including a description of efforts to identify country of origin as well as a description of the facilities used to process minerals. Companies can voluntarily use their own language in reporting their conflict-free determination, which the majority did in their 2015 disclosures to the SEC.

The decision to uphold near-full implementation of the law is very important to SRIs, which are relying on the conflict minerals due diligence reporting for brand valuation, risk assessment, and investment decisions. Although companies will not be required to use the exact wording “not found to be DRC conflict free,” this judgment can still be made by reading through companies’ public disclosures.

RSN’s evaluation system of companies’ disclosures remains unchanged; we are continuing to monitor overall due diligence to score human rights performance. We expect companies to commit, assess, respond, and report on their efforts to address conflict minerals in their products, as well as explain how they are making a positive impact in the DRC region. Although it is more difficult without the specific designation, RSN is still informing investors and holding companies accountable that abuse their right to freedom of speech to mislead stakeholders as to the quality of their due diligence and their actions to support conflict-free mining in the DRC.