Conflict Minerals: The Impacts of the Regulations

Authors

• Marshall Chase

  Former Associate Director, BSR

Once the U.S. Securities and Exchange Commission (SEC) issues its final conflict minerals reporting regulations—due soon—we expect many companies to focus on the due diligence required to ensure “conflict-free” products. But a narrow focus on the rules neglects a point BSR has regularly emphasized in our years working on conflict minerals: Companies must take action with a real understanding of how that activity will affect local communities, and how it will fit into global supply chain sustainability trends.

With a growing number of companies acting on this issue, we are running a series of three blogs to highlight critical issues that risk getting lost in the rush to implement due diligence. This blog looks beyond the regulations to examine how supply chain policies are affecting the mining trade and conflict in the Democratic Republic of the Congo (DRC). The second piece will look at the importance and relevance of local labor and environmental issues outside the conflict, and the third will explore the connections between conflict minerals due diligence and global responsible sourcing trends.

So how have conflict minerals regulations and other programs, such as the international due diligence guidelines for responsible minerals supply chains, affected what’s happening on the ground in the DRC? According to a recent UN report, the regulations have had a significant impact on the flow of tin, tantalum, and tungsten from the region, but parts of the eastern DRC remain unstable, and armed groups are still active. The report also cites improvements in mining sector governance and increased exports in non-conflict areas, along with a reduction in conflict financing provided by minerals.

While the legislation and resulting company actions have done some good outside of the conflict area, they have also created problems within the conflict area, including a deterioration of mining sector governance and growth in smuggling and fraud, according to the UN:

“The fall in production in the Kivus and Maniema has led to rising unemployment and worsened poverty among the tens of thousands of people who depend on artisanal mining, with a consequent sharply negative impact for the economies of the affected regions as a whole. The fall in production has also had a severely negative impact on provincial and national governmental revenues.”

The relevance for company supply chain efforts is clear: A simple refusal to source from the region increases hardship for the people there. Companies should strive for continued engagement that supports conflict-free local sourcing and local economic development. The idea that companies should work to ensure social benefits even as they secure commercial gains is a cornerstone of BSR's sustainable local benefits work.

Efforts to sever the relationship between minerals sourcing and conflict need to be fine-tuned to limit hardship and provide this kind of local support. And leading companies and international aid organizations are starting to address this through programs like the Solutions for Hope project and the Public-Private Alliance. These are a good start, and we need more action to support real progress.