conflict minerals webinar

Understanding and Disclosing the Use of Conflict Minerals

Robert Yoho, LiveSource

Kevin Deely, Resources Global Professionals

Roger Blumberg, LiveSource

Quick Housekeeping

• Chat box is available if you have any questions

• There will be time for Q&A at the end

• We will be recording the webinar for future viewing

• All attendees will receive a copy of the slides/recording

2

Robert Yoho Supplier Compliance

Practice Lead

Email: [email protected] Phone: 412.370.1382

Kevin Deely Senior Practice Director,

Supply Chain Management


Roger Blumberg Senior Vice President of

Sales & Operations


mailto:[email protected]



Agenda

• Conflict Minerals Overview

• Solving Conflict Minerals Requirements with Technology

• Consultative approach to solving conflict minerals

• Q&A

4

Conflict Minerals Overview

Roger Blumberg, LiveSource Email: [email protected] Phone: 412.726.1965


What is the U.S. Conflict Minerals Law?

6

The conflict minerals ruling, as stated in Section 1502 of the Dodd-Frank, requires that publicly traded companies and their suppliers are now required to disclose whether they manufacture products that contain conflict minerals.

What are Conflict Minerals?

7

Conflict minerals are minerals mined in conditions of armed militant groups, notably in the eastern provinces of the Democratic Republic of the Congo, where these groups exploit or have direct control over minerals traded throughout the region.

Conflict Minerals (3TG) Common Industries Select Applications

Tin

Cassiterite

Electronics

Automotive

Industrial equipment

Construction

Alloys

Solders

Plating

Wire

Tantalum

Coltan, Columbite-Tantalite

Aerospace & Defense

Automotive

Electronics

Medical devices

Industrial products

Capacitors

Circuit boards

Lab equipment

Satellites

Tungsten

Wolframite

Electronics

Lighting

Industrial products

Telecommunications

Metal wires

Electrodes

Heating elements

Welds

Gold

Aerospace & Defense

Electronics

Telecommunications

Connectors

Electric plating

Fuel cells

The DRC has essentially been in a state of civil war for more than 15 years in one form or another.

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Where is the Democratic Republic of the Congo (DRC)?

9

What is the Timeline for Compliance?

January 2013

January 2014

January 2015

January 2016

January 2012

Compliance Year One Compliance Year Two

Aug 22, 2012

SEC Final Rule

Dec 2010

SEC Proposed Rule

Conflict Minerals Free

Not “DRC conflict free”

Undeterminable

Conflict Minerals Free

Not “DRC conflict free”

May 31, 2014

Initial filing date

May 31, 2016

Third filing date

May 31, 2015

Second filing date

July 2010

Dodd-Frank becomes law

TODAY

5 Reasons You Can’t Ignore Conflict Minerals Legislation

1. Continued conflict

2. Liability

3. Corporate social

responsibility

4. Direct supply chain route

5. Action is required now

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Solving Conflict Minerals Requirements with Technology

Robert Yoho, LiveSource Email: [email protected] Phone: 412.370.1382


Solving Conflict Minerals with Technology

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• Collection of multiple levels of supplier documentation

• Scalability to manage a large number of suppliers over time

• Notifications to both buyers and suppliers with expiree dates for verified documents or certifications

• Single supplier communication vehicle with verification to communicate your company’s policies regarding conflict minerals

• Flexibility to adjust to ever-changing supply base structure (M&A, supplier onboarding) and regulatory requirements

• Need to provide detailed reports for initial and ongoing supplier compliance

Compliance Tracking Through Multiple Tiers

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Upload all Suppliers

Internal Assessment/

Survey

Certify Tier 1 Affected Suppliers

Roll out to Tier 2

Suppliers

Roll out to Tier 3 ,4,x Suppliers

Ongoing surveys to

track progress

Compliance validation for Conflict Minerals/REACH

• Certifications and tracking maintained via Supplier Intelligence System (SIS) Card

• Updates automatically generated to supplier and tracked by buyer organization

• Limited license given to Tier 2 and below suppliers for uploading certificates and reporting

Multiple Tier Graphical Representation

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• Parent – child relationship

• Buying organizations can view actual supplier responses

• Scalable to support multiple layers of suppliers (down to smelters)

• Configurable for ongoing changes to supply base

Supplier Profiles with Embedded Survey Responses

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Supplier Conflict Minerals Profile Supplier Survey Response

• Survey responses are versioned with time/date stamp

• Reportable to show progress over time

• Configurable to each buying organization’s needs

Compliance Reporting: Conflict Minerals/REACH/RoHS

1

• Capability to ‘roll up’ reports from multiple Tier 1 and below suppliers in a consistent and timely manner

• Reporting requirements by the buying organization to provide to internal and external customers

• Demonstrating the time element of compliance efforts and tracking the Conflict Minerals Program effectiveness

• Reporting and taking action with non-compliant suppliers

• Performing multi-tier analysis on individual supplier responses

Supplier Declarition Scope Description of Scope

Is the use of Gold (Au)

necessary to the

functionality or

production of your

company's products

that it manufactures or

contracts to

manufacture?

Is the use of Tantalum

(Ta) necessary to the

functionality or

production of your

company's products


contracts to

manufacture?

Is the use of Tin (Sn)

necessary to the

functionality or

production of your

company's products


contracts to

manufacture?

Is the use of Tungsten (W)

necessary to the

functionality or

production of your

company's products that

it manufactures or

contracts to manufacture?

Deaton Manufacturing Systems NO NO NO NO

Marshall Metal Products Inc NO NO NO NO

Robinson Metal, Inc. NO YES YES YES

Compliance validation for Conflict Minerals/REACH

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• Expandable for REACH/RoHS compliance efforts

• Flexible to individual organizational initiatives

• Supplier compliance with visibility to both buyers and suppliers

Supplier Risk Management

Track current/future compliance initiatives as well as other supplier risk factors in one platform

Getting Started

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Clearly there are challenges to adhering to the conflict mineral ruling requirements, but it is important to take a proactive approach.

As a starting point, consider which products need to be reported and the affected suppliers. Determining whether products are conflict free doesn’t have to be done on your own. There are tools available to help ease this process and help reduce the burden.

Consultative Approach to Solving Conflict Minerals

Kevin Deely Email: [email protected] Phone: 703.610.3436

This document is the proprietary and confidential property of Resources Global Professionals.

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A Unique Kind of Business Partner

WE ARE A PUBLICLY-TRADED, GLOBAL PROFESSIONAL SERVICES FIRM WITH A BIG FOUR HERITAGE.

Founded in 1996 as part of Deloitte.

Management buy-out (1999) and initial public offering (2000). NASDAQ: RECN.

Selectively acquired Big Four service lines in Europe and Asia/Pacific.

We partner with business leaders and their teams to plan and execute initiatives

as well as support day to day operations.

Working collaboratively with our clients, we provide:

ADVISORY Project scoping, approach, management and execution

PROJECT Subject matter or functional expertise for specific projects

INTERIM Management level expertise for day-to-day operations


3

High – Level SEC Compliance Roadmap

As part of the final rule, the SEC outlined a three step compliance roadmap for companies to follow.


Are you an SEC 13(a) or 15(d) “Issuer”?

Do you manufacture, or contract to manufacture products containing Conflict Minerals?

Are Conflict Minerals necessary to the functionality or production of the product manufactured by or for you?

If yes to all three, then go to Step 2

Using an acceptable framework (i.e. Organization for Economic Cooperation and Development (OECD)), determine source and chain of custody of Conflict Minerals

Conduct a Reasonable Country of Origin Inquiry (RCOI)

Determine whether Conflict Minerals are from Covered Countries, scrap or recycled; describe methods and results

SEC defined a Specialty Disclosure Form (Form SD) for submission of the annual Conflict Minerals filing

Issuers will submit either a Form SD, or Form SD with a Conflict Minerals Report describing the measures taken in Due Diligence

Obtain and certify an independent 3rd party audit and report on methods and results

Disclose Conflict Minerals determination through filing Form SD and posting on publicly available company website

Step 1 Determine Applicability

Step 2 Due Diligence

Step 3 Compliance Reporting

Step 1 – Determine Applicability

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Applies to any SEC 13(a) or 15(d) registrant for which conflict minerals are “necessary to the functionality or production” and contained in the final product manufactured, or contracted to be manufactured.

Includes domestic, foreign, and voluntary issuers regardless of size.

SEC estimates about 6,000 (or roughly half) of all SEC registrants will be impacted.

No “de minimis” use exception.

Considering the many industries whose products contain conflict minerals, and the breadth of supply chains involved, the potential scope is significant.

Non-public entities that are suppliers of such products to SEC registrants will be impacted through requirements to vet and certify their supply chains.

Final Rule page 48


The regulation is focused on SEC registrants that meet certain criteria, but the regulation also impacts suppliers, foreign and domestic, that serve these companies.

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Step 2 - Due Diligence

The SEC final rule requires the use of a recognized due diligence framework. Presently, the only internationally recognized framework comes from the Organisation for Economic Co-operation and Development (OECD).


OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas

Supplements for Tin, Tantalum, Tungsten, and Gold

Over 70 specified recommendations

Foundation for defining a company’s Conflict Minerals compliance process

1) ESTABLISH STRONG

COMPANY MANAGEMENT

SYSTEMS

3) DESIGN & IMPLEMENT A STRATEGY TO RESPOND TO

IDENTIFIED RISKS

2) IDENTIFY AND ASSESS RISKS

IN THE SUPPLY CHAIN

4) THIRD PARTY AUDIT OF SMELTER

/REFINER’S DUE DILIGENCE PRACTICES

5) REPORT ANNUALLY ON SUPPLY CHAIN DUE DILIGENCE

OECD Due Diligence Guidance page 17

Step 3 - Compliance Reporting

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Form SD (Specialized Disclosure) and Conflict Minerals Reports are filed.

Liability for false or misleading material statements.

A Standard defense for this Liability: Can the company prove that they acted in good faith and had no knowledge that information was false or misleading.

Form SD must be signed by an executive officer of the company, but not required to be signed by the company’s directors.


Ultimately, companies will have to file the Form SD Specialized Disclosure and potentially a Conflict Minerals Report detailing their RCOI and Due Diligence efforts and outcomes.

Form SD (Specialized Disclosure):

The determination – “DRC Conflict Free”, “DRC Not Conflict Free”, “DRC Conflict Undeterminable”.

Brief description of RCOI and Due Diligence efforts.

The results of that RCOI and Due Diligence efforts.

Conflict Minerals Report:

Due diligence on source and chain of custody.

Steps taken/to be taken to mitigate risk 3TGs benefited armed groups.

Any further steps to improve Due Diligence.

Country of origin in the Covered Countries, if known.

Smelting facilities that processed the 3TGs, if known.

Efforts to determine mine or origin with greatest possible specificity.

Describe products, facilities used to process them.

SEC Final Rule page 161 and 182

What is our vision for becoming Conflict Minerals compliant?

How are our peers proceeding with compliance and what are their expected conclusions?

What conclusion are we targeting for Year One, Year Two, and beyond?

What are the risks of concluding “not been found to be DRC conflict free” by 2015?

What is our criteria for “Necessary to the Functionality or Production” and “Contract to Manufacture”?

How will we identify 3TGs in our products and who will be involved?

Can we leverage existing compliance and sustainability initiatives for conflict minerals?

What information can we gain through the RCOI process that will help drive operational performance and reduce risk?

How aware and prepared is our supply base to address this initiative?

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Key Considerations – Strategy and Planning

As they proceed, companies must contemplate a range of considerations to produce a cohesive compliance strategy to guide the organization.

Conflict Minerals

Compliance


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Key Considerations – Process, Controls, and Audit

Who is responsible for the overall design of the compliance process?

How do we capture findings, supporting documentation, and conclusions?

What technology do we plan to use to support the process (e.g., RCOI, document retention)?

What follow-up actions will be taken with suppliers who did not provide satisfactory responses?

Who is signing Form SD?

What goes into Form SD or the Conflict Minerals Report?

What controls need to be implemented?

What is the role of internal audit and/or compliance?

How do we demonstrate that we are in compliance with the OECD Guidance? And, that we adhered to a process?

If we have two to four years before a possible audit, how do we know if our process is sufficient? (i.e., Mock Audit)

What should be included in the scope of the Mock Audit?

Companies must also focus on defining a process that works for their organization, aligns to the OECD Guidance, and reduces overall compliance risk.

Conflict Minerals

Compliance


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Key Considerations – Governance

What organizational function(s) own Conflict Minerals compliance?

What are the organizational impediments to becoming compliant (e.g., silos, disparate organizations and technology)?

How do we ensure our process is consistently applied throughout the organization?

What metrics should be used for compliance tracking and reporting?

What changes may be required from a supplier management perspective (e.g., sourcing, quality and audit)?

Companies must also determine what type of governance model best suites their organization and culture.

Conflict Minerals

Compliance



Conflict Minerals Lessons Learned

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Lessons Learned

Develop realistic expectations on timing and outcomes

Consider that varying degrees of compliance carry different costs. Determine what the appropriate level of investment to achieve your objectives.

Leverage conflict minerals compliance to establish a more formalized supply chain risk, compliance, and sustainability strategy

We see a number of companies that do not have a full appreciation of what it takes to become compliant. As well as appreciating the ancillary benefits that relate to becoming compliant.

Strategic Level Lessons Learned

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Lessons Learned, continued

Strong program governance, detailed process design, and software selection are key in preparing to execute compliance activities.

Execution Level Lessons Learned

Develop a documentation standard and retention plan at the beginning of the process

Identify process risks and controls early in the process

Approaching the risk rating of products from the procurement/ commodity side may be more efficient given the involvement of procurement stakeholders and quality of procurement data.

Maximize internal analysis to reduce RCOI burden

Define RCOI requirements before evaluating and testing RCOI software

Develop detailed a RCOI communications and training strategy for suppliers to increase the survey response rate and completeness of responses

Establish a robust governance structure to:

Develop the company’s conflict minerals vision, strategy, policy, and program charter

Define program decision rights (e.g., executive steering committee, business unit leads, geographic leads)

Determine roles and responsibilities of key organizational functions Allocate and prioritize resources and investments Define ‘reasonableness’ of the process


RGP’s Conflict Minerals Approach

Our readiness assessment determines an organization’s capacity to comply with Conflict Minerals provisions, identifies potential 3TG risk, and provides a compliance roadmap.

Our RCOI and Due Diligence methodology follows the SEC-endorsed OECD Guidance and prioritizes the necessary steps, tools and templates to support sustainable compliance efforts.

RGP supports the preparation of Form SD and the Conflict Minerals Report.

RGP Conflict Minerals Methodology

14 This document is the proprietary and confidential property of Resources Global Professionals.

Our end-to-end compliance methodology, which includes Quick Diagnostic, Reasonable Country of Origin Inquiry (RCOI) and Due Diligence, and Compliance Reporting.

*Each client’s timeline is tailored to fit their objectives and will address the scope and complexity of their supply chain. Some activities from one Phase to the next will be conducted in parallel. Phase 3 timing does not include a Mock Audit.

Phase 2 RCOI and Due Diligence

Phase 3 Compliance Reporting

Project Management / Stakeholder Communications / Project Risks / Status Reporting

PHASE 3 COMPLIANCE REPORTING

PHASE 2 RCOI AND DUE DILIGENCE

PHASE 1 QUICK DIAGNOSTIC

Questions?

Robert Yoho Supplier Compliance

Practice Lead


Kevin Deely Senior Practice Director,

Supply Chain Management


Roger Blumberg Senior Vice President of

Sales & Operations





conflict minerals webinar

Documents

conflict minerals requirements

conflict minerals qa

conflict minerals law

conflict minerals flexibility

conflict minerals legislation

conflict mineralsreachrohs

continued conflict

compliance reporting