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How to Prevent Conflict Minerals from Getting into the Supply Chain

Sept. 23, 2015

The supply chain for natural resources is under direct scrutiny. Regulators are hoping to achieve supply chain due diligence.

A recent example, as reported by Marie Wilke on the International Center for Trade and Business Development website, involves a proposal by the European Parliament to translate the Organization for Economic Co-operation and Development’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas into law.

Wilke addressed the source and current state of the legislation.

Risk-based due diligence has been enshrined in a number of national and regional laws ever since the UN confirmed the corporate obligation to respect human rights in its Guiding Principles on Business and Human Rights endorsed in 2011. Principles 13 and 17 specifically say that the corporate responsibility to protect also extends to adverse human rights impacts “directly linked to their operations, products, or services by their business relationships, even if they have not contributed to those impacts.”

To fulfill this objective, the UN Guiding Principles demand the establishment and use of due diligence processes, defined as an “on-going management process that a reasonable and prudent enterprise needs to undertake, in the light of its circumstances to meet its responsibility […].”  Understandings of “reasonable” and “prudent” depend on a company’s sector, operating context, size and position in the supply chain, among other similar factors.

Today the responsibility to systematically track and address human rights risks along the entire supply chain is reflected in a number of national and regional laws. The California Transparency in Supply Chains Act, theUK Modern Slavery Act, the France National Assembly’s Legislative Bill Relating to the Duty and Vigilance of Parent and Subcontracting Companies are some examples.

One particularly robust set of rules is the OECD Due Diligence Guidance. It sets a comprehensive framework under which downstream and upstream companies are expected to establish strong company management systems; identify and assess risks in the supply chain; design and implement a strategy to respond to the identified risks; and publicly report on their supply chain policies and practices. Companies operating at a point in the supply chain identified as a “point of transformation and traceability,” also need to undertake a middle step by carrying out independent third-party audits and making these available to their business partners.

In the minerals sector smelters and refiners have these characteristics and responsibilities. Each mineral needs to pass through a smelter or refiner along its lifecycle, of which only a limited number operate globally, and these are usually the last point in the supply chain where the origin of a mineral and/or metal can be determined. Risks in the supply chain upstream to the smelters and refiners are thus primarily addressed and managed by these entities whereas companies further downstream can identify and address their risks by ensuring that they buy from smelters and refiners that act responsibly. This approach ensures coherence and coordination in the upstream sector and avoids double auditing. Audited companies are thus the pivotal point that connects the upstream with the downstream, effectively interlocking the downstream sector’s leverage over its supplying smelters and refiners, with the latter implementing power over the upstream sector.

More on the achieving due diligence.