This is the last in a series of EHS Journal articles designed to provide meaningful background and guidance on Dodd-Frank Conflict Minerals (DFCM). Other articles in the series include:
Preface: 5 Myths About Dodd-Frank Conflict Minerals
Part 1: U.S. Conflict Minerals: Background and Proposed Rule
Part 2: Conflict Minerals Final Rules: What Changed?
Part 3: Dodd-Frank Conflict Minerals by the Numbers
Part 4: Tips for Environmental Leaders
Overview
By now, you’ve viewed webinars, attended seminars, read articles (including this series!) on DFCM. You know the basics of what the rule requires. You should be aware of the OECD framework, and its five steps. You probably know that the lawsuit spearheaded by the National Association of Manufacturers (NAM) and others failed to stop DFCM, or the seven key issues they were challenging. You are, no doubt, familiar with the conflict-free smelter (CFS) program, and the slow start in getting certifications of conflict-free smelters. You have seen (or sent, or responded to) at least some of a flood of questionnaires regarding content of tin, tantalum, tungsten or gold (3T&G) in your products, and where it came from. You have been underwhelmed with the response rate from your suppliers. Your company, in turn, may be delayed in your responses to your customers (you know you’re getting these questionnaires, too – right?).
You and your organization are keenly aware that the rule applies for 2013 – and those months keep peeling off the calendar. Most companies have established multi-functional teams to address the challenges posed by DFCM. The de facto leaders in these teams vary from company to company, but have usually been from Legal, Supply Chain/ Procurement, or someone (likely “volunteered” for a “special project”) with little knowledge of the issue before their assignment. The experience of Environmental Leaders has been under-utilized. Here are five tips for what environmental leaders can do to get ready for DFCM.
Five Tips for Environmental Leaders
1. Chart your own course — now.
Your company may have benchmarked with industry peers or others in a regional business group. There has been a spate of conferences, and no shortage of opportunities to hear what others are doing. This research can be helpful, but it can also be a trap. Many companies have been waiting for other companies to come up with “the answer” for various aspects of DFCM compliance programs. Many companies are waiting for their suppliers to provide requested information; many of them won’t. There is no silver bullet – only a course for your company at this time. Furthermore, the effort required to prepare reports, obtain approvals, and make the appropriate submittals will take much longer than you think.
Companies may be in the same sector, but each company is different. The culture around financial reporting and disclosures is unique. The Boards are different, as are their expectations of company management and the financial auditor. Companies have different platforms for IT information and controls. Some companies got a head start on DFCM, while others held out hope for deferral.
Take cues from how your company does similar things. Is the company usually pro-active and expansive in the Management Discussion & Analysis section of the Form 10-K? Is the company pro-active in sustainability reports? What are the company’s ground rules for accruing reserves for environmental and other liabilities? These are good indicators of the company’s risk tolerance, brand protection, and public profile. Apply these principles as you chart your organization’s course for DFCM disclosures.
2. Take a management systems approach.
Remember that DFCM is a disclosure of whether conflict minerals are in your company’s products. It is not a limit, and not a ban. If a filer determines that any of the four subject minerals in its products do come from the covered countries, then the filer must indicate that fact, submit a Conflict Minerals Report, and obtain (and submit) the independent audit of the CMR.
The due diligence is a process, much like environmental management systems (EMS). It is not expected that it will be completely built out and robust by December 31, 2013. This is similar to early stages of an EMS; environmental leaders know that management systems can’t be built in a month — and management systems certainly can’t be used to achieve a desired outcome (zero waste generation?) in the same period of time. Design the due diligence to conform to selected framework(s), and begin working on all applicable steps. As with an EMS, documentation and records are critical to support the basis for claims and disclosures. Do what you document. Document what you do.
3. Learn the Yellow Book.
The independent audit of the due diligence process will be done according to standards of “the Yellow Book.” Formally, that’s the Generally Accepted Government Auditing Standards. Environmental leaders undoubtedly have experience with environmental, safety, security, supply chain, or other types of auditing. Unless you have worked for a government entity, or a government contractor that has been audited by the government, you may not be familiar with the Yellow Book. It’s free, and it’s surprisingly readable. This will enable you to contribute to design and implementation of the due diligence in a way that will facilitate the independent audit.
4. Leverage IT Systems
As noted in Part 3 of this series, the greatest costs to be incurred for Dodd-Frank Conflict Minerals compliance — by far — are related to upgrades for IT systems and controls. This may include upgrades to enterprise software (Oracle, SAP, etc.), commercially-available supply chain and risk management software, or IT tools built in-house. Many of the commercially-available IT vendors began with experience from developing tools for compliance with Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), Restriction of Hazardous Substances (RoHS), or Waste Electrical and Electronic Equipment (WEEE) directive. They have expanded these capabilities to fulfill DFCM regulatory requirements.
Become familiar with the IT systems and controls to get ideas on how to improve environmental and sustainability program management. Take advantage of the focus on IT system upgrades to add features that improve tracking of environmental compliance or performance requirements. They can be used to add parameters for sustainability reporting.
5. Prepare for changes — there’s always next year.
The Conflict Minerals Report, the underlying due diligence, the associated independent audit (if applicable) are all snapshots. They portray a filer’s processes, systems, and internal controls over 3T&G in products, and where they come from. The filer’s management systems will evolve. There will be changes in products and suppliers. There may be requests from customers, NGOs, or other stakeholders that require additional reporting in later years. The reports and disclosures that everybody is working on now will need to be done again in 2014. Just as environmental leaders have learned with EMSs, the time to begin focusing on continuous improvement is when the ink is barely dry on this year’s filing.
About the Author
Douglas Hileman, P.E., CPEA, has over 34 years of experience in the environmental, safety and sustainability (ESS) fields. He worked for nine years in industry in environmental operations, corporate ESS program development, and due diligence. He has 25 years of experience in consulting, including six years as an in-house specialist at PricewaterhouseCoopers LLP. While at PwC, he supported financial audit teams for environmental liabilities, Sarbanes-Oxley compliance, and business processes, systems and controls. Mr. Hileman has conducted ESS audits of conformance with consent decrees, sustainability data and claims, and many other elements of ESS and served on the Board of Directors of the Auditing Roundtable. He is a Certified Professional Environmental Auditor, a Qualified Environmental Professional, and a member of the Institute of Internal Auditors. Information on his firm can be found at www.douglashileman.com.
Photograph: Cassiterite (tin oxide) ore from the Democratic Republic of the Congo by Mark Craemer, published in Treehugger.com, June 9, 2009. Click here to see the entire slideshow “The Incredible Story of Conflict Mineral Mining in Images.”
