EY-Let’s talk: governance – June 2014

Let’s talk: governance – June 2014

First-year conflict mineral reporting reveals surprises

Disclosures provide insight into the impact of a new SEC rule

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More than 1,300 companies made their first conflict minerals filings in early June pursuant to a new Securities and Exchange Commission (SEC) rule.

Most filers in this initial year were unable to determine the origin of 3TG in their products and filed a CMR stating the need for further due diligence. (3TG commonly refers to tin, tungsten, tantalum or gold.)

Many of these companies have complex supply chains and reported difficulties in tracing the origin of the 3TG in their products given insufficient supplier responses to their inquiries. Many companies reported that suppliers did not respond to questionnaires or did not provide complete or adequate responses.

For this reason, many of the CMR reports did not include the type of detail that may have been expected.

S&P 500 companies: conflict minerals disclosures

EY reviewed the Form SD filings for the 213 S&P 500 companies that identified the use of 3TG in their supply chain. More than 85% of these (184 companies) filed an associated CMR.

EY S&P 500 companies: conflict minerals disclosures

An executive officer must sign off on the Form SD. Company representatives selected varied significantly:

Conflict minerals report disclosures

Key findings from a review of the 184 S&P 500 companies filing a CMR exhibit show: Most companies were not yet able to determine the origin of the conflict minerals in their products. More than 40% identified that at least some portion of their sourcing originates in the covered countries but indicated additional due diligence was necessary for some portion of their product components and suppliers.

Sourcing from covered countries

Sourcing from covered countries

Most companies did not have sufficient information to fully trace the source of 3TG materials. About half were able to identify some portion of smelters as conflict-free and only 27% provided a list of smelters and refiners. Additionally, nearly 20% noted that one or more smelters in covered countries are conflict-free.


Conflict free smelters and refiners


EY Conflict free smelters and refiners

Most companies disclosed the use of third-party due diligence tools in their review process, including:

  • Organization for Economic Co-Operation and Development (OECD) Due Diligence Guidelines for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas: This due diligence framework is widely cited and currently the only government-backed multi-stakeholder initiative aimed at developing transparent mineral supply chains and corporate supplier engagement practices in the mineral resources sector. Many companies created a formal policy position or commitment statement on conflict minerals in connection with OECD guidance related to the development of strong company management systems.
  • Conflict-free Sourcing initiative (CFSI) reporting template: This is a supply chain survey tool that is designed to identify the smelters and refiners that process the necessary conflict minerals contained in a company’s products. The reporting template includes questions on a supplier’s responsible sourcing policies, its practices for engaging with upstream suppliers and the smelters/refiners from which conflict minerals are sourced.

CFSI Conflict-Free Smelter Program: The most commonly cited independent third-party audit program which provides certification regarding the conflict free status of smelter and refining facilities. Some companies included in their CMR exhibits the identification of smelters used.

Due diligence related disclosures


EY Due diligence related disclosures

Disclosures indicate that tracing the sourcing of conflict minerals was challenging for these large companies. About half of the S&P 500 companies filing a CMR disclosed a supplier response rate and only 40% identified the actual number of RCOI suppliers surveyed. The average number of suppliers surveyed was about 2,500, but ranged from 5 to almost 40,000. Fewer than one-third disclosed both the number of suppliers and the response rate.

Of those companies disclosing a supplier survey response rate, over three-fourths indicated a rate higher than 50%. This may suggest that a 50% or greater threshold was seen as desirable prior to choosing to include this information.

Companies filing a CMR are also required to post the report on their company website. While the location varied significantly, the most common area for these reports (35%) was the general investor relations page.


Industry trends

Around 90% of all SD filings came from companies in 10 sectors, with high concentration in the technology, diversified industrial products, consumer products, and retail and wholesale sectors. Conflict minerals were not found to be a necessary part of the supply chains for companies in only a few select sectors: airlines, asset management, biotechnology, insurance and real estate.


The number of filings for calendar year 2013 (approximately 1,300) suggests that the SEC’s and business groups’ initial projection of impacted companies (6,000) was overestimated and/or some potential reporters may have failed to identify the applicability of conflict mineral reporting to their operations.


Initial filings also make clear that companies will need the additional time afforded under the transition period of the rule to work with their suppliers to determine the origin of the conflict minerals in their products.

Many companies have complex supply chains, and a commitment from suppliers and the coordination of global organizations will be necessary for companies to assess their own systems, processes, representations and results.

As companies pay increasing attention to supply chain monitoring and reporting, the information presented in this report may help serve as a guide to 3TG disclosure, facilitating an assessment of how companies compare to others in the marketplace.

Conflict free smelters and refiners

Conflict free smelters and refiners×

Due diligence related disclosures

Conflict free smelters and refiners×