The EU Conflict Minerals Regulation: Implementation, Limitations, and the Future
By Rachel Rivera
Signed into law in June 2017 and implemented since January 1st, 2021, is the EU Conflict Minerals Regulation (EU 2017/821) a game changer for conflict minerals compliance? Following the US Dodd-Frank Act, Conflict Minerals Section 1502 in 2010, the law is the EU response to increased pressure to purge European minerals supply chains of human rights abuses. Going beyond the scope of the US legislation, the European regulation embraces a global approach, not only limited to Central Africa, but effectively tackling inhumane exploitation in all Conflict-Affected and High-Risk Areas (CAHRAs). The law’s four primary goals are to:
Ensure that the EU importers of tin, tungsten, tantalum, and gold (3TG) meet the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance;
To demonstrate that global and EU smelters and refiners (SoRs) source responsibly;
To help break the link between conflict and illegal exploitation of these minerals; and
To end the exploitation and abuse of local communities.
Crucially, the text includes a requirement for the European Commission (EC) to call upon external expertise to provide an indicative, non-exhaustive, regularly updated list of CAHRAs. Their initial list includes 27 countries from Africa, Asia, Oceania and Europe and provides information at the subnational level (for example states, provinces etc.). The regulation applies directly to between 600 and 1,000 EU importers and will indirectly impact about 500 SoRs, whether they are headquartered inside the EU or not. Downstream brand companies are not under the scope of the law but are encouraged to voluntarily report on their efforts.
What kinds of support are given to companies to implement the law?
The EC’s What it Means For You guide is a great initial reference point. In addition, Due Diligence ready! provides information, tools, and training materials to guide companies in conducting due diligence on their metals and minerals supply chains. The non-binding guidelines (in multiple languages) developed by the EC also support companies to better understand the definition of CAHRA’s and help them identify these areas and risks in their supply chains.
Beyond the programs developed by the EC, the European Partnership for Responsible Minerals (EPRM), of which RSN is a member, is another forum which can provide guidance to companies. As a multi-stakeholder initiative of civil society groups, industries, and governments in the European 3TG sphere, the EPRM fills a critical gap by coordinating its members to provide effective response mechanisms and programs. Companies all along supply chains should be sure that their due diligence programs are flexible enough to address the changing landscape of commercial, consumer, and other stakeholder expectations that are arising from this new Regulation. Going beyond a compliance-only strategy to embrace all of the complexities of sourcing 3TG from CAHRAs necessitates innovative approaches alongside extensive expertise.
Limitations & Risks Posed by the New Legislation
The EU market is the world’s largest trading bloc, and therefore this regulation is a major step forward in combating the ongoing sale of conflict minerals. However, significant risks to its implementation exist, including the potential for a de-facto embargo as was seen in the Democratic Republic of the Congo (DRC) in 2010. Disengagement from all CAHRAs by foreign companies would devastate local communities. The new regulation introduces the need for companies importing 3TG into the EU to make all “reasonable efforts to identify, prevent, and mitigate the risks of conflict or human rights violations in their supply chains.” But, if CAHRA countries are unable to or inadequately prepare for the due diligence requirements that this regulation imposes, companies could simply disengage from these countries. In order to mitigate this risk, the EU has committed to measures that accompany this law which are intended to support miners and actors in CAHRA areas. But, a gap still exists in access to information by stakeholders in producing countries about the extent to which the new legislation may affect their mining sectors.
There also exists a risk of non-transparent and unaligned implementation because each country controls what implementation will look like in their jurisdictions. Unfortunately, the EU will not provide a list of importers, and has not provided a centralized repository system for corporate disclosures. While individual countries, such as the Netherlands, are free to do so, implementation is globally lacking. These significant limitations should be effectively tackled by the EU countries and the EC.
Finally, for implementation of disclosure, tackling non-compliance is a critical task and requires a careful analysis of year-on-year import data, the issuance of corrective action notices, and--as a last resort--the issuance of fines (for more information on recommended non-compliance actions, read the IPIS review paper). Regarding voluntary disclosures, RSN and other watchdog organizations should combine forces to closely monitor corporate activity.
A Path Forward
In 2023, the law will be reopened and minerals may be added to the list, potentially including cobalt and lithium. There has been in-depth research on human rights abuses in cobalt mining in the DRC by Responsible Sourcing Network, Amnesty International, and Council on Foreign Relations, among others. There have also been researched links between lithium extraction and human rights abuses and environmental pollution (however the status of lithium extractive areas as CAHRAs is questionable). Critics argue that different, more specific legislation from the EU could be more effective as the issues in the cobalt and lithium sectors are not as directly connected to the issues that the Conflict Minerals Legislation is trying to address.
Another path forward could be to streamline the disclosures process. This could be done by creating one unified system for all EU countries, so each government does not have to have their own systems. This would allow for a more transparent and aligned implementation process and would encourage cohesiveness across the EU about exactly what the new law requires companies to do.
Responsible Sourcing Network’s Expectations
Responsible Sourcing Network intends to increase the scope of its 2021 Mining the Disclosures report to include a sample of 100 companies covered by EU Regulation 2017/821, and an additional 100 corporate actors expected to voluntarily report under the law. To achieve this, a completely new rating grid is being developed, independently of the U.S. Section 1502 rating, to assess dozens of key performance indicators. In the first year of reporting, RSN’s work will serve as benchmarking for future rankings, but will also be a precious resource for investors and governments to track the quality of corporate disclosures.
Responsible Sourcing Network plans to release its report in early 2022 and will invite companies to provide feedback on their ratings. Contact us at info@sourcingnetwork.org to learn more about how to mitigate risks, uphold best practices in supply chains, and contribute to breaking the link between conflict and illegal exploitation of 3TG minerals and metals.