Conflict Mineral Due Diligence For Downstream Companies

Responsible resourcing has become a crucial part of the interconnected global economy which is turned into more responsibility. One of the most concerning matters in business especially while dealing with electronics, automotive and manufacturing sectors is the sourcing of the conflict minerals. These minerals include tin, tantalum, tungsten, and gold (3TG) which are essential for the production of everyday items. However, the origins of these minerals are linked with the severe human rights abuses and environmental degradation in the conflict zones. Hence, this blog explains how product manufacturers and end-users need to ensure that the metals and minerals in the supply chain are sourced responsibly and ethically. 

Understanding The Role Of Downstream Companies

The downstream companies refer to the businesses that sell, use, or distribute the products that contain 3TG minerals but are not directly sourced from smelters or mines. The downstream companies include electronics manufacturers, jewelry brands, or automotive companies which include the components made by the suppliers paving way to the supply chain. Although the downstream firms are not involved in the mining, they are still accountable ensuring there is ethical sourcing throughout the supply chain. Hence, the regulations including the Dodd-Frank Act (Section 1502) in the United States and the EU Conflict Minerals Regulation have imposed requirements for due diligence.

Why Does Due Diligence Matters?

The due diligence matters because

• Failing to perform due diligence can lead to  regulatory penalties, restrictions on importing, and even reputational damage
• Also, consumers demand more transparency and ethical sourcing in the products as they purchase the products.
• Moreover, the ESG (Environmental, Social, and Governance) metrics are increasingly in demand and crucial for investor decision-making.
• Finally, product manufacturers and end-users need to identify the risks early in the supply chain to prevent operational disruptions, PR crises, and lawsuits.

Key Steps In Conflict Mineral Due Diligence

The downstream companies should follow a structured approach based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas which is a five-step framework:

Establish Strong Company Management Systems

The first step in the framework is to adopt and clearly communicate about the conflict mineral policy. Also integrating the responsible sourcing into the supplier contract and assigning the responsibility to a compliance team. Moreover, it is essential to develop a grievance mechanism for external and internal stakeholders. 

Identify And Assess Supply Chain Risk

The second-step in the framework is to identify and assess the risks in the supply chain. So, map the supply chain to identify the direct and indirect suppliers. Also, use tools like Conflict Minerals Reporting Template (CMRT) to collect the necessary information. In addition, evaluate the supplier responses, inconsistencies, and data loss. 

Design And Implement A Strategy 

The third step in the framework is to design and implement a strategy to respond to the identified risks. So, it is essential to devise a plan for overcoming the risks. Also, consider shifting to conflict-free smelters or alternative suppliers. Finally, encourage capacity-building for suppliers that show commitment for improvement. 

Carry Out Independent Audits Of Smelter/Refiner

The fourth step in the framework is to carry out independent audits from third-party for the smelters and refiners as per the due diligence practices. The downstream companies should not audit smelters themselves rather they should source from audited, conflict-free certified smelters. Also, engage with initiatives like the Responsible Minerals Assurance Process (RMAP) to ensure compliance.

Report Annually On Supply Chain 

The final step is to report annually on supply chain due diligence. So, publicly disclose the due diligence efforts through sustainability reports or SEC filings. Also, be transparent about the gaps, challenges, and continuous improvement strategies.

Therefore, downstream companies may be not involved in the sourcing of conflict minerals but their influence on ethical supply chain practices is immense. So, by adopting the rigorous due diligence practices and promoting transparency, companies can greatly contribute to conflict-free sourcing and build a sustainable future. Hence, with Sunstream’s conflict mineral compliance downstream companies can easily navigate through the complexities of due diligence requirements.