More suppliers are responding to information requests regarding conflict mineral sourcing as organizations aim to gain visibility into their supply chains and ensure no tin, tungsten or tantalum is being sourced from conflict zones in the Democratic Republic of the Congo. A new analysis of more than 1,200 U.S. Securities and Exchange Commission filings from 2015 related to conflict minerals reporting shows supplier response rates increased compared with a year earlier.
The analysis conducted by Source Intelligence, which provides solutions to help companies with conflict mineral reporting, determined the average supplier response rate was 83% for 2015 SEC filings, up from the 79% in 2014 filings. Specifically, this means a company’s tier-1 supplier was asked to complete a conflict minerals reporting template (CMRT) and they did.
Education Leads to Higher Response, Better Data
Source Intelligence said higher supplier response rates contributed to more awareness of conflict mineral reporting requirements.
“[R]obust supplier education and training around conflict minerals compliance directly correlate with higher supplier response rates,” the report said.
According to Dr. Jennifer Kraus, chief scientific officer, executive vice president of operations and co-founder of Source Intelligence, suppliers that asked to complete training on conflict mineral regulations by business partners are more likely to respond to CMRT requests. Additionally, suppliers that seek out information on U.S. conflict mineral regulations, including using Source Intelligence’s resources on the topic, also are more likely to respond to requests for data.
“There is no doubt that as the level of awareness goes up, with regard to what the conflict mineral requirements are all about, the supplier response rates improved,” Kraus said.
However, not only do response rates rise with increased levels of awareness, but the quality of data also improves when suppliers fully understand conflict mineral reporting requirements. A more educated supplier is more likely to provide more accurate information on its CRMT, Kraus added.
Highest & Lowest Supplier Response Rate by Industry
The apparel industry reported the highest supplier response rate, with an average response rate of 94%. Conversely, the oil and gas industry reported the lowest response rate at 70%. A complete list of supplier response rate by industries included in the report is below:
- Apparel: 94%
- Electronics: 89%
- Business services: 85%
- Telecommunications: 83.3%
- Manufacturing: 81.1%
- Biomedical: 80.2%
- Retai:l 80%
- Oil and gas: 70%
Companies were required to submit conflict mineral reports this year to the SEC by May 31. This year marked the third round of annual conflict mineral reporting in the U.S., as required under Section 1502 of the Dodd-Frank Act. Section 1502 requires companies using minerals, including tin, tungsten and tantalum, in their product to conduct a reasonable “country of origin” inquiry to determine if the minerals are sourced from conflict areas in the DRC controlled by armed militia. Companies must then disclose its determination with the SEC by filing a Form SD.
According to Source Intelligence’s analysis, 1% of companies determined sourcing was “DRC conflict free,” another 1% reported a portion of sources were DRC conflict-free or “conflict undeterminable.” Additionally, 19% reported no DRC sourcing in 2015 SEC filings.
Seventy percent of companies made “no determination” on the origin of their minerals, up from 61% in 2014 filings. This means the supplier did not make a declaration one way or the other on whether minerals were sourced from conflict areas in the DRC. The supplier simply did not respond to this request.
The Source Intelligence report also explains this high number of “no determination” filings as such:
“We categorized filers under ‘no determination’ if a determination category was not specified. 70% of companies did not report on a determination, an increase from the reporting year 2014, which is likely due to the court ruling specifying that a requirement to describe products as having ‘not been found to be DRC conflict free’ is compelled speech that violates the First Amendment.”
Longer Reports Suggest Higher Level of Supply Chain Transparency
Roughly 1,213 Form SD reports were filed with the SEC as of June 20, according to the Source Intelligence report. In 2014, 1,267 reports were filed, though some of them late — a trend that could occur this year as well, increasing the overall 2015 filing numbers. Of the reports filed, about 81% of them also contained a Conflict Minerals Report (CMR), according to Source Intelligence. In 2014, 80% contained a CMR.
The length of the SEC filings this year grew, which Source Intelligence said was a key indicator of increased transparency in company’s conflict mineral reporting. CMR report maximum page length for 2015 filings increased 68% and the page length of Form SDs nearly tripled, the report said.
“The significant increase in report page lengths indicates a trend in which companies are declaring more information in their reports, and in more detail,” the report said. “Some examples include details on the implementation of company policy and future actions pertaining to improvements on conflict minerals reporting.”
Kraus also said the longer page length of the reports is likely a result of the increased level of awareness around conflict mineral requirements. Companies and suppliers have gained understanding around what it takes to do due diligence to meet conflict mineral reporting rules and have a stronger desire to increase transparency throughout their supply chains, she said.
Organizations Use Third-Party Vendors, Auditors
Another finding in the Source Intelligence analysis was that companies continue to turn to third-party service providers to audit supply chains. Sixty-two percent of companies that filed reports with the SEC said they contracted a third-party auditor to conduct due diligence and compliance activities in 2015.
Electronics ranked the highest among the industries analyzed in the report for usage of third party vendors. Oil and gas once again ranked the lowest.
- Electronics: 75.6%
- Apparel: 69.6%
- Business services: 68.3%
- Telecommunications: 65.1%
- Manufacturing: 59.8%
- Retail: 57.7%
- Biomedical: 56.3%
- Oil and gas: 43.6%