How To Help The Conflict Minerals Trade

Transcription

1 COMPLICITY Complicity in the Congo IN THE CONGO Sustainalytics November 23, 2010 Azadeh Sabour and Matthew Barg Photo: Mark Craemer

2 Sustainalytics Sustainalytics is an international and independent sustainability research and services provider with coverage of North America, Europe and Asia More than 50 analysts assess corporate performance on environmental, social and governance (ESG) issues Our database contains sustainability profiles for more than 2,500 companies Evaluation methodologies for more than 40 different industries A consistent and thorough methodology that allows for robust comparative analysis 2

3 Agenda Introduction Conflict Minerals Risks to Companies and Investors The Way Forward for Companies Industry s Response to Date The Way Forward for Investors Investor s Response to Date The Bottom Line Jay Celorie Hewlett-Packard Sasha Lezhnev The Enough Project 3

4 Introduction to Conflict Minerals 4

5 Conflict in the Congo Photo: Mark Craemer "This war is caused by the minerals. Those [armed groups] control the minerals. I hear that they are used in mobile phones If you talk to Obama or the phone companies, tell them what happens here." - Mary, a Congolese woman who was beaten by a group of militia men. 1 5

6 Democratic Republic of the Congo Source: UN Department of Peacekeeping Operations, January 2004 Map shows the Congo s eastern region (North and South Kivu) 6

7 What is the Source of Conflict? Ethnic tensions Weak State and legal authority Corruption Lack of security 7

8 Eastern Region s Minerals Trade 3Ts and Gold Tin (derivative of cassiterite ore) Tantalum (derivative of coltan ore) Tungsten (derivative of wolframite ore) Gold 8 Photo: Mark Craemer

9 Economics of Supply Percentage of world production of Congo s minerals varies by substance: Sources: These estimates are based on data from the Enough Project (April 2009), unless otherwise noted. * U.S. Geological Survey, 2009 ** ITRI, October Congo s contribution to world has grown by 12% since

10 Economics of Demand Principal end-user of the 3Ts is the Information Technology (IT) sector - Others include automotive, aerospace, medical supplies, etc. - Roughly 50% of global tin supply used for solders in electronic circuit boards - In the case of gold, jewellery is principal user, but some gold used in electronics Demand outlook for electronics remains strong: - Cell phone usage grown an average annual growth rate of 24% per year since Users expected to hit 5B in

11 Armed Groups Benefit from Trade 13 major mines in the eastern region - 12 controlled by armed groups 50% of the 200 mines in eastern Congo are controlled Control can change often Illicit trade in minerals generates an estimated USD 185 million per year Armed groups also benefit from control of transport routes and involvement in agriculture, cattle, charcoal, timber, sugar, and petroleum trades Photo: Mark Craemer 11

12 Mineral Exploitation by Armed Groups in East DRC Humanitarian Information Unit map issued June 28, 2010 Link to full view of State Department map: ay&id=02a66c45-c38e-4892-a12e-ef45e1436cbe

13 Social and Environmental Impacts Social impacts: Roughly 6 million people died 1 million + internally displaced Roughly 45,000 civilians die each month, half children Mass rapes, mutilations, torture Looting and pillaging Hostage taking or indebtedness Photo: Friends of the Congo Environmental impacts: Threat to biodiversity, including endangered gorillas 13 Photo:

14 Conditions of Artisanal Mining Endemic use of slave and child labour Primitive and dangerous working conditions Remote locations without viable transportation infrastructure Women often forced to work as porters or serve as sex slaves 14 Photo: Sasha Leznev from The Enough Project

15 The Supply Chain 15

16 Electronics Supply Chain The Mines 50% controlled by armed groups Negociants (transporters) Armed groups control much of the transport of minerals from mine to trading houses Smuggled minerals often labeled as originating from neighbours Trading Houses Bukavu & Goma Comptoirs (exporters) Transit Countries (Rwanda, Uganda, Burundi) Smelters Mainly in Asia Processors Refined Product Electronic Component Electronic Product (OEM) Metal Traders Some minerals exported legally, some smuggled Critical Link 16

17 Implications for Business and Investors 17

18 Emerging Regulations Compliance could drive up operational costs Non-compliance could lead to penalties and fines Both could impact return on investments 18

19 Emerging Regulations The U.S. - Congo Minerals Amendment (Section 1502 of the Dodd-Frank Act) U.S. companies must report annually to SEC on minerals origin, effective OECD Developing comprehensive guidance on supply chain due diligence in conflict affected areas The UN - Resolutions (1857) sanctions asset freezes and travel bans on those who support armed groups (1896) calls on UN member states to bring individuals/ corporations forward for sanctions The EU - Announced commitment, but no legislation yet 2010 G8 Summit conflict minerals on agenda (The G8 Muskoka Declaration) Canada NDP MP (Dewar) introduced Bill C-571 to somewhat mirror U.S. legislation; still active but not likely to pass 19

20 Reputational Risk NGOs & Advocacy Campaigners Among Targeted Companies bloodinthemobile.org/ Yes Men Hoax 20

21 The Way Forward for Industry 21

22 The Way Forward for Industry Policy commitments Supply chain due diligence Reporting and transparency Engagement Sustainable Design 22

23 Policy Commitment Issue a formal public policy statement Develop supplier procurement policies Implement policies on bribery and corruption "We expect our suppliers to source only materials from environmentally and socially responsible suppliers. However, due to the complexities of the metals supply chain, we are currently unable to verify the origin of all of the metals used in our products. - Excerpt from Intel s policy statement 23

24 Supply Chain Due Diligence Educate downstream suppliers and hold them accountable Demand transparency and traceability from suppliers Supply chain risk assessments Solicit third-party physical audits to verify supplier documentation Remediation plans 24

25 Reporting and Transparency Regular public disclosure Policies and managements systems Due diligence practices Audit findings and remediation Objectives and deadlines for continuous improvements Publish a list of suppliers, particularly smelters 25

26 Engagement Become proactive in multi-industry and multistakeholder collaborations Engage with local communities/ngos in the DRC to better understand the issue Supply chain initiatives EICC- GeSI, itsci, ICGLR s Minerals Tracking Scheme, BGR s Certified Trading Chains Public Policy Involvement 26

27 Sustainable Design Optimize recycling Dematerialization Alternative materials 27

28 Supply Chain Initiatives Industry and government led initiatives underway Focused on tracing minerals and certifying as conflict-free Focused on level of mine to smelter 28

29 Supply Chain Initiatives Industry-led Initiatives EICC - GeSI Extractives Workgroup Smelter Verification Process (i.e. audits) Pilot for tantalum underway Tin, tungsten and gold to follow 29

30 Supply Chain Initiatives Industry-led Initiatives ITRI - itsci Scheme Phase 1 focused on steps from DRC exporter to the smelter. Requires export documents, which includes the identity of mine and transport route Phase 2 bag and tag pilot method was running in South Kivu since the summer until mining suspension Partnered with Washington-based NGO, PACT 30

31 Supply Chain Initiatives Government-led Initiatives The International Conference of the Great Lakes Region (ICGLR) Endorsing a Mineral Tracking and Certification Scheme Based on Kimberly Process Involves 11 countries in Central Africa The Federal Bureau of Geo-Sciences and Natural Resources of Germany (BGR) and the Congolese government Certified Trading Chains - improve transparency and accountability at mines 31

32 The Need for Enhanced Regional Security Demilitarize armed militias Restore democracy to the DRC Professionalize the national army and police Judicial system reform Halt military influence from neighbouring countries Establish and protect resource sovereignty Photo: Sasha Leznev Enough Project 32

33 Industry Response 33

34 Sample Company Performance Software Semicon Technology Hardware Telecom Company Policy Statement Supply Chain Due Diligence Audit Findings / Remediation Plans Targets and Deadlines EICC or GeSI Member Overall Transparency Deutsche Telekom Good Good No No Yes GeSI Moderate Vodafone Good Weak No No Yes GeSI ** Moderate Sprint Good Weak No No Yes GeSI Moderate Nokia Good Good No No Yes GeSI** Moderate Hewlett-Packard Good* Good No Weak Yes-EICC & GeSI** Moderate Dell Good* Good No No Yes-EICC** Moderate Apple Good Weak No No Yes-EICC** Moderate Research in Motion Good* Weak No No Yes-GeSI** Moderate IBM Weak None No No Yes-EICC Poor Intel Good* Good No No Yes-EICC** Moderate AMD Weak None No No Yes-EICC Poor Microsoft No No No No Yes-EICC & GeSI None Oracle (Sun) No No No No No None *Acknowledges supplier assurance gap ** Participation in Extractives Workgroup 34

35 The Way Forward for Investors 35

36 The Way Forward for Investors Direct company engagement U.S. asset managers and shareholder advocates very active An investor consortium [USD 570 billion AUM] targeted IBM 36

37 The Way Forward for Investors Join investor coalitions, such as the Sign on to investor statements Faith-based and global institutional investor statement on conflict minerals Collectively manage USD billion AUM There is a moral imperative for both investors and companies alike to ensure they are not inadvertently complicit in the systemic rape, torture and killing of innocent civilians in the Congo. The disclosure of sourcing policies and practices by companies throughout their entire supply chains is essential to allow investors to evaluate the social, environmental and moral impacts associated with a company and to inform investors decision-making practices. - Excerpt from investor statement 37

38 The Way Forward for Investors Support other initiatives for greater transparency and accountability in the minerals trade e.g., Extractives Industry Transparency Initiative Engage in public policy development e.g., U.S. investor coalition has been participating in a multi-stakeholder process to make recommendations to SEC regarding new conflict minerals law 38

39 The Bottom Line This war is caused by the minerals. Those [armed groups] control the minerals. I hear that they are used in mobile phones If you talk to Obama or the phone companies, tell them what happens here. 39

40 The Bottom Line Companies Responsible procurement Supply chain due diligence Multi-stakeholder initiatives Investors Direct company engagement Drive industry best practices Join investor coalitions or initiatives Public policy involvement 40

41 Guest Speaker Jay Celorie Global program manager for conflict minerals for HP Directs programs to conduct due diligence in HP's supply chain Member of EICC-GeSI Extractives Workgroup Active in public policy initiatives in the U.S. 41

42 DRC Conflict Minerals: EICC/GeSI Approach to Responsible Sourcing November 23, 2010 Jay Celorie, HP

43 EICC/GeSI Approach to Responsible Sourcing Finished Product itsci Scheme Smelter Validation Company Assurance 43

44 The Mineral Supply Chain Finished Product Upstream Due Diligence Multi-Stakeholder collaboration to verify DRC conflict-free smelters ITRI s itsci Scheme Conflict-free Smelter Audit Validation Company Assurance Companies ensure suppliers are sourcing from verified smelters (industry process/template) Conflict Minerals Policy Set expectations with direct suppliers

45 ITRI Tin Supply Chain Initiative (itsci) Objective: To contribute to improved control, governance and traceability of tin and associated minerals from the Great Lakes Region, enabling companies to credibly eliminate conflict minerals from their supply chain System: Tagging at source with unique numbered tags Re-tagging when minerals are traded Information recorded at both stages on individuals, locations, weights, transport, etc. Both tags recorded and shipped by exporter MINES NEGOCIANT 45

46 Strengths of itsci Simple to implement with basic materials Many points where cross-checks can be carried out Critical success factor: négociants and comptoirs giving clear local market messages Implementation is by government agents who are already stationed at the mine; potential for sustainability is increased Comite de Pilotage feedback mechanism Visible 46

47 Conflict-free Smelter Validation Audit Process What: Multi-stakeholder developed audit process to assess whether smelters are sourcing DRC conflict-free minerals Why: To encourage responsible sourcing of Tantalum, Tin, Gold, Tungsten How: Addressing each metal separately, but simultaneously Order of priority is Tantalum, Tin, Tungsten, Gold Tantalum 3 rd party audits are in progress Initial engagement with Tin supply chain in May

48 Audit Documentation Levels of documentation--triggered by source location DRC sources Level 3 Countries neighboring DRC sources Level 2 All the rest Level 1 (first of a kind mine locations will get level 2) Documentation requirements Level 3 itsci-provided documentation Level 2 Level 1 docs, on site visit to mine, follow first shipment from mine to smelter, representative sample taken for comparison, mining license or certificate, tonnage capability assessment Level 1 mine of origin certificate, all transport docs, export license 48

49 Company Assurance Companies have several actions to take to address conflict minerals: Develop and implement a conflict minerals policy Conduct a supply chain risk assessment Work with suppliers to source from compliant smelters Report and disclose due diligence EICC/GeSI developing an industry tool to engage suppliers in their due diligence activities 49

50 Electronic Industry Citizenship Coalition (EICC) (as of 26 October 2010 from

51 Global e-sustainability Initiative (GeSI) (as of 26 October 2010 from Associate member: 51 51

52 Guest Speaker Sasha Lezhnev Policy Advisor to The Enough Project (Washington-based) Executive Director of the Grassroots Reconciliation Group Previously Policy Advisor at Global Witness Author of the book Crafting Peace: Strategies to Deal with Warlords in Collapsing States Active in public policy initiatives in the U.S. 52

53 Supply Chain Initiatives Government-led The International Conference of the Great Lakes Region (ICGLR) Mineral Tracking and Certification Scheme comparable to the Kimberley Process ICGLR Membership: Angola, Burundi, the Central African Republic, Republic of the Congo, the DRC, Kenya, Rwanda, Sudan, Uganda, Tanzania, and Zambia. German federal agency (BGR) and the Congolese government Certification system involves third-party auditing of specific mine sites. 53

54 The Way Forward For Initiatives Many initiatives moving on the ground but little transparency Little data transparency or audits Need to link processes together in a unified multistakeholder certification process 54

55 The Way Forward For Initiatives Certification should build on the lessons of the blood diamonds process (the Kimberley Process) Certification should involve end-users, regional governments and NGOs 55

56 Thank You Azadeh Sabour Senior Sustainability Consultant Matthew Barg Sustainability Analyst 56

57 COMPLICITY Complicity in the Congo IN THE CONGO Sustainalytics November 23, 2010 Azadeh Sabour and Matthew Barg Photo: Mark Craeme

58 Copyright The information herein has been obtained from sources that Sustainalytics believes to be reliable; however, Sustainalytics does not guarantee its accuracy or completeness. Copyright 2010 Sustainalytics. All rights reserved. No portion of this material may be reproduced in any form without the expressed written permission of Sustainalytics. For further information contact: Sustainalytics 215 Spadina Avenue, Suite 300 Toronto, Ontario, M5T 2C7 Tel: (416) Fax: (416)

59 Appendix 59

60 The DRC Interesting Facts: Formerly called Zaïre, located in Central Africa, bordering 9 nations. Third largest African country - area of more than 900,000 square miles More than 200 African ethnic groups of which the majority are Bantu French is the official language from Belgian rule Population of almost 69 million 11 provinces (the new constitution provides for 25 provinces); capital city - Kinshasa President Joseph KABILA (since January 2001 and in July 2006 he became the country s first democratically elected head of state) 60

61 Historical Context Start of European Colonization King Leopold II of Belgium to use Congo as his own personal property King Leopold II s Brutal Regime 10 million - 15 million Congolese died within a 23-year period 1908 Belgium Colonial Rule 1960 Congo Independence June 30, 1960, Congo elects its first democratically elected leader, Patrice Lumumba, who is subsequently assassinated Mobutu Sese Sekou s 32 year Rule Colonel Joseph MOBUTU seized power and declared himself president in a November 1965 coup Rebel leader Laurent Kabila s Rule Takeover of power by rebel leader Laurent Kabila with the backing of Rwanda and Uganda The Congo War War breaks out after Rwanda and Uganda try to remove Kabila from power Present Joseph Kabila s Rule In 2001, Laurent Kabila is assassinated and replaced by his son Joseph Kabila Elections were held in 2006 which resulted in the election of Joseph Kabila as president 61

62 Supply Chain Initiatives Industry-led EICC - GeSI Extractives Workgroup Smelter Verification Process: certifying smelters for conflict-free tantalum. Tin, tungsten and gold to follow. ITRI - Tin association s itsci Scheme traceability scheme to bag and tag tin from mine to smelter. Government-led The International Conference of the Great Lakes Region (ICGLR) Mineral Tracking and Certification Scheme comparable to the Kimberley Process Membership: Angola, Burundi, the Central African Republic, Republic of the Congo, the DRC, Kenya, Rwanda, Sudan, Uganda, Tanzania, and Zambia. German federal agency (BGR) and the Congolese government certification system involves 3rd-party auditing of specific mine sites.

63 Footnotes 1. John Prendergast and Sasha Lezhnev, December 8,

64 Resources Sources used: Picture on 1 st slide: photo by Mark Craemer