Strategies for Conflict Minerals Compliance - USFIA · © 2013 MetricStream, Inc. All Rights...

© 2013 MetricStream, Inc. All Rights Reserved.

Strategies for Conflict Minerals Compliance

Sonal Sinha AVP of Industry Solutions MetricStream

November 14, 2013

Dr. Ruud Overbeek VP of Global Health, Environmental and Regulatory Services and Chemicals & Pharmaceuticals North America Intertek


Agenda

• Practical approaches, solutions and services for a successful compliance program

• How to identify the extent of the regulatory obligation, including which suppliers and products

• Approaches to successfully manage RCOI inquiries both for suppliers and customers

• Managing due-diligence and third-party audits

• Preparing the conflict minerals report and its contents

• Q&A

www.intertek.com 3

Conflict Minerals Compliance Solutions for Dodd-Frank Section 1502

Dr. Ruud Overbeek Vice President Global Health, Environmental, and Regulatory Services and Chemicals & Pharmaceuticals North America November 2013

www.intertek.com 4

Why are we here?

To protect children from forced abusive labor and

other illegal mining activities in the Congo and surrounding areas

www.intertek.com 5

Common Concerns about Conflict Minerals

What is the most striking aspect of the Conflict Minerals rule?

• It requires SEC filings for compliance

• Executive management will need to sign-off on a disclosure

• Rather than with conventional compliance or quality staff, compliance responsibility lies with investor relations

www.intertek.com 6


Is a socially responsible image important?

• Corporate Social Responsibility is a crucial aspect of corporate and stakeholder value

• What would happen to your business if the media claimed you were tied with abused child labor?

www.intertek.com 7


• Can Conflict Minerals tie in with other global, regional, or local requirements?

• This is a chemical related disclosure; why handle it totally different?

• Build a single (chemicals/minerals) compliance assurance process

• Include such in your overall Corporate Responsibility Strategy

• Try to utilize your overall strategy as a competitive advantage

• Additional regional CM rules are pending in Europe

www.intertek.com 8

We Are - Intertek

• The trusted provider of scientific, quality, safety, regulatory and compliance solutions for many of the world’s leading brands

• For many of our clients we are their problem solving and business improvement partner, helping to deliver their competitive edge in both quality and value

• Often our people are embedded in a client’s manufacturing or management structure working as an integral part of the client’s team

• With the best equipped laboratory network of any support service provider, we work on the widest range of products imaginable, from toys through wound care and complex medical devices to advanced aerospace materials.

• Routinely advise manufacturers on safety hazards and product legislation to ensure compliance with local and International standards as well as providing leading edge product quality and systems certification.

www.intertek.com 9

More than

1,000 laboratories and offices

More than

100 countries

Over

36,000 people

Who is Intertek?

• FTSE 100 company in the Support Services sector

• Market capitalization at £5.4 billion

• Revenue generation of over £2bn in 2012

www.intertek.com 10

Our People

We are • Embedded in more than 25

industries • Experts and leaders in our fields • Local with international

understanding

We are

Chemical, Electrical, Mechanical and Petroleum engineers, Chemists, Physicists and Materials Scientists, Toxicologists, Medical Consultants, Biologists, Geologists, Surveyors and Inspectors, Advisors to the UN, Lawyers, Auditors…and more

www.intertek.com 11

Overview of Dodd-Frank S1502

Impact on Companies Will likely affect 850k companies; SEC estimates this final ruling will have a final impact of $3-4 billion; other studies suggest much more. Costs are likely to affect non-reporting companies in a disproportionate manner.

The ruling includes no de minimis exception for amounts found in a company’s supply chain.

Companies are expected to analyze their supply chains for country of origin risk, and depending on applicability, conduct due diligence to reasonably and in good faith determine origin of the applicable minerals.

Basics of Section 1502 On August 22, 2012, the Securities and Exchange Commission adopted S1502 of the Dodd-Frank Act.

As noted by the United nations, the regulation intends act as a ‘catalyst’ to avert direct or indirect financing of conflict in the Democratic Republic of Congo (‘DRC’) and 9 neighboring countries through pressuring companies to disclose origin of materials used in the supply chain.

The metals covered are Gold, Tungsten, Tantalum and Tin. The law is written in a ‘guilty until proven innocent’ fashion

Who will this Affect? Companies who file under Exchange Act; manufacture or contract to manufacture products with the minerals; supply chain sources from DRC or surrounding countries; mineral is necessary to functionality of product

www.intertek.com 12

What does it really mean?

1. Understand the chemical composition of your product

2. Identify presence of gold, tin, tungsten, or tantalum

3. Disclose annually whether the minerals originated from a conflict area

4. If they do, the registrant must file a separate report detailing the measures taken to exercise due diligence on the source and chain of custody

www.intertek.com 13

Typical Conflict Minerals Usage in Electronics

Tantalum Tin Tungsten Gold

PCB √ √ √ √

Solders √ √

Component lead frames, contacts, and connectors √ √

Processors and chipsets √ √ √ √

Capacitors √ √ √

Hard disk drive √ √ √

LCD screens and displays √ √ √ √

Power supplies and adaptors √ √ √

Speakers √ √ √ √

Cameras √ √ √

Batteries √ √ √

Cables √ √

Mechanical Parts √ √ √ √

www.intertek.com 14

Typical Conflict Minerals Usage in Automotive and Aerospace


Computer Systems √ √ √

Anti-Lock Braking Systems (ABS) √ √

Airbag Protection Systems √ √ √

Jet Engines √ √ √ √

Rockets √ √ √

www.intertek.com 15

Typical Conflict Minerals Usage in Consumer Products


Food Cans √

PVC in Soles of Shoes √

Buckles, Fasteners, Zippers, & Buttons √

Jewelry √ √ √

Fashion Jewelry (solder) √

Hearing Aids √ √

Tools (i.e. drill bits, cutting tools, sanding disks) √ √ √

www.intertek.com 16

Complexity of the 3T+G Supply Chain

Mines

Trading Houses

…

Product/Component Manufacturer

OEM

Smelter / Refiner

…

1,000s

1,000s

100s

In-Country Bag and Tag Systems Solutions for Hope (SfH): Tech sector initiative launched in July 2011 to create an initial flow of conflict-free tantalum from the DRC

Chain of Custody Audits should be conducted; Companies can “piggy back” onto Industry initiatives, such as the Conflict Free Smelter Program

Companies conduct self assessment questionnaires, traceability audits

Companies have the most impact further downstream.

www.intertek.com 17

Let’s Simplify It for a Single Product

• If I have a product, what do I need to do? • Assess the product to determine the likelihood of Conflict Minerals being

present

• If Conflict Minerals are likely in a product…. • Contact your suppliers to determine the origin of the materials

• Collect and aggregate the data

• Am I still at risk? • If the data shows it is from a conflict free zone, no.

• If data is not available, yes.

• What then? • Report

www.intertek.com 18

Best Steps to Ensuring Compliance

1. Identify Applicable Requirements • Include applicable requirements (including CM) in Restricted and

Declarable Substances Strategy • Define Market and Customer Drivers • Assess Regulatory Requirements for all • Creation of RSL (if applicable)

2. Set up a Compliance Assurance Management Process

3. GAP Analysis and Risk Assessment

4. Product Screening and Testing Based Upon GAP/Risk Assessment

5. Employee and Vendor Communication

6. Supplier Data Collection • Collect Existing Data • GAP Analysis and Risk Assessment • If Discrepancy with the Requirement, Identification of Applicable

Supplier Alternatives (If Available) 7. Product Re-engineering (if required)

www.intertek.com 19

OECD Guidance & Recommendations

The Organization for Economic Co-operation and Development

Guidelines are a systems based approach to managing country of origin

due diligence and reporting.

• Endorsed by 30 companies in pilot program

• Endorsed by US Department of State

• Referenced by the SEC in the adoption of the 1502 Dodd-Frank Ruling

OECD Requirement Intertek’s Approach 1. Establish strong company management systems √

2. Identify and assess risks in the supply chain √

3. Design and implement a strategy to respond to identified risks √

4. Carry out independent third-party audit √

5. Report on supply chain due diligence Your SEC Filing

www.intertek.com 20

Recommended Approach D

eter

min

e A

pplic

abili

ty

• Does your company file Pursuant to Exchange Act

• Does Your Company Manufacture or Contract to Manufacture?

• Do your products contain any of the four minerals?

• Are the Minerals Necessary to the functionality of Product A

ctio

ns a

nd C

omm

unic

ate • Company should

position itself for compliance

• Set Supplier Expectations and Reporting Requirements

• Create Corporate Value Statement

• Setup or Enhance Internal Management Systems

Sup

ply

Cha

in M

anag

emen

t • Distribute Self Assessment Questionnaires, Manage the Data and Profile Suppliers

• Create and Implement Supplier Management Solutions

• Chain of Custody Auditing

• Utilize EICC CFS Program (if applicable)

Dis

clos

e • Issuance of a Conflict Minerals Report

• Post on website

• Understand potential conflicts

www.intertek.com 21

Determine Applicability

Get to Know Your Products

Understand your Contracting and

Procurement Processes

Filing Status: The Ruling Affects All Issuers that File Reports Pursuant with the Exchange Act

www.intertek.com 22

Actions and Communicate

Create and Distribute a Company Wide Value Statement and Position on Conflict Minerals Compliance. Such Management

System and Policy enhancements are in line with OECD Guidance

Clients & Customers

- Prepare Statements on Conflict Minerals for concerned buyers/retailers

- Amend management

systems - Share milestones and

timeline of implementation/roadmap

Suppliers

- Revise Code of Conduct; benchmark on Annex II of OECD Guidance

- Supplier and Vendor

Policy revision and communication

- RSL Lists and

Manuals/Guides

Other Stakeholders

- Communicate position and time and milestones/goals on website

- Institute conflict minerals

verification in manuals and train employees on requirements

www.intertek.com 23

Supply Chain Management

Collection and cleansing of supplier information

Business profile completion

Verification services

Risk-based analysis

1

2

3

4

Supplier data

collection and

cleansing

Business Profile

completion

Risk based analysis

Verification Services

www.intertek.com 24

Supply Chain Management – Data Collection

Data Collection will be the most labor intensive activity in the compliance process. Understanding internal capacity will be crucial to meeting the reporting requirements of the Conflict Mineral Act.

- If a high risk component or material, conduct testing for 3T&G

- Creation of survey / questionnaire to meet regulatory requirements for Conflict Minerals and others including RoHS 2, Prop 65, REACH, etc..

- Contact suppliers directly and gather the necessary declarations, statements, reports, etc. for compliance to Conflict Minerals Act

- Review and interpretation of collected data to provide detailed report for internalization and declaration for CM compliance.

www.intertek.com 25

Supply Chain Management – Auditing

Supply Chain Auditors conduct traceability audits on a sampled basis of High Risk Suppliers

• The purpose is to determine transparency levels with regard to documentation tracking for purchases, policies and practices involving high risk suppliers and their utilization of applicable conflict minerals.

• This on-site assessment is conducted at the smelter/refiner or OEM level of the supply chain. Documentation is reviewed to ensure conflict materials are excluded in the supply chain.

o Examples include: Bill of Ladings, Country of Origin Certification, Site visit documentation, Export Licenses

SUPPLIER A

SUPPLIER B

SUPPLIER C

SUPPLIER D

Etc…

SUPPLIER B

SUPPLIER D

DUE DILIGENCE / AUDIT REPORT Risk Filter

www.intertek.com 26

Disclosure

Disclosure Requirements

1) Minerals do not originate in Conflict Mineral countries or they may, but the sourced minerals did not finance or benefit armed groups. • File Conflict Minerals Report with Annual Report;

• Include private sector audit report and identify auditor

2) If minerals DID or issuer is UNDETERMINABLE: • Conflict Minerals Report exhibit to Annual Report with additional

requirements, including but not limited to:

• The products manufactured or contracted to manufacture that are found to be “Not DRC Conflict Free”

• The facilities used to process the conflict minerals in those products

• The country of origin of the conflict minerals in those products.

• The efforts to determine the mine or location of origin

• The country of origin of the conflict minerals in those products, if known.

www.intertek.com 27

Liabilities for Disclosure/Non-Disclosure

1) Dodd-Frank silent on penalties

2) According to the SEC, filing Form SD as opposed to 10K does not create strict liability and a person shall not be held liable for misleading statements in a filed document if it can be established that the person acted in good faith and had no knowledge that the statement was false or misleading.

Disclosure

www.intertek.com 28

In Summary: Key Actions

• Create a comprehensive solution:

1. Build a single (chemicals/minerals) compliance assurance process

2. Include all relevant regulations, requirements, market drivers

3. Collect supplier data, where needed

4. Follow up on high-risk suppliers

• Communicate, communicate, communicate

• Do your “due diligence”

• Partner….. with

www.intertek.com 29

Valued Quality. Delivered.


Strategies for Conflict Minerals Compliance

Sonal Sinha Associate VP of Industry Solutions MetricStream


Adopting the Right Strategy

• Horizon – This year Ongoing

• Flexibility – Rule changes – Process changes

• Extensibility – Supplier Governance, Social Compliance, Product Safety & Quality

• Ease of Deployment – May 2014: counting backwards – If required, extend to handle independent private sector audit

(IPSA), Due-diligence

• Reliability – Feature / functions, Performance, Data Integrity


Components Required for CM Program Management

• Determine applicability & RCOI – Supplier, Product and Conflict Minerals Information management – Supplier Surveys / Self-Assessments – Real-time Reporting and dashboards

• Due diligence & IPSA of conflict minerals report – Risk Assessment & Management for Source and Chain of Custody Due-

Diligence – Conflict Mineral Assessments and Audits Management – Issue & Corrective / Preventive Actions

• Others – Central repository to manage all the information – Manage supplier communication and notifications – Update from conflict-free smelter list


Perform Supplier Surveys to Determine Applicability

• Leverage EICC Templates for RCOI

• Modify templates to meet specific requirements

• Manage supplier communication

• Schedule annually as well as ad-hoc for new suppliers

• Due-dates for surveys

• Enable delegation and escalation mechanisms

• Alerts and Notifications

• Track Survey Results

• Review & Approve surveys


Adopt integrated solution approach

• Manage Supplier, Product / Component, Smelter information and mapping

• Leverage Industry Standard Survey Templates

– EICC Conflict Mineral Questionnaire

• Schedule Conflict Minerals Surveys

– Surveys at Suppliers Org Level

– Part level and component level

• Survey Execution, Response Review and Approval

• Issue & Remediation

• Analysis, Reports & Dashboards

Conflict Minerals Software Conflict Minerals Services

• Strategy and analysis for Conflict Minerals Compliance

• Survey Distribution & Follow-up

• Collection of Supplier Responses

• Governance Meetings (Program Status, Change Control, Risk/Issues, etc.)

• Training

• Technical support for suppliers (FAQs, Online Support/Phone Support)


• Illegal tax

• Extortion

• Risk 3

… … …

Risks

• Control 1

• Control 2

• Control 3

… … …

Controls

• Suppliers

• Facilities

• Products

Components

… …

Entities

• Payments

• Workers Comp

• Export

…

… …

Processes

• Checklists

• Survey

• Self-Assessment

… … …

Assessments

• Supplier Risk-Based

• Requirement-Based

• Location Based

Audits

• Action Plan

• Implement

• Monitor

Issues

• Conflict

Minerals

• Social Compliance

• Environmental

• CTPAT

• CPSIA

Area of Compliance

• CM Policy

• Document 1

• Work Instruction 1 … … …

Policies/Documents

Create Robust and Flexible Information Model


Supplier, Product & CM Information Management

• Facilitate supplier declaration

• Manage supplier and sub-supplier information, third-party auditors

• BOM, Product information

• Manage details of transit, country of origin

• Manage relationships between supplier, product, material, attribute and compliance

• Enable traceability and visibility across the supply chain


Risk Identification

Risk Analysis

Risk Evaluation Issues & Actions

Reporting

Source and Chain of Custody Due-Diligence

• Leverage industry standard frameworks

– Ex: OECD

• Identify and manage risks

• Risk-based due-diligence of suppliers, smelters

• Risk assessments to capture detailed descriptions

– Ex: Traceability review, chain of custody information etc.

• Create and manage controls, procedures & risk mitigation plans


CM Assessments and Audits Management

• Audit supply chain due-diligence

• Audit conflict mineral report

• Templates, Checklists, Workflows to support independent third-party auditors

• Audit Planning and Scheduling

• Audit Check list, Surveys

• Issue & Remediation & Reporting

• Offline audit functionality to record audit details from remote locations


Issue & CAPA Management

Issue

Moderator

Action Plan

Approver

Action Item

Owner 1

Action Item

Owner 2

Action Item

Owner N

Action Plan

Approver

System

Generated

Ad Hoc

Event

Issue

Complete

Is Action

Item

OK?

Role Centrally Manage all issues – audit findings, risks, policy and compliance gaps

Moderator

Action Plan Approver

Action Plan Owner

Action Plan Approver

CAPA

EH&S

Others (Policy

exception etc.)

Issue

Type


Track Program Progress in Real-Time

• Compliant Smelter List report

• Conflict Minerals Reporting – Scorecard

• Conflict List

• Product 3 TG Trace Status

• Track progress of surveys

• List of surveys approved, pending

• List of products and suppliers with conflict minerals


Integrate with other Supplier Governance Programs


Selected Case Studies

Merchandise division of Multi-national Mass media & Entertainment Company • Supplier Audit Management, Monitor Licensees and Vendors to ensure review of the CAP

with the Facility • Implementation of a corrective action plan and prompt remedy to any compliance

violations identified in the Audit • Vendor/Licensee qualification, annual re-qualification, contract management, maintain

registration information and third party audits

One of the Largest Computer hardware and consumer electronics company • Conflict Minerals Compliance Solution for 100,000 suppliers • Supplier, Product , Social Compliance Assessments and Audits for supplier base • Corporate Social Responsibility & Sustainability Performance Management

Leading retailer and distributor of construction and maintenance products • More than 50,000 suppliers • Vendor Information Management, on-boarding, evaluation, RFQ, auditing, selection • Central repository for supplier governance, performance management

Specialty retail and wholesaler of outdoor equipment • End-to-End solution including conflict minerals compliance management software and

synergistic supplier management services • Development and implementation of conflict minerals compliance strategy , supplier

surveys and support through online help and training services


• Over 1,000 employees • Over 300 enterprise customers • Headquarters in Palo Alto, CA

with offices worldwide

About MetricStream

Vision

Solutions and Services

• Supplier Governance and Conflict Minerals • Risk Management • Compliance Management • Audit Management • Policy & Document Management

Partners

Differentiators

• Technology - GRC Platform – 9 Patents • Breadth of Solutions – Single Vendor for all GRC needs • Cross-industry Best Practices and Domain Knowledge • Compliance training, services and support (Complianceonline.com)

Organization

• Social Compliance & Factory Audits • Quality & Safety Management • EHS & Sustainability • Customer Complaints & Product Recall • Content and Training

Integrated Governance, Risk & Compliance (GRC) for

Risk-Driven Intelligence and Better Business Performance


Q&A

A copy of this presentation will be made available to all participants in next 48 working hours. Please visit www.metricstream.com for more details on upcoming webinars.

Please submit your questions to the host by typing into the chat box on the lower right-hand portion of your screen.

Thank you for participating!

Dr. Ruud Overbeek VP of Global Health, Environmental and Regulatory Services

and Chemicals & Pharmaceuticals North America Intertek

Email - [email protected]

Sonal Sinha Associate VP of Industry Solutions

MetricStream Email - [email protected]

http://www.metricstream.com/

mailto:[email protected]



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Strategies for Conflict Minerals Compliance - USFIA · © 2013 MetricStream, Inc. All Rights...

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Transcript of Strategies for Conflict Minerals Compliance - USFIA · © 2013 MetricStream, Inc. All Rights...