Electronics companies scored higher than other industries in a ranking of 1,267 publicly-traded companies that filed a Conflict Mineral Disclosure with the Securities and Exchange Commission (SEC) for 2014. The top 100 ranking, conducted by Tulane University and sponsored by consulting firm Assent Compliance, were based on two key areas – compliance with the U.S. SEC conflict minerals reporting rule, and a good practice metric.
The study, led by Dr. Chris N. Bayer, Ph.D., and a research team from Tulane University, was supported by an advisory panel from the IPC, Elm Sustainability Partners, Schulte, Roth & Zabel, KPMG, and Assent Compliance.
Under the Conflict Mineral Disclosure, companies have to report whether or not their products contain conflict minerals – gold, tantalum, tin, and tungsten – mined from regions in Africa. However, a U.S. appeals court recently ruled that the requirement that companies state whether their products are DRC conflict free or not conflict free violates the First Amendment.
The report provides a compliance-based score that was based on the rules of Dodd-Frank Section 1502 and a best practice score based on the Responsible Sourcing Network’s good practice indicators, focused on transparency and process description, which were two very different scoring criteria to be compliant, said Jonathan Hughes, director of compliance services, Assent Compliance, during a webinar.
The report finds the electronics industry’s conflict mineral compliance programs scored significantly higher in best practices. While the compliance average for the 400 electronics industry filers (86%) fell within the overall average of all 500 filers (85%), there was a significant difference in the good practice score. Electronics filers achieved an average of 57 percent compared with all filers at 47 percent.
Hughes attributes the difference to a couple of factors, including that electronics companies have more exposure under Dodd-Frank and they have a longer history of materials compliance with regulations such as the European Union’s Restriction of Hazardous Substances (RoHS) Directive and Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), which means they have more knowledge about materials content and more efficient scoping.
Historically, electronics has been a heavily regulated industry when it comes to materials-related regulations such as REACH and RoHS so they already had processes and programs in place, said Hughes.
“Some of the larger companies especially those that do full materials disclosures have this information on hand so they didn’t have to send it out to their entire supply chain because of the previous efforts they had been doing with other materials related regulations. They already knew which suppliers had tin, tungsten, tantalum and gold,” he added.
The electronics industry gets hit the hardest with the two biggest difficulties to attain data for conflict minerals and other supply chain compliance-related regulations and that is the issue of contract manufacturers and distributors, said Hughes. “Distributors don’t make 99 percent of the products they sell so it’s difficult for them to get all of these declarations and contract manufacturers only want to provide the declarations for solders and pastes they put on the board.”
“The real reason why their completion percentage [87% versus 80% for all filers] is higher than other companies not in electronics is because they have those built-up supplier engagement programs. They do this at least on an annual basis, asking their suppliers about the content and source of these goods for a myriad of other regulations,” Hughes said.
One of the most interesting findings is that electronics companies have the highest average score, Hughes said.
“What a lot of the leaders and smart companies are doing is looking at conflict minerals and these other regulations as part of their ethical sourcing program. Public disclosure is becoming more prevalent. Companies that are doing this are going to save themselves a lot of pain down the line and you can see why the electronics industry sees this. They understand the benefits of it and why they are the first ones to move to one policy for materials compliance,” said Hughes. “Companies need to think about more ethical sourcing style policies instead of focusing on each regulation.”
As a result, it’s not surprising that IP&E component manufacturers like Kemet rank among the top five electronics companies for conflict minerals compliance. Kemet ranks at number five among electronics companies and number 20 among the top 100 ranking. Kemet said as the world’s largest user of tantalum, it took an early leadership position in the industry on the issue of obtaining certified conflict-free minerals. AVX also has taken a leadership role, which makes it surprising that it did not rank among the top 100.
Other IP&E component manufacturers that made the top 100 ranking include TE Connectivity (#52), SL Industries (#75), and Sensata (#99).
The same is true of chipmakers. Rounding out the top five electronics companies are Intel (#1), Microchip (#2), Qorvo (#3), and Apple (#4). Chipmakers like Apple and Intel as well as others including Qualcomm Inc. (#95) have publicized their efforts to remove conflict minerals from their supply chains as part of their corporate sustainability programs. Other leading chipmakers ranked among the top 100 for conflict minerals compliance include Marvell, Freescale, Cree, Audience and Skyworks.
For companies looking to improve their scores, Assent provides fives steps for companies to improve their conflict mineral benchmarking study score that covers 36 percent of the total criteria.