Technology companies are unlikely to tackle the controversial use of so-called conflict minerals in their products because of weaknesses in a forthcoming EU regulation.

The European Union’s (EU) upcoming Conflict Minerals Regulation will come into force in January 2021 to clamp down on the mining of 3TG minerals (tin, tantalum, tungsten and gold) used to fund fighting in ‘conflict-affected and high-risk areas’.

3TG minerals are vital components in everyday electronic products such as phones and laptops, but because of how the Regulation is set up many technology companies, ranging from hardware manufacturers to multinational software companies, will have no incentive to change their behaviour  despite being major consumers of these resources.

This is because technology companies will not be obliged to monitor, track or otherwise act to remove the minerals from their global supply chains, a number of minerals key to the tech industry are ignored by the regulation, and companies will not even be penalised if found to be in breach of the rules.

On top of this, like previous regulatory or legislative attempts to deal with conflict minerals, the regulation will do little to alter conditions for those on the ground living and working in conflict-affected areas, nor force the tech companies that benefit from the minerals to play their part in tackling the problem.

According to Laurent Ruessmann, a competition, regulatory and trade partner from Fieldfisher’s Brussels office, one of the regulation’s main shortcomings is in how its due diligence obligations have been “watered down”.

“To put it bluntly, they don’t apply to everyone in the supply chain,” he says. “Downstream players are encouraged to conduct due diligence, but they’re not obliged.”

Importers and upstream actors

The regulation’s obligations only apply to importers and “upstream” actors, meaning companies that extract and refine the raw materials in the first place.

However, technology companies often have expansive supply chains that span multiple continents and, as “downstream” actors, many of the minerals they use are exported elsewhere from the country of origin for refining and assembly before they reach Europe as finished products.

Hala Zeine, chief product officer at process mining software firm Celonis, also points to the global nature of modern supply chains, saying the regulation should be more “product-centric” to include every company that uses these components in their end products.

“Ultimately, if something gets fed into a product, what any government should be worried about is ‘what did it take for that product to enter my market?’” she says.

“My question would be why is the regulator going on the list of metals or minerals? Why are they not going on the action? It’s not the mineral that bothers us it’s how people are extracting it.”

Regulatory blind spots

Ben Radley, a fellow in Development Studies at London School of Economics who has spent a significant amount of time on the ground in the Democratic Republic of Congo (DRC) researching the impact of transnational mining corporations, agreed this limited scope represents a “blind spot” in the regulation.

“It undermines a lot of the power and leverage the Regulation has given the nature of these value chains,” he says: “I also think it’s interesting that the EU isn’t thinking about cobalt and lithium.”

Both cobalt and lithium are essential for electric batteries and, as the industry shifts towards greener technologies, there will be a massive increase in demand for these minerals, which has already been building steadily over the past few years.

In December 2019, Congolese families of children killed or injured while mining for cobalt in the DRC launched a landmark legal case against the world’s largest tech companies, including Google, Apple, Microsoft, Dell and Tesla, showing that human rights abuses are not restricted to 3TG extraction.

“The supply chain is, by design, hidden and secretive to allow all participants to profit from cheap cobalt mined under extremely hazardous conditions by desperate children forced to perform extremely hazardous labour,” the complaint states.

Speaking to Computer Weekly, the executive director of International Rights Advocates (IRA) Terrence Collingsworth, who is representing the Congolese families, says the abuse in the cobalt sector is by far some of the worst he has even seen.

“I also advocate against companies like Nestle for using child labour in the cocoa sectors of West Africa. It’s horrible – the kids are using machetes and get cut, the working conditions are terrible, but they’re not getting maimed and dying every day like in the cobalt mines,” he says. “It was just a shocking upgrade of the level of willingness to profit from misery.”

No penalties for non-compliance

However, even if these additional minerals were covered by the regulation, there are also currently no penalties for non-compliance.

“Why you would even go through the trouble of putting in place legislation if there is no provision for effective penalties? Its counterintuitive and a waste of time, unless it is seen as merely a first step,” says Ruessmann

Dynda Thomas, a partner at law firm Squire Patton Boggs, disputes this point, saying very few pieces of due diligence legislation, including a variety of modern slavery laws, actually carry financial or criminal penalties.

“For the US conflict minerals rule and the EU regulation there are no financial or criminal penalties involved at this point, they are very much seen as name and shame schemes,” she says. 

“The intent and hope is that providing this information and making disclosure mandatory means customers and consumers will put pressure on companies.”

A foot in the door

While they differ in opinion over whether the lack of penalties is “normal”, both agreed it’s a “foot in the door” and would be surprised if the regulation was not strengthened down the line under pressure from activist and civil society groups, as well as consumers.

The regulation is set to be reviewed for effectiveness by 1 January 2023, as well as every three years after that, by the European Commission, which has reserved the right to introduce mandatory due diligence obligations further down the supply chain if the Regulation is later found to be lacking.

However, until then, only upstream actors will have due diligence obligations, while most downstream players will continue to be locked into voluntary reporting initiatives.

This is despite the European Commission publishing a study on 20 February 2020 about due diligence requirements throughout the supply chain, which found the current voluntary measures built to mitigate adverse corporate behaviour (including human rights abuses) have failed to significantly change the way businesses manage their social, environmental and governance impacts.

Only one in three European businesses that responded to the study said they currently undertake some form of due diligence which takes into account all human rights and environmental impacts.

Previous conflict minerals regulations and initiatives

While legislation and voluntary industry-led initiatives already exist to specifically combat the use of conflict minerals, they have done little to change conditions on the ground in the conflict zones they cover, specifically the DRC where the vast majority focus.

Section 1502 of the Dodd Frank Act, otherwise known as the US Conflict Minerals Rule, came into effect in 2014 and wholly focused on stemming the flow of conflict-tied 3TG minerals from the Great Lakes region of East Africa.

This is largely due to the highly publicised and brutal nature of the DRC’s conflict, which the International Rescue Committee has called “the world’s deadliest conflict since World War II” – 5.4 million people were killed between 1998 and 2008, with approximately 45,000 deaths occurring each month.

Under Dodd Frank, publicly listed companies (many of which are classified as “downstream” actors) had to conduct mandatory due diligence and report to the Securities and Exchange Commission (SEC) about whether their supply chains contained 3TG minerals from the DRC.

A number of voluntary industry-led initiatives have also been set up over the last 20 years to deal with supply chain due diligence and or compliance with Dodd Frank, but these too are not subject to penalties beyond public naming and shaming.

An example of these initiatives include the Responsible Business Alliance’s (RBA) Responsible Minerals Initiative (RMI), formerly known as the Conflict-Free Sourcing Initiative.

“Dodd-Frank requires companies that are publicly listed to disclose certain types of information about their sourcing practices and due diligence processes,” says Leah Butler, vice-president of the RBA and head of its Responsible Minerals Initiative (RMI). “Then it’s up to customers and others to take that information and use it in their decision making.”

Audit no longer required

However, in April 2017, the Trump administration began making moves to limit enforcement of the Conflict Minerals Rule, culminating in SEC chairman Mike Piwowar saying companies will not be required to conduct a due diligence review or an audit any longer.

“Even before these statements were made by the SEC, there really had not been ‘enforcement’ from them in anyway,” says Thomas. “I’m only aware of a few times, in rare instances, of the SEC asking about the [conflict minerals] disclosure when asking about other filings from companies, so it really wasn’t enforcement per se, even before that statement was made.”

“I think it’s true to say the electronics industries have very much lead the way in diligence and disclosure and emphasis on responsible sourcing, working with smelters and refiners around the world to make sure there was pressure on them to go through the auditing process, and to have good due diligence procedures.”

“RMI is very committed to continuing to support company due diligence regardless of what regulations are in place,” says Butler.

According to Thomas, the EU Regulation looked to fill gaps that Dodd Frank did not cover – namely imports and upstream actors – as well as expand its geographical scope to include any “high-risk, conflict-affected area” in the world.

“When you look at it there were a lot of issues being discussed and those who wanted a broader role to cover more things, and to be more broad overall, were not entirely successful, and also the people who wanted to narrow the regulation were not 100% successful either.”

As it stands, the EU Regulation will allow the European Commission to draw up a global “white list” of certified smelters and refiners.

“Anyone who is not sourcing from smelters or refiners on that list will have to provide additional disclosure and in that way will be subject to their member states coming to them with further questions,” said Thomas, pointing out this was more of a consequence than “a penalty per se”.

A poor process

However, according to Radley, the static nature of current auditing processes leaves much to be desired, and only apply to one conflict region whereas new auditing systems will need to apply globally.

“You go to a mine, audit for a few days every few years, but of course if you’re an operator all the children can stay at home and you can be on your best behaviour,” he says. “But the situation is also fluid, so in two or three months’ time it might be completely different – somewhere that was classified as a green mine and ‘conflict free’ may very quickly change.”

“My own research documented the continuation of human rights abuses in the mine sites that had been certified as conflict free, and so just the inherent nature of this quite static audit system makes it difficult to continue to determine what is going on at the level of the mine sites.”

He adds that a huge amount of investment would be required to properly gain visibility of the situation on the ground in a location as vast as the DRC.

As of yet, it is unclear how the EU will avoid the same problems with auditing smelters and refiners which will be even more geographically spread out, and what measures are in place to verify that the minerals delivered to these organisations are coming from “conflict-free” mines.

What are the alternatives?

According to Collingsworth and Radley, a better approach would be to move away from voluntary corporate governance and social responsibility models to focus on increasing the productive capacity of those living in conflict zones so they can develop their own solutions to what are essentially deeply political conflicts.

For Radley, “corporate social responsibility” and its associated governance models, whereby the solutions are driven in a top down fashion by private actors, began to emerge in the late 1970s and early 80s.

“I think you can see the whole conflict minerals movement as an extension of this move towards corporate governance, where you’re essentially expecting private sector actors to take the lead on these sorts of issues, and the state is often squeezed out or overlooked in these contexts,” he says.

A consequence of this is the emphasis placed on industrial mining operations over artisanal mining operations, which are not only less harmful to the environment, but directly linked to the economic prospects of workers on the ground.

“I think there is a tension there between the extent to which [the regulation] can be used as a platform by companies to ease the fear of consumers who have concerns, while at the same time failing to have a meaningful impact on the ground, which is where it is meant to be providing tangible benefits,” says Radley.

To deliver proper, meaningful benefits, Collingsworth and Radley agree it is vital that both problems and solutions, in the DRC and other conflict zones, are historicised in the proper context. For the Congo, this means talking about a violent colonial history where it was forcibly integrated into the global economy by European imperial powers.

“Where are those sorts of discussions and who is willing to take it on? Pretty resounding silence on that when you look around,” says Radley. “I think the historical context highlights that this [regulation] is essentially a narrow exercise – it’s not challenging the structural integration of the Congolese economy globally, which has historically been a huge source of injustice and inequity.”

Since the Belgium Conference in 1885, where central Africa was divided up among 14 competing European powers without input from any African representatives, foreign interference by both nation states and multinational corporations have been mainstays in Congolese affairs.

Radley adds that much of the conflict minerals conversation that has played out over the last decade has focused too much on making the mineral exports palatable to Western consumers, without addressing how to restructure the Congo’s integration into the global economy.

“We need to move beyond this idea of just improving the ethical way in which the Congo supplies its minerals to the rest of the world, and think about how to actually increase the productive capacity of the Congolese economy to, for example, develop its own green technologies and use its minerals to develop supply chains around which it can move the economy forward on a stronger footing,” he says.

“That [historical] perspective is very important for that and produces very different solutions and ways which we can think about reversing that history – which is very much on the agenda of many of the Congolese you speak to, but seems to be quite absent from these current [industry-led] solutions around conflict minerals.”

The complaint submitted by Collingsworth and IRA on behalf of the Congolese miners also details the brutality of this colonial history in the DRC.

“I think it’s very important to point out how little things have changed, and how the level of cruelty and abuse is really consistent with what is an attitude or a mindset that these are ‘just’ Africans,” says Collingsworth.

“I think there’s a racial component to how these executives go home at night and pat their own kids on the head, knowing what’s going on over there.”



Source link