Companies Detail Use of ‘Conflict’ Metals
First Reports Filed to SEC on Potential Use of Minerals From a Region of War-Torn Africa
By John Kester and Maxwell Murphy
June 2, 2014 7:28 p.m. ET
A dozen companies including Google Inc., J. Crew Group Inc., and Deere & Co. acknowledged they or their suppliers may have obtained metals from mines in a region known to use mining to fund armed militias, according to filings with the Securities and Exchange Commission.
The admissions were among reports by nearly 1,300 U.S.-listed companies that have filed their first audits on whether their products contained any tin, gold, tungsten or tantalum from Africa’s war-torn Congo region.
A majority of companies whose filings were reviewed by The Wall Street Journal, including Walt Disney & Co., Sony Corp. and LG Display Co., said they haven’t figured out if their products, ranging from electronics to jewelry, are in the clear. Only a handful were confident their supplies were free of conflict metals, among them Barnes & Noble Inc. and Office Depot Inc.
Retailer J.C. Penney Co. , for example, listed an array of goods that could have components difficult to trace, including zippers, lighting and window coverings. The company didn’t respond to a request for comment.
Many companies that demurred said their suppliers either didn’t respond to questionnaires or provided incomplete answers. Others said the complexity of their manufacturing processes made it impossible to give a definitive answer.
Johnson & Johnson, for example, said the majority of information from its direct suppliers was “not complete, accurate or reliable.”
“We’re actively engaging with our suppliers and continuing to educate them on our program’s expectations,” J&J said in a statement. “Our due diligence measures are ongoing as we work to verify all available information from our suppliers.”
Lawrence Heim, a director at Elm Sustainability Partners LLC, which advises companies on conflict minerals disclosure, said, “The credibility and the certainty of the data, through the supply chain, doesn’t really exist completely. Because it is the first time anybody has ever done this, there is a question about the quality of the data.”
Companies spent years and millions of dollars to meet Monday’s regulatory deadline for the rule, which is part of the 2010 Dodd-Frank Act. The SEC estimated conflict-mineral reports would cost companies up to $4 billion in the first year, and drop to between $200 million and $600 million in later years. Companies were projected to take about 480 hours, on average, to complete a report, compared with about 2,000 hours for a corporate annual report.
The measure has been under continuous assault from business groups, which consider it too burdensome.
In March, the U.S. Court of Appeals for the District of Columbia struck down part of the regulation. It said that forcing companies to list their products as “conflict free,” or not, as the rule had required, violated their First Amendment right to free speech. So companies now have to prove only that they investigated their supply chains.
Arrow Electronics Inc. said it would take years before it could clearly determine if all its suppliers, and their suppliers, use smelters certified conflict-free.
“I don’t think it’s entirely unknowable, but it’s a vast undertaking,” Joe Verrengia, director of corporate social responsibility for Arrow.
The SEC, which issued new guidance after the court ruling, has repeatedly declined to comment on how much slack it would offer on inaugural filings.
Plenty of products still contain the four targeted metals from the Congo region. More perplexing, the supply-chain audits have had little impact on Congo’s market share.
Last year, Congolese production of tantalum was estimated to have increased slightly to about 18% of the world’s total, according to the U.S. Geological Survey. The country’s share of tin production was steady at about 2%.
Without a clear thumbs-up or down, investors who want to influence corporate responsibility will have to read the fine print of these reports closely.
Calvert Investments Inc., which oversees about $13 billion in assets and focuses on corporate responsibility, says it will be developing its own criteria and benchmarks from scratch.
“What we’re looking for at this stage is reasonable due diligence efforts,” said Bennett Freeman, a senior vice president at Bethesda, Md.-based Calvert. “We will be looking for more companies reporting in greater detail soon.”
—Emily Chasan contributed to this article.