Last week we looked at the history and geopolitics of conflict minerals, detailing the conditions in the mines, the human rights abuses that minerals fund, and the supply chain that brings illicit metals into our gadgets. This week, we’ll discuss the steps individual console manufacturers have taken in order to combat the problem of conflict minerals, and explore some the possible solutions to the problem as well as the ongoing challenges.
Congress Fires a Warning Shot
Conflict minerals were a fairly obscure topic before 2008, when the problem became large enough that it started making headlines in the New York Times. The increased awareness led to the first U.S. effort at legislation: the Congo Conflict Minerals Act of 2009. Originally killed in committee, the bill was later resurrected as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Namely, the bill became section 1502, a provision that ordered the Securities and Exchange Commission to develop rules that force companies to disclose the origin of their minerals.
The SEC regulations that resulted from section 1502 impose a three-stage control procedure that applies to companies quoted on Wall Street: Essentially, companies must determine whether they use any metal sources designated as “conflict minerals,” and if they do, they’re obligated to conduct due diligence to discover the origin of those minerals. If those minerals are not found to be from the DRC, or are from a mine in the DRC that’s controlled by the government, they can label their products “DRC Conflict Free.” On the other hand, if a company finds that their minerals come from rebel-controlled mines, or they can’t determine the origin, they cannot use the “DRC Conflict Free” label. Either way, companies must publish a report that’s reviewed by an external auditor, and afterward disclose those findings in their annual report.
The SEC does not impose any sort of fines or other punishment if a company sources from conflict mines. Rather, the idea is to force a company to publicly disclose they use conflict minerals in their annual reports and allow the public to shame or boycott them into compliance.
Overall, Dodd-Frank has worked. Companies that previously claimed that the process was infeasible or impossible made enormous strides in a single year, and smelters have rushed to comply when their customers requested it. Essentially, the new regulations encourage manufacturers to lean on their smelters – the 150-company bottleneck all minerals pass through – causing them to source clean or risk losing business.
Industry Strikes Back
The reaction to the new SEC rules was fairly mixed. Industry figures dislike that the rules passed at all and human rights advocates fear that the rules have been watered down by industry input, which added a two year phase-in period (four years for small businesses), meaning that companies won’t file reports until 2014. Significant exemptions also exist, particularly for companies like Wal-Mart or Target who place their brand or label on a “generic” product made by another company rather than manufacturing it themselves. Like much of the Dodd-Frank law, section 1502 has faced major opposition from business groups and Republicans who claim that compliance with the new rules is costly and burdensome – the SEC estimates that it will cost $3 to $4 billion across the industry initially, and $200 million a year after that – and some opponents claim that the rules cause the SEC to overreach its mission and get involved in foreign policy. (It should be noted that consumers probably wouldn’t see much of a price rise from this spending; sourcing clean minerals would likely cost 1-2 cents more.) In October, the U.S. Chamber of Commerce, the National Association of Manufacturers, and the Business Roundtable filed a lawsuit asking a federal appeals court to “modify or set aside” the rules in whole or in part, though the petition did not give legal arguments or reasons for the request. The move is part of a larger legal offensive that Democrats claim is aimed at chipping away the Dodd-Frank Act piece by piece.
Grading the Game Industry’s Response
According to a report published by the Enough Project called Taking Conflict Out of Consumer Gadgets, console manufacturers made a great deal of progress on the issue last year. According to Sasha Lezhnev, one of the authors, the report ranks a company on whether they’re tracing and auditing supply chains to find conflict-free suppliers, if they’re pursuing conflict-free certifications for smelters, how engaged the company has been with other stakeholders or in legislation, and what the company is doing to contribute solutions to the wider problem. Each company is assessed a numerical score from 0 to 100.
Microsoft: Becoming an Advocate
Microsoft was the highest-rated console manufacturer in Enough Project’s 2012 report, earning a score of 38, up from 15 the previous year. This places Microsoft just above the middle of the pack of the electronics companies surveyed and exactly on par with its rival Apple, though both are well below the highest scoring company, Intel, which rates a 60. Microsoft’s solid progress comes from the meat-and-potatoes basics of the SEC compliance: working with component suppliers in order to identify smelters and verify mineral sources.
In addition, Microsoft has been actively working with industry partners and international organizations determined to mitigate the situation in Congo. Though Microsoft declined to give details, their Corporate Citizenship Report states that they seek to align their efforts with the Dodd-Frank Act, the SEC, and the Organization for Economic Co-operation and Development (OECD). In addition, Microsoft took a role in the Public-Private Alliance for Responsible Minerals Trade (PPA), a joint initiative among governments, companies, and civil society to explore supply chain solutions to conflict minerals and, crucially, create a clean minerals trade in Africa. They also enforce a Vendor Code of Conduct that includes inspections to ensure vendors are following their directives. When a supplier is unwilling to follow their code of conduct, Microsoft disciplines them, sometimes by terminating their contract.
However, the boldest thing Microsoft has done is to issue a statement against the U.S. Chamber of Commerce’s plan to overturn the conflict mineral provisions in Dodd-Frank. The Chamber is a powerful lobby group and breaking ranks with them isn’t to be taken lightly, but Microsoft – along with GE, Panasonic, and Motorola – chose to side with regulators regardless of any potential fallout.
Sony: Bridging the Gap Between Industry Associations
As late as 2010, Sony had taken little to no steps to address the problem of conflict minerals. However, in 2011 the company reinvented itself as one of the largest conflict mineral advocates in the Japanese market, and has played a lead role in encouraging companies in Japanese Electronics Information Technology Industry Association (JEITA) to work with the Electronic Industry Citizenship Coalition (EICC) where Japanese companies are generally under-represented. In addition, Sony has stepped up its relationship with the Global e-Sustainability Initiative (GeCI). These measures caused the Enough Project to rate Sony a 27 in its 2012 report, which seems low, but is a massive improvement over the 0 the company received in the 2011 report. While it still has a long way to go, Sony has gotten off to a strong start.
“Sony shares the concern that conflict minerals might be used in the electronics industry supply chain and is taking steps to eliminate conflict minerals from the supply chain,” reads a statement provided to me by Jade Mai Mendoza, a Sony corporate communications representative. “Recognizing that these issues are common across the electronics industry, Sony is also participating in the creation of an industry-wide framework, an effort spearheaded by the EICC/GeSI, to improve traceability of minerals and ensure responsible sourcing.”
Sony is also trying to use its unique position to improve cooperation between Japanese and Western electronics manufacturers. Because Sony has supply chains in both the West and Japan, the company naturally occupies the space between the two industry groups and serves as a sort of ambassador between them, encouraging JEITA to adopt the EICC’s approach with the hope of standardizing the industry response. “We believe in efficiency and effectiveness,” says Mendoza. “And having a common approach and common template adopted by wide number of electronics companies in Japan helps streamline the efforts and effects on suppliers.” This work resulted in the JEITA signing a memorandum of understanding to participate in the EICC’s smelter audit program.
The Enough Project’s report found Sony’s progress encouraging. “A lot of this goes through industry associations,” says Lezhnev, “but without the leadership of key companies the industry associations are going to move nowhere, so it’s really up to some companies to take a leadership role. And frankly, Sony deserves a lot of credit here: they are facing a lot of financial difficulties and yet they are actually playing a leadership role in terms of harnessing the energies of other Japanese companies to get involved in the conflict minerals issue. That takes a lot of courage and commitment.”
Nintendo: Turning a Blind Eye
Nintendo was the only major electronics company to score a 0 on the Enough Project’s 2012 report, meaning they have taken no action on the issue of conflict minerals. While Nintendo did not respond to my request for comment by press time, in September they spoke to Polygon, saying that all production partners have taken steps to comply with Nintendo’s guidelines, and that Nintendo “obtained individual confirmation from each production partner that they agree not to use conflict minerals.” This confirmation, however, did not include any steps to track Nintendo’s supply chain and audit sources, and seems to amount to little more than an oral agreement.
Lezhnev remains unimpressed. “At least they’re at least acknowledging the issue, but frankly the statement that was made has no real facts or evidence to back it up, so really it’s a very poor fig leaf put on a black hole.” According to Lezhnev, Enough has tried to contact Nintendo to talk about these issues for two and a half years and gotten no response. He lists the many programs and industry groups Nintendo isn’t a participant in: the conflict-free smelter auditing program, the EICC, the Public-Private Alliance for Responsible Minerals Trade, the due diligence standard put forth by the Organization for Economic Cooperation and Development that hundreds of companies have participated in. “I could go on,” he concludes. As a contrast, Nintendo’s fellow Japanese console manufacturer Sony is a member or participant in all of these programs and groups. “There’s really no engagement. What they need to do is very clear: they need to trace, they need to audit, and they need to contribute to a certification process.”
In Nintendo’s 2012 Corporate Social Responsibility Report (CSR), President Satoru Iwata defines their corporate policy as: “Putting Smiles on the Faces of Everyone Nintendo Touches.” As part of this buoyant statement, Iwata explains that Nintendo does not hire outside auditors to inspect their manufacturing partners, since they would rather have direct communication. “The goal of our on-site inspections is to share the essence of the rules with which we require production partners to comply. Our intention is not to force them to follow our rules, but instead we want them to understand the underlying meaning of each rule and why each rule is necessary so that they are able to realize the importance of CSR and voluntarily apply our rules.” A footnote also states that production partners “are required to be involved in CSR and to encourage the promotion of CSR activities throughout the entire supply chain.” In other words, Nintendo tells their partners what they think should be done, then turns a blind eye.
The word “smile” crops up a lot through the president’s message. Nintendo is “spreading smiles around the world,” they have a corporate “Smile-Spreading Project,” and their growth depends on whether they can “connect the smiles of all people involved in Nintendo” to form a “Smile Value Chain” that makes everyone happy, from manufacturer to consumer.
There’s no indication that Nintendo intends to audit this Smile Value Chain.
Skepticism of Tracking and Auditing
While government and industry have decided on tracking and auditing supply chains as an answer, some suggest that the minerals trade will survive attempts to clamp down on it, or that these measures are ineffective, or even that they may contribute to the instability in Eastern Congo.
One line of argument, for instance, is that the ongoing war in the region, not the minerals, is the driving force behind the illicit trade. After all, the instability predates modern electronics, and many other commodities such as ivory, rubber, diamonds, and cobalt have been the favorite cash-cow of warlords before tungsten and tantalum had much value. It is certainly possible that attempts to regulate conflict minerals, even if successful, may lead to the ascendency of another exploitable commodity; some militias, for example, have reportedly moved on to the bananas trade.
Others, such as the International Crisis Group, have suggested that the DRC’s corrupt and inefficient government undermines regulation, both because they cannot enforce their authority on the militia-riddled North and South Kivu provinces and because their own soldiers play an active role in exploiting conflict mines. Any auditing program would necessarily require local stakeholders in order to implement it, and unless those local partners are well-trained and free from corruption any attempted regulation is destined for failure. For example, in September of 2010 President Joseph Kabila banned the production and trade of minerals in the Kivus and Maniema, and ordered the military to flush out the militias. Unfortunately, not only did this make the violence worse, but the DRC’s largely unpaid military immediately set up shop on the mines themselves, a fact Kabila should’ve seen coming, since much of the DRC’s army is made up of former militiamen that were integrated into the armed services. Take the case of General Bosco “The Terminator” Ntaganda, for example, who went from being a Rwandan soldier, to a rebel in Congo, to a soldier in the Congolese army and now the leader of the M23 rebel movement. While Ntaganda still worked for the Congolese army, his presence created an uncomfortable situation for UN Peacekeepers, who found themselves working with a man the International Criminal Court had labeled a war criminal. This isn’t unusual in the DRC, whose president even led a unit of child soldiers for a time. Because of problems like this, it’s an open question whether Congolese authorities are trustworthy enough or have the administrative capacity to take part in an audit program. As the violence and corruption continues, it becomes increasingly clear that major government reforms have to take place if any audit program is to succeed.
There is also a real question as to whether the audit programs have hurt Congo more than they’ve helped it. Because of the audit programs, smelters are beginning to avoid minerals from the DRC, leading to an unofficial boycott of Congolese minerals and putting thousands of miners out of work. As money dwindles from the minerals trade, it’s the small miners who get hurt. Yes, previously they were taxed and oppressed by militias and the military, but at least then some money was coming to them, and the fact that they have no source of income doesn’t improve their safety. Ultimately, cutting off legitimate miners will only make the situation more difficult and lead to more unemployed people joining armed groups.
Even among advocates of tracking and auditing, it’s clear that simply walking away from the region isn’t an option. One suggestion is for companies to take an active hand in the solution by establishing their own conflict-free mines. Motorola, for instance, founded its own mine in Congo in order to source clean tantalum. This arrangement gives Motorola a clean source of Congolese tantalum while improving mining conditions and paying workers a fair wage. Other companies are exploring this option too – the electronics manufacturer Phillips is lining up a project for a tin mine. Ultimately, economic development needs to be part of the equation if we hope to make a lasting impact.
Finally, and complicating this whole process further, recent events have made international groups unsure whether they’ll even be dealing with the same government next year. The Terminator and his M23 rebels recently took Goma, the largest city in Eastern Congo, and announced their intention to march on the DRC capital of Kinshasa. M23 has backing from Uganda and Rwanda, and there have been reports that Congolese army defectors are swelling its ranks-in other words, it looks a lot like the rebellion that propelled the Kabila family to the presidency in 1997. If the conflict mine-financed M23 movement gains the leadership of the country, we can kiss a lot of local engagement on minerals sourcing goodbye.
The Future
Whether auditing supply chains proves to be part of the Congolese solution or not, it’s clear that somehow we need to develop a lasting framework to deal with conflict minerals. Highly sought-after minerals aren’t going away, and even if we never solve the problem, we can at least find ways to mitigate our role in it. In some ways, the DRC may even end up being the international community’s training ground for mineral-funded wars of the future. After all, while tungsten, tin, tantalum, and gold are the conflict minerals of the moment, as technology advances there will be need for different metals to feed global industry, some of which will be present in destabilized and violent countries. Rare earth elements will likely play a larger role. Lithium will be the mineral of choice soon because of its use in rechargeable batteries, a need that will increasingly accelerate as we begin to switch to hybrid and electric cars.
You know where there’s enormous reserves of lithium? Afghanistan.
Robert Rath is a freelance writer, novelist, and researcher based in Austin, Texas. You can follow his exploits at RobWritesPulp.com or on Twitter at @RobWritesPulp.
Published: Nov 22, 2012 05:00 pm