U.S. companies wary of suppliers’ conflict minerals

Public firms submit their findings on if their products have ‘3TG’

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Wandering into an American Eagle Outfitters store, a customer is more likely to wonder if a denim jacket will look good with a purple V-neck T-shirt than whether that jacket’s metal buttons contributed to the war chests of armed groups in the Democratic Republic of Congo.

The South Side teen clothing retailer and hundreds of other U.S. public companies have been studying their supply chains for the past year or more trying to figure out whether their suppliers — or their suppliers’ suppliers — might be using minerals mined in a part of the world where armed conflict has created a humanitarian crisis.

This is not just an exercise in good corporate citizenship.

In 2012, the Securities and Exchange Commission adopted a rule requiring public disclosure of the use of “conflict minerals” — specifically tantalum, tin, tungsten and gold, nicknamed “3TG.” The rule was mandated by the Dodd-Frank securities overhaul legislation that Congress approved after the 2008 financial meltdown.

A rush of Form SDs came in as the May 31 deadline arrived for the first filings.

For the most part, companies don’t think they’re selling goods that contain metals from suspect sources, but most admit they’re still chasing down information from suppliers and setting up systems to get the subject on the radar of their vendors.

“Many of our largest suppliers are not SEC registrants and are not subject to the conflict minerals rule,” pointed out Pittsburgh coatings giant PPG Industries in its filing explaining that it had received responses from 75 percent of the 79 suppliers that sell it about 450 raw materials that contain the minerals being examined.

Dutch company Royal Philips Electronics, which is the parent of Philips Respironics in Murrysville, told regulators that it works directly with about 10,000 suppliers around the globe. Those suppliers, in turn, use suppliers and so on. “In a typical case, there may be seven or more tiers in the supply chain between a 3TG mine and Philips’ first tier suppliers,” the company said in its filing.

Conflict minerals touch Americans more than most people realize, according to Source Intelligence, a Carlsbad, Calif., company that helped businesses such as American Eagle and warehouse club Costco review their supply chains. The company’s website features a chart showing how the minerals can show up in toothpaste, watches, earrings, cell phones, cars and office equipment.

Public companies only had to submit disclosure forms if the targeted minerals were needed in products that they make or contracted to have made. The electronics industry was widely seen as the main user of such minerals and, indeed, filings came from businesses like Apple and Intel.

Numerous retailers found themselves chasing down the details on their merchandise, too.

North Carolina-based hardware chain Lowe’s included in its filing a full page of product groups that might include goods put through the due diligence process required by the SEC — a list that ranged from patio goods, decorative rugs, trim-a-tree items, lawn and garden tools, and wall sconces to screwdrivers, paint tools, tape measures, flashlights, art frames and clocks, and ceiling fans.

Wal-Mart Stores Inc. said, for the most part, it acquires products that might include conflict minerals from third-party suppliers. The Bentonville, Ark., retailer’s filing did call out an instance in which it used tantalum to make certain eyeglass lenses last year and another in which it used gold in some fine jewelry items.

After a long due diligence process, Wal-Mart decided neither of the minerals used in those products were sourced from the Congo or the neighboring countries covered by the SEC rule.

The various company filings bring home the global nature of the supply chain that brings goods to Americans.

Dick’s Sporting Goods, based in Findlay, reported that it buys merchandise from about 1,400 third-party vendors in addition to offering products under its own brands. The retailer estimated less than 1 percent of products available for sale in its stores are subject to the conflict minerals review.

Its push to comply with the new rules included offering training to suppliers at summits held in Central America and Asia, “with training materials provided in English, Spanish and Simplified Chinese.”

Dick’s selection of golf, hunting, biking and other sporting equipment seems an obvious place to look for the four conflict minerals, but clothing stores like American Eagle got caught up in the review, too, and not just because the chain carries costume jewelry. Sundries — such as zippers, buttons and rivets — can use the materials.

American Eagle identified 178 suppliers whose products needed to be reviewed, according to its filing. The retailer managed to survey 71 percent of those on the subject, and 10 percent of those who took the survey said they used one of the minerals in products supplied to the clothing chain.

In the end, American Eagle never did figure out exactly where everything came from. “Despite having conducted a good faith [reasonable country of origin inquiry] and due diligence efforts, the company has been unable to determine the origin of all of the 3TG minerals used in its products,” it admitted.

That was not uncommon, in part because companies are still trying to figure how they should fulfill the requirements. One public company executive noted recently that many of the filings came at the last minute because everyone was checking to see how others handled their disclosures.

In addition, the SEC set up a temporary two-year period in which companies can label products “DRC conflict undeterminable.” Smaller companies get a four-year grace period. Ongoing court challenges involving the new rule also have the potential to change what companies need to disclose.

Beyond shining a spotlight on the role of the minerals in everyday goods, the Dodd-Frank legislation seems to be having an impact on the ground, according to a report last month from the Enough Project, an anti-genocide project of the Washington, D.C.-based Center for American Progress.

In the eastern Congo, it has become less economically viable for armed groups and the country’s army to mine tin, tantalum and tungsten, the report found. “Minerals were previously major sources of revenue for armed groups, generating an estimated $185 million per year for armed groups and the army.”

Gold continues to be a problem, the project found. The report based its conclusions on interviews with 220 people in 14 mines and towns in eastern Congo, in addition to 32 interviews in the U.S. and Europe.

Teresa F. Lindeman: tlindeman@post-gazette.com or at 412-263-2018.

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