Boston Common on Conflict Minerals

THE ISSUE: Conflict minerals are metals mined in areas of violent unrest, where revenue generated by the metals trade can be used to fund the activities of paramilitary groups. In particular, the eastern region of the Democratic Republic of Congo (DRC) in Central Africa has seen continual violence since 1998. With casualties reaching over 5.4 million, the civil war in the DRC is the deadliest conflict since WWII.

Tin, Tantalum, Tungsten and Gold, metals in high demand by international companies, are found in abundance in the DRC.  Fifty percent of the mines extracting these minerals in the DRC region are reportedly linked to armed groups, and operate under conditions of severe human rights abuses, including forced labor, child labor, rape as a weapon, a complete disregard for health and safety resulting in regular fatalities, and a prevalence of violence. The Eastern Congo is now embroiled in what can be described as a “Military-Mineral Complex.”   Minerals are sold to fund weapons purchases. The weapons are used to obtain land and labor. The land and the labor are exploited to mine more minerals, to fund more weapons purchases, to secure more land and more labor, and so on.

At Boston Common we feel that it is imperative to ensure that we are not inadvertently complicit in the human rights abuses committed in the Congo via our investments.  As investors, we believe that clear knowledge about sourcing practices at all levels of the supply chain is essential in forming an assessment of a company’s exposure to financial and reputational risks.  While Tin, Tantalum, Tungsten and Gold are used most notably in electronics such as mobile phones and personal computers, they are a reality in the supply chains of companies in sectors as diverse as jewelry and aerospace, making it impossible to isolate the risk of exposure in a diversified portfolio on a simple sector basis.

OUR INVOLVEMENT:
Conflict minerals have been a priority on the Boston Common advocacy agenda for the past three years. We have been advocating at the company, industry and public policy levels to advance methods to reduce or eliminate conflict minerals from the products and supply chains of publicly traded companies.

At the company level, Boston Common has assisted companies in our portfolios address their exposure to minerals sourced from the DRC since 2009.  We have taken a leadership role in working with Asian companies, with direct engagements with Hyundai Motors and Samsung in Korea; and Toyota, Sony, Canon, and other major corporations in Japan.  In late 2009, Boston Common joined an initiative targeting the Information and Communications Techonology (ICT) sector organized under the United Nations Principles for Responsible Investment (UNPRI). As part of this initiative, we are now leading the engagements with Canon, Sony, and Microsoft.  Additionally, we have engaged Ford Motors, Nokia, Vodafone, Philips, HP, and Disney on conflict minerals disclosure. In 2011, Canon announced that it would address conflict minerals in its next Sustainability Report.

At the industry level, Boston Common has used its position as co-coordinator of investor engagement under the Interfaith Center on Corporate Responsibility (ICCR) to take the discussion on conflict minerals beyond ICT.  In 2010, we co-authored an investor statement on Conflict Minerals in the DRC, which was signed by nearly 60 faith-based and institutional investors. The statement encouraged companies to take a systematic approach to tracing and eliminating conflict minerals in their supply chains.  In April 2010, the statement was sent to more than 100 companies worldwide, in sectors that included aerospace, auto, and medical devices.

Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, also known as the Conflict Minerals Law, was established to require companies to report on the presence of conflict minerals in their products. Implicated companies will be required to prove that controversial minerals do not fund armed activity in the regions where they are sourced.  Since July 2010, Boston Common has focused on engaging the Securities and Exchange Commission (SEC) on the Conflict Minerals Law, taking our engagement into the public policy realm. Boston Common is one of the lead investors under Responsible Sourcing Network, and as such we helped coordinate investor recommendations to the SEC on the form the Conflict Minerals Disclosure rules should take. In October of 2011, we participated in a follow up letter to the October 18th SEC Conflict Minerals Roundtable, to which Boston Common’s Lauren Compere was invited to speak.

The final rules were originally slated to be released in April 2011. However, the U.S Chamber of Commerce and other business groups have challenged the SEC  in an effort to dilute, and possibly overturn, the provisions of Section 1502. The groups argue that the SEC failed to weigh the economic impacts of the disclosure rules on businesses, and are reluctant to take on the costs of implementation. The rules are now slated to be released by June 2012.  We have been eyeing the current legal battle between the SEC and the Chamber of Commerce to determine if further engagement with either group should be pursued.  In February 2012, Lauren Compere spoke directly with SEC Commissioner Elise Walter to discuss the Conflict Minerals Law, and to reinforce the need to issue the rules sooner rather than later so as to allow companies the time to adapt to its stipulations.

We look forward to the issuance of the final SEC rules, as they will provide a launching pad for renewed engagement with select portfolio companies.  Boston Common plans to continue to spearhead engagements with companies based in Asia, and to involve companies across sectors in the dialogue.

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