Conflict minerals have become a critical issue for investors concerned with the ongoing violence in the Democratic Republic of Congo (DRC). Gold, tungsten, tin and tantalum are extracted in the DRC, with armed groups fighting for control over the deposits to finance military aims.
The minerals are sold to multinational corporations and used in popular consumer electronics, such as laptops and smartphones.
“A number of human-rights issues get my attention, not the least of which is conflict minerals,” says Gail Taylor, an advisor with CIBC Wood Gundy in Edmonton. “We all have smartphones and I often cite that when I’m speaking [about] the merits of incorporating ESG (environmental, social and governance) issues into investing.”
Michelle de Cordova, director of corporate engagement and public policy for Ethical Funds, NEI Investments, says NEI has been working on conflict minerals since the issue came up as a potential ESG risk for IT and telecom companies two years ago.
“As more people become aware of the issue, there is a reputational risk for companies with consumer facing brands,” de Cordova says. On top of that, there’s a clear operational risk for companies relying on supply chains going into unstable regions. “On the values side, I think all companies have a basic responsibility to respect human rights and to try to ensure that their operations are not resulting in abuses.”
The list of companies involved in conflict minerals is long, and includes big names like Nokia, Apple, Samsung, Motorola and Research in Motion.
NEI, which owns the Ethical Funds brand, has engaged Research in Motion on conflict minerals, with positive results.
“RIM is certainly not a laggard on this issue; they’ve been working on supply-chain issues generally and conflict minerals specifically,” de Cordova says. “They’ve got the kind of policies we are looking for.We’ve had a very constructive dialogue with them.”
“RIM does not support the use of minerals that are illegally mined, transported or traded,” the company said in an e-mail, noting it had published a Responsible Minerals policy in January 2012.
Taylor says speaking with companies like RIM on issues such as conflict minerals is key.
“Several of the industry’s investment firms engage with corporations on the ESG issues and they’ve had successes in a number of areas, including dialogue around supply-chain awareness and the development of labour policies in developing countries.”
Many activists are calling for a boycott of conflict minerals from the DRC region.
Not so fast, says de Cordova. “The minerals trade is a very important part of the economy in that part of the world. A lot of people depend on it for their livelihoods.”
Indeed, the mining and mineral trade is the leading provider of local employment and state revenue in the DRC, SHARE analyst Noushin Khushrushahi noted in a recent report, “Conflict Minerals and the Eastern Congo: Implications for Investors.”
Instead of a boycott, NEI is asking companies to stay in the region responsibly.
“We want to see companies demonstrating they’ve got solid supply-chain due-diligence processes,” that match international standards, de Cordova says.
As investment firms like NEI push for change directly with corporations, the industry waits for the SEC to come out with new rules on conflict minerals, as mandated by the Dodd-Frank Wall Street Reform Act.
Under the terms of the provisions, companies would be obligated to investigate the country of origin of the minerals they use. If they come from the DRC, companies would have to prepare a detailed report.
“Companies will be able to say ‘I’m sourcing clean minerals from the DRC,’ ” de Cordova says, making the supply chain a source of pride rather than shame.
At the same time, investors will have a clearer understanding of how corporations are dealing with conflict minerals.
Doug Watt is an Ottawa-based financial writer.