Arbeitsgemeinschaft für Entwicklung und Humanitäre Hilfe
Kommentar der Anderen | Outside View (EN)
A globalized economy needs global rules for companies. The ongoing negotiations on an EU supply chain law are based on this insight. Supporters of a comprehensive supply chain law can draw important lessons from the initial implementation of the EU Conflict Minerals Regulation in 2021. The regulation for the first time introduces binding human rights due diligence requirements for companies in the EU. What can we learn from it and what is actually changing on the ground?
Outside View by Karin Küblböck and Hannes Grohs
The aim of the currently negotiated EU supply chain law is that large companies operating in the EU take responsibility for their supply and value chain to prevent negative impacts on human rights and the environment. Already since January 1, 2021, the EU Conflict Minerals Regulation (EU 2017/821) obliges companies that import specific minerals to fulfill due diligence obligations in order to prevent financing of armed groups and human rights violations. The Regulation can, therefore, be seen as a forerunner with regard to a comprehensive and EU-wide supply chain legislation. A look at its design and implementation provides important insights for the current discussion.
The EU Conflict Minerals Regulation applies to companies that import the unprocessed minerals tantalum, tungsten, tin or gold, or their ores or metals into the EU and thereby exceed a certain physical threshold. Companies importing processed products containing those minerals are not affected by the regulation, which greatly limits its scope. Moreover, the inclusion of only four minerals further limits the scope as it results in only a small fraction of metal imports being covered by the regulation: In 2019, the import of tantalum, tungsten and tin amounted to merely 0.05 % of the value and 0.003 % of the weight of all imports of metal ores into the EU in 2019. Only the value of gold imports accounted for a significant share (6 % of the import value of metals) (UN Trade Data). However, the threshold for gold (100 kg/year) again exempts a large part of importers further restraining the scope of the regulation.
In implementing due diligence obligations, the EU regulation is based on the OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and provides for a five-stage process:
After the adoption of the EU regulation in May 2017, national authorities and companies had a three-and-a-half-year transition period until its first implementation in 2021 and reporting in 2022. In Austria, 15 companies exceeded the thresholds in 2021 and were required to fulfill and to report on their due diligence obligations. Reports had to be published by the end of March 2022. Until the end of September, 12 out of 15 companies had published reports.
The Austrian Foundation for Development Research (ÖFSE) analyzed those reports and reached mixed conclusions: A number of reports were identified that made a visible effort to be as transparent and clear as possible. Others focused merely on meeting the minimum requirements. Some reports did not appear to fully comply with the requirements of the regulation. Key factors for these differences were the varying experiences that companies could build on in fulfilling due diligence obligations (e.g. under Section 1502 of the US Dodd-Frank Act), but also the priority given to the topic at company level. Companies that do not comply with their due diligence obligations do not incur high risks: Due to a lack of a specific provision in the Austrian implementation law, penalties are currently limited to € 726. By comparison, Germany provides for a fine of up to € 50,000 and Luxembourg up to € 100,000.
Companies that did not report sufficiently – or at all – have to put up with the question why they did not make better use of the transition period of more than three years. Yet, not only companies did not sufficiently fulfil their obligations. Contrary to its own announcements and provisions by the regulation, the European Commission has still not published a list of officially recognized industry schemes that can be used to meet the requirements of the regulation. Thus, the European Commission has missed the opportunity to provide more clarity in the sector. With the Responsible Minerals Initiative (RMI), for example, there is already a comprehensive initiative, which, like the regulation, is based on the OECD Guidance in its specifications.
At the same time, recognition of industry schemes is not a simple task. Recent incidents with widely used industry certifications – most notably with ITSCI – demonstrate that standards and audits must be subject to public quality control. A framework is needed that prevents the creation of a non-transparent and lucrative business field for industry schemes and audit companies that does little to improve companies’ procurement practices and to change the situation in the countries where the minerals are extracted. The European Commission must be clear about what minimum requirements auditors must meet and how authorities can act as ‚certifiers of certification‘. In addition, experiences with the EU Conflict Minerals Regulation show that to make companies comply, higher monetary penalties are required, but also other sanctions, such as exclusion from public contracts. Last but not least, due diligence obligations have to apply to the whole sector, i.e. also include downstream companies, to create greater momentum and stronger leverage points in the field.
The success of the EU Conflict Minerals Regulation, or any other due diligence legislation, should not be measured primarily by whether companies manage to fully complete their reports, but by whether its content and provisions are actually capable of making a difference on the ground. Among other things, this means that companies do not simply withdraw from conflict-affected regions or simply pass on their obligations to local actors, which often entails costs rather than improvements for the latter. The upcoming evaluation of the regulation commissioned by the European Commission, is expected to provide some evidence in this regard.
Recently, the conflictual situation in the Democratic Republic of Congo – a major exporter of minerals covered by the regulation – has again escalated. Effective global rules for companies are important. But they will not be sufficient to resolve complex political-economic conflicts. However, properly set up and publicly monitored, due diligence legislation can at least help ensure that European companies do not profit from and contribute to human rights abuses and social disruptions, but do their part to avoid and mitigate them.
 European Commission (23/02/2022): Proposal for a Directive on corporate sustainability due diligence and annex
 EUR-Lex (19/05/2017): Official Journal of the European Union, Volume 60
 OECD (n.d.): OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas
 Bundesministerium für Finanzen (n.d.): Liste der Unionseinführer 2021
 ÖFSE (Sep 2022): Research Report 14: Umsetzung der EU-Konfliktmineraleverordnung in Österreich. Standortbestimmung nach dem ersten Jahr in voller Geltung
 U.S. Securities and Exchange Commission (modified 14/03/2027): Fact sheet: Disclosing the Use of Conflict Minerals
 Bundesarbeitskammer (14/10/2020): Stellungnahme: Bundesgesetz, mit dem das Mineralrohstoffgesetz geändert wird (MinroG-Novelle 2020)
 Industry schemes are industry-led due diligence programs that use third-party audits to certify the due diligence practices of their members.
 see www.responsiblemineralsinitiative.org
 Global Witness (26/04/2022): The ITSCI laundromat. How a due diligence scheme appears to launder conflict minerals
 Financial Times (n.d.): How the DRC became the battleground of a proxy war over precious resources
Karin Küblböck is an economist and senior researcher at the Austrian Foundation for Development Research (ÖFSE), with a focus on natural resource policies, international trade and investment policies. She is also a professional facilitator and expert in stakeholder engagement. She has been a researcher at ÖFSE since 1996.
Hannes Grohs is Junior Researcher. He joined ÖFSE in 2017, focusing on global value chain analysis, industrial policy, and development economics and policy. Since September 2021, he has also been in charge of the science communication agendas.
Die AG Globale Verantwortung hat sich mit dem Import mineralischer Ressourcen, darunter auch der sogenannten Konfliktmineralien, in der Broschüre Rohstoff- und Entwicklungspolitik im Widerspruch? Der Wettbewerb um mineralische Rohstoffe (2019) auseinandergesetzt. Wir bringen uns außerdem in die Verhandlungen über das EU-Lieferkettengesetz (Richtlinie über gesellschaftsrechtliche Sorgfaltspflichten betreffend die Nachhaltigkeit) ein, siehe unsere Stellungnahme zum Vorschlag der Europäischen Kommission.
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