How does the EU Conflict Minerals Regulation apply in the UK?

The EU Conflict Minerals Regulation (“EU Regulation”) is aimed at reducing the financing of armed conflicts through the trade of valuable minerals. But, before the EU Regulation went into full effect on 1 January 2021, the UK completed its separation from the EU. To understand what the EU Regulation means for them following Brexit, importers into the UK need to take into account the concept of “EU retained law,” the application of the Northern Ireland Protocol, the recent introduction of the Northern Ireland Protocol Bill 2022-23, and the implication of the Trade and Cooperation Agreement.

In this publication, we discuss the EU Regulation and its application in England, Scotland, Wales and Northern Ireland.

US SEC Conflict Minerals Reporting 2022 – Survey of the most recent “Actions taken and to be taken to improve due diligence”

As SEC reporting companies finalize their conflict minerals disclosures each year, they typically review the Form SD requirement that calls for a description of any steps taken or to be taken to improve their conflict minerals due diligence. This required disclosure is typically provided in sections called “Actions Taken and to be Taken to Improve Due Diligence” and “Continuous Improvement” and the like. Since there is time for reporting companies to consider and implement improvement actions for calendar year 2022, now is a perfect time to review the most recent filings to survey improvement actions included in the reports for calendar year 2021. This is especially true because, in this current regulatory climate, the conflict minerals disclosure requirements and their enforcement are not likely to be reduced.

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The EU Conflict Minerals Regulation and the Labyrinth of Brexit

The initial provisions of Regulation (EU) 2017/821 of the European Parliament and of the Council laying down supply chain due diligence obligations for Union importers of tin, tantalum and tungsten, their ores, and gold originating from conflict-affected and high-risk areas (the “EU Conflict Minerals Regulation”) took effect in 2017. Then, on January 1, 2021, the rest of the provisions of the EU Conflict Minerals Regulation (as amended) came into full effect requiring supply chain due diligence and, in certain cases, third-party audits and consultations. The supply chain due diligence required by the Regulation is based on the due diligence framework set out in the OECD’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas.

This publication addresses the impact of Brexit on the effectiveness of the EU Conflict Minerals Regulation on importers into England, Scotland, Wales, and Northern Ireland.

Recent Climate and ESG Disclosure Activity — What does it mean for the SEC’s Conflict Minerals Rule?

In its first two months, the Biden Administration has given significant attention to climate-related and environmental, social, and governance (ESG) disclosure issues.

  • February 1, 2021 — The SEC announced the appointment of Satyam Khanna as the Senior Policy Advisor for Climate and ESG.  He is to oversee the SEC’s efforts relating to climate risk and other ESG developments.
  • February 24, 2021 — Allison Herren Lee, the Acting Chair of the SEC’s Division of Corporation Finance, announced that the SEC would enhance its focus on climate-related disclosure in public company filings.  In that announcement, Acting Chair Lee noted the relevance of climate-related issues to investors.
  • February 26, 2021 — The SEC posted an Investor Bulletin on Environmental, Social and Governance Funds (ESG).  The Bulletin observed the differing criteria that ESG Funds use in their investment strategies, and it highlighted that investors need to understand ESG Funds’ investment goals.
  • March 4, 2021 — The SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement.  The Task Force is to proactively identify potential ESG-related misconduct and disclosure violations.
  • March 10, 2021 — The US Department of Labor (DOL) announced that it would not enforce Trump-era DOL rule amendments that require ERISA plan fiduciaries to select investments based solely on “pecuniary factors.”
  • March 11, 2021 — In a speech, John Coates, the Acting Director of the SEC’s Division of Corporation Finance, advocated for the creation of an effective ESG disclosure system that is “adaptive and innovative” and noted that ESG factors are increasingly relevant to investment and voting decisions.
  • March 15, 2021 — Acting Chair Lee announced that the SEC staff would be evaluating climate change-related disclosure rules and asked for public input on such disclosure.
  • March 22, 2021 — The SEC launched a new page on its website to host information on the various agency actions relating to climate and ESG investing.

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EU Conflict Minerals Regulation — OECD Guidance Workshops

Now that the EU Conflict Minerals Regulation (EU Regulation) is in full effect, EU importers of tin, tantalum, tungsten, and gold and derivative products need to determine whether they are covered by the EU Regulation.  Those EU importers that are covered by the EU Regulation are required to implement a supply chain due diligence process based on the Organisation for Economic Co-operation and Development’s Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas (OECD Guidance).

So, what does the OECD Guidance require?  What should EU importers do to get started?  One way to get started is to listen to our series of short workshops that cover each of Steps 1 through 4 of the OECD Guidance.  The workshops are hosted by Dynda Thomas (Squire Patton Boggs Cleveland) and Bernard Maier (Squire Patton Boggs London). “EU Conflict Minerals Workshop: Due Diligence and OECD Guidance.”

Sessions
Thursday 4 February 2021 OECD Step 1 – Strong Company Management Systems
Thursday 11 February 2021 OECD Step 2 – Identify and Assess Risks
Thursday 18 February 2021 OECD Step 3 – Address and Mitigate Risks
Thursday 25 February 2021 OECD Step 4 – Independent Third-party Audits

For more information about the firm’s Conflict Minerals resources, please visit our Conflict Minerals webpage or sign up to receive regular updates and articles on recent developments through our Conflict Minerals blog.

OECD Due Diligence Guidance — Workshops

If you are an EU importer of tin, tantalum, tungsten or gold (3TG) covered by the EU Conflict Minerals Regulation, as of 1 January your due diligence process must comply with the OECD Due Diligence Guidance. Non-compliance may have serious legal and reputational consequences.

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Department of Labor’s “Do-Good” Investing Rule — Biden Administration Review

In yesterday’s post, we said we expected that the Biden Administration would re-focus attention on the US conflict minerals rule.  In a similar vein, by the end of Inauguration Day, the Biden Administration indicated that it wants a review of recent amendments to a Labor Department rule that require that ERISA plan fiduciaries put financial considerations above all other considerations when making investment decisions. 

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New Day for the US Conflict Minerals Rule

It’s Inauguration Day in the US, and it’s likely to be a new day for the US conflict minerals rule.  Where have we been and where are we going?

2012 – 2016

Pursuant to Section 1502 of the Dodd-Frank Act of 2010, the SEC issued its conflict minerals rule in 2012, requiring reporting companies to report on their use and sourcing of tin, tantalum, tungsten and gold (3TG).  In 2014, SEC reporting companies began reporting on their “reasonable country of origin inquiry” and their due diligence measures by filing their first Form SDs.  A handful of companies also provided independent private-sector audits (IPSAs) as contemplated by the rule.  The rule itself included no specific required form of disclosure.  So, the initial filings on Form SD varied a bit.  But, because industry groups and lawyers had suggested approaches to the reporting before the first due date, the filings did show significant commonalities. Within two years, reporting companies had largely settled on standard formatting for their disclosures on Form SD and for their conflict minerals reports.

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Countdown to EU Conflict Minerals Regulation (7 Months)

In less than 7 months, the EU conflict minerals regulation will take full effect, and importers into the European Union of certain threshold amounts of tin, tantalum, tungsten and gold (3TG) and of metals containing 3TG will be subject to it.  As of today, despite Brexit, importers into the UK will be subject to it as well. Those Union importers should be taking action now to supplement their compliance programs to address the due diligence, risk mitigation and audit requirements of the EU regulation.  In anticipation of those requirements, some importers may consider replacing certain of their direct and indirect suppliers.  And, such changes take time.  

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COVID-19 and Conflict Minerals

We have been following this year’s conflict minerals filings to determine whether reporting companies have highlighted any impact of the COVID-19 shut-downs on their conflict minerals due diligence measures or results.

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