Investors say court ruling shouldn't derail conflict minerals plans

Companies in the US are being urged to continue with plans to upgrade their reporting on conflict minerals after a court ruling upheld most new rules on the topic that have been introduced by the US Securities and Exchange Commission.

A judgment by the Court of Appeals found that one part of the new rules – a requirement on companies to disclose whether products are free from conflict minerals sourced in the Democratic Republic of Congo (DRC) – should not go ahead as it violates the prohibition against compelled speech. However, in all other aspects the rules were supported by the court, with the likely result that companies will still have to comply with the SEC’s new obligation on listed companies to conduct due diligence on conflict minerals in their supply chains and to report on the findings by 31 May 2014.

Responsible investment groups, politicians and NGOs have all urged businesses to go ahead with their plans for improved conflict minerals reporting, and not to use the ruling as an excuse for inaction. The US Sustainable investment Forum said it was concerned about the ‘potential impact’ of the court ruling ‘on the ability of the SEC to ensure that all investors have access to the breadth of material information that is critical to their investment decision-making’.

But it added that the overall court decision had provided support for the SEC’s ‘analysis and rationale for requiring robust corporate disclosure about the presence of conflict minerals in products’, and it called on all companies to comply with the SEC rules, ‘which remain essentially unaltered by the court’s opinion’. The US-based legal firm Drinker Biddle said companies should not expect the SEC’s overall plans to change, despite the setback over one part of the rules. It concluded that this means they should continue to work to the 31 May deadline on conflict minerals reporting and due diligence efforts.

Many investors strongly back the SEC rules on the basis that they will help reduce exposure to the reputational and business risks associated with sourcing minerals from territories that are plagued by violence, civil war and human rights abuses. The SEC could seek further review of the appeal court judgment, but has not yet indicated what course of action it will take.

 

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