While we are on the topic of SEC ESG disclosures, Cooley’s Cydney Posner wrote about the new annual GAO report on the effectiveness of the 11-year-old conflict minerals rule. Cydney – who has worked with the conflict minerals since its beginning – wrote this about the fundamental issue behind the enabling legislation (Dodd-Frank Section 1502) and the SEC disclosure mandate:
“Are the SEC’s rules having any impact? Based on this report, it seems that the violence in the DRC has not abated: ‘overall peace and security in the eastern DRC has not improved since 2014 because of persistent, interdependent factors that fuel violence by non-state armed groups.’ In 2020, the GAO reports, about 122 armed groups operated in the region, using revenue from the trade in conflict minerals as one source of funding. Experts view corruption as a contributing factor. The GAO observes that, in 2022, ‘armed groups continue to raise revenue from various sources, such as illegal taxation on citizens and the exploitation of natural resources,’ such as conflict minerals.”
There was also this interesting comment:
“SEC offcials suggested that the 24% decrease [in the number of filings] may be due to M&A activity or ‘changes in business practices by companies that previously filed disclosures.’ However, some industry stakeholders told the GAO that the decrease may also reflect in part the perception of some companies ‘that they are unlikely to face enforcement action by the SEC if they do not comply with the conflict minerals disclosure requirements.’ (SEC staff advised the GAO that companies that are subject to the rule but choose not to file a Form SD are subject to potential enforcement.)”
There are differing opinions on other positive impacts from the rule – improving company and consumer awareness of the issue, catalyzing the development of robust corporate supply chain mapping/traceability efforts that didn’t exist beforehand, and even disagreement about whether on-the-ground situations are or are not improving. I have also heard that indeed some companies may be making decisions about filings based on their perception of enforcement risk. Personally, I am optimistic in companies’ ability to build off their conflict minerals supply chain framework to ease other ESG-related information gathering. This is a topic I will be discussing next month in a webinar with Source Academy. I hope you will join us.
