Q&A with Bob Walker, Vice President, ESG Services & Ethical Funds, NEI Investments, Michelle de Cordova, Director, Corporate Engagement & Public Policy, NEI Investments, Genevieve St. Denis, ESG Analyst, NEI Investments and Iain Marlow for The Globe & Mail
Iain Marlow: The issue of conflict minerals is hugely complicated, spanning from secretive supply chain practices of massive technology companies to the non-transparent political situations of resource-rich African states, such as the Democratic Republic of Congo. Why should ordinary consumers care about conflict minerals themselves, when they are only part of a complex problem?
Bob: The conflict minerals problem is certainly complex. If solutions are going to be found, all the stakeholders need to play a part – including companies, investors and consumers. Consumers ultimately create the demand for these minerals, and brand reputation is an important asset for a company. Consumers have a lot of power to create change. People are willing to donate money to alleviate poverty in Africa, so why wouldn’t they be interested in playing a part as consumers in encouraging companies to contribute to positive change in the DRC region?
Iain: Obviously, in cases such as BP's spill in the Gulf of Mexico and News Corp.'s hacking scandal in the U.K., questionable or risky business practices can result in horrendous results for investors. But Apple's stock price hasn't dipped as a result of labour practices at Foxconn in China, for example, and Research In Motion's and Nokia's stock price problems have little to do with ethics. Why should investors, in particular, pay attention to conflict minerals?
Michelle: We see conflict minerals posing a potential risk to the value of companies in several ways. There’s the reputational risk to consumer brand companies that can’t explain what they are doing to eliminate serious human rights abuses in their supply chain. There’s also an operational risk in relying on a supply chain within an unstable region – a risk to basic security of supply.
Bob: Environmental and social risks tend to be long-term risks. Share price might not be affected in the short term – but we don’t want companies to wait until after the share price is affected before taking action to mitigate risks. I hope that most institutional investors would also agree that they have a basic responsibility to respect human rights. This is both a value question and a values question.
Iain: After harsh labour conditions in Apple's Southern China plants were revealed by journalists, the company authorized third-party labour investigators to look into the process. Which technology companies have the best disclosure policies and supply chain management checks for conflict minerals?
Genevieve: Until systems are set up to track the minerals from the mine to the smelter or refinery, it’s going to be challenging for downstream companies to operate robust supply chain management. Many of the initiatives are industry-wide or group initiatives, like the EICC-GeSI Conflict Free Smelter program and the International Tin Research Institute (ITRI) tracking system. It makes a lot of sense to tackle these issues through joint initiatives. When it comes to examples at the company level, I’d highlight Intel for the quality of disclosure on its supply chain, and on initiatives it’s taking part in. Here in Canada, Research in Motion is also doing a pretty good job.
Michelle: One encouraging aspect of this story is the way stakeholders from civil society and the private sector have shown willingness to talk and work together. There are an incredible number of conflict minerals-related initiatives in play right now, covering different industries and different levels of the supply chain.
Iain: Research In Motion seems to have been allowing third-party audits of its supply for some time, how does the Waterloo, Ont.-based global tech giant do on conflict minerals in your estimation?
Michelle: This is something we’ve been discussing in our engagement with RIM for about two years now. The company seems committed to improving in this area and to being one of the leaders rather than a laggard.
Genevieve: RIM is working on supply chain issues in general, and the conflict minerals issue specifically, from different angles. It has disclosed supply chain and minerals policies, it’s taking part in electronics industry initiatives on conflict minerals, it’s disclosing on its efforts in reporting. The people we talk to seem really engaged on conflict minerals – but it’s difficult not to be when you start looking into this issue. There is so much more to it than audits and paper certificates.
Iain: Efforts to halt the flow of conflict minerals into global consumers' gadgets depend highly on domestic laws. In the U.S., there is the Dodd-Frank clause on disclosure of supply chain sources enforced via the Securities and Exchange Commission (SEC). In Canada, NDP MP (and current NDP party leadership hopeful) Paul Dewar has tried introducing legislation, but the situation is complicated by our lack of a national securities regulator. How does the Canadian situation differ, and what are people looking at to regulate truly global companies?