Considering the forced labor work and human rights abuses in the politically unstable mining areas, a new law was passed on 1st January 2021 in the EU. This law aims to stem the trade in four minerals that are often referred to as “Conflict Minerals” or “3TG,” i.e., tin, tantalum, tungsten, and gold that finance armed forces to buy weapons.

These regulations need to be adhered to by your business if;

● You import minerals or metals.

● Perform smelting or refining process

● Or you own a diligence scheme.

Similarly, the new regulation process demands modifications in the working of downstream users as well. Therefore, the blog is tailored with the required information regarding the same.

Who are Downstream Users?

For the production of goods, many different companies are involved in working on various types of activities along the supply chain. Companies engaged in extracting, processing and refining raw materials are known as “upstream,” whereas “downstream” firms are responsible for further processes from the upstream stage into a finished product. Their work includes the sale of the product to other businesses, governments, or private individuals.

In simple words, Downstream means the metal supply chain from the smelting and refining stage to the final product. Here’s the list of few downstream users:

End-users: They use substances and mixtures and stand at the end of the process. Therefore, they do not supply them further downstream.

Producers of articles: They form items by mixing one or two substances.

Re-fillers: Re-fillers are responsible for transferring materials from one container to another, typically for repackaging or rebranding.

Re-importers: They import substances that are produced in the EU and are registered by someone within the same supply chain.

Impact of Conflict Minerals regulations

Over the years, downstream companies have built various policies and processes to better understand the risks associated with conflict minerals that facilitate decision-making and responsible sourcing. Moreover, in the EU guidelines, it was mentioned that firms operating beyond the metal stage (downstream users) are expected to use reporting and other tools to make their due diligence more transparent.

Therefore, it will be required for downstream companies to use tools that enable them to demonstrate due diligence. In case if a company fails to adopt measures to comply sufficiently, it will become mandatory in the future. Also, keep in mind that the mandatory obligations are applied only for the products mentioned in the annex-1 of the regulation; you can check here.

Many of the companies have developed the following approaches to due diligence processes that are compatible with the guidelines:

● Putting policies on the focus that outlines the commitment, activities, and supplier requirements.

● To carry out immediate due diligence, most companies first identify Tier 1 suppliers (direct suppliers to the company) for the products containing 3TG- tin, tantalum, tungsten, and gold. An individual can identify metals from data forms, company declaration systems, bills of material, etc.

● Companies are using various modes of communication, including letters, webinars, and face-to-face meetings.

● Adopting the use of contractual clauses and terms and conditions that ensures complying with data disclosure and required policies as a prerequisite for doing business.

Things to consider for Downstream users

Following are the five major points for downstream companies to consider, as mentioned in the EU regulations. Let’s have a look at them in detail:

1. Setting up Robust Company Management Systems

The establishment of robust management systems is important to support company-wide minerals’ execution of due-diligence programs for easy and effective operations. It should be constructed to identify address risks associated with minerals from CAHRAs (Conflict-Affected and High-Risk Areas ).

Moreover, they should adopt a supply chain policy for a responsible global supply chain of minerals. It will help companies to establish and communicate conflict minerals goals that are reasonable and achievable.

2. Identifying the Risk in the Supply Chain

Downstream companies are advised to identify and assess risks around the significant steps like extraction, trading, handling, and export of minerals from CAHRAs as recommended in the supplement. A participant should regularly engage himself and provide details of their activities to identify the risks in their supply chain by assessing their suppliers and smelters’ due diligence practices.

For identifying, common approaches may include steps such as identifying Tier 1 suppliers of 3T&G, outreaching them, and then collecting and verifying supplier responses.

3. Design a strategy to conquer identified Risks

The third point is to evaluate and respond to risks to prevent adverse effects. Participants responded to questions about how they are building and exercising leverage over their suppliers and responding to identified risks. Following are several standard components for risk management:

● Setting clear information about the requirements through policies and contractual clauses.

● Conducting an internal review process along with suppliers and upper management

● Training internal personnel through webinars and meetings about supply chain sustainability issues to efficiently analyze purchasing practices and supplier communications.

4. Taking the aid of independent Third-Party Audit of Smelters/ Refiners’ Due Diligence

Downstream users can carry out independent third-party audits of smelters‘ due diligence. Companies can collaborate through industry organizations or other suitable means to appoint auditors for better analysis and risk-identification.

5. Creating an annual report

Last but not least, the EU has advised companies to create an annual report on due diligence that will help generate public confidence in the measures they are taking. Nearly more than half of the companies have started reporting publicly regarding their due diligence activities. Some of them are following:

● Conflict-free sourcing policies

● Activities to identify smelters

● Grievance channels and management systems

● Procedures for Risk-assessment

How can APA Engineering help

Aiding businesses for more than 20 years, APA engineering has robust hybrid solutions, comprising software Conflict Minerals Compliance Suite (CM-CS) and services for increased coverage, higher data accuracy, faster reporting, and reduced compliance cost.

It enables ease in management in the quickest way possible to eliminate all the difficulties for companies to keep up with the new EU regulations and guidelines. This positively impacts their productivity rate and sorts issues quickly.

Come and be a part of thousands of happy businesses with managed solutions for regulatory compliance reporting that trusted APA engineering. Contact us today to learn more about robust solutions in detail.

   

If this regulation is applicable to you and you are interested in knowing more about this topic and available solutions, then schedule a free consult with our experts.