After three years of negotiations, the European Parliament—and subsequently the EU's Council—approved a new regulation requiring importers of certain minerals from conflict-affected countries to meet supply chain due diligence requirements. While full enforcement is not required until January 1, 2021, the regulation's requirements make it worthwhile for companies to get started on updating due diligence strategies and processes to ensure compliance.
New due diligence requirements to mitigate compliance risk
Designed to address inadvertent funding of conflict and human right abuses, the regulation will require companies to conduct supply chain due diligence based on OECD or other European Commission recognized standards before importing tin, tantalum, tungsten and gold from a country affected by conflict or at high risk of human rights abuses. The OECD's guidelines recommend that contracts with third parties should include due diligence commitments, and companies should "immediately suspend or discontinue engagement" with suppliers which it identifies as a "reasonable risk".
Additional requirements include:
- Making due diligence policies available to the public
- Sharing information gained from due diligence efforts with immediate clients
- Implementing a process for tracing minerals and metals along the entire supply chain—from extraction to the imported product
- Allowing for an external audit of their supply chain due diligence system by an independent third party, as well as relevant authorities in their country.
By some estimates, the regulation will impact 95 percent of EU-based importers of minerals and metal, affecting a wide range of industries—from aerospace, automotive and construction to lighting, electronics and jewellery.
Why companies need to implement risk-based due diligence and monitoring
The EU regulation steps up the pressure that multinationals already face from the UK's Modern Slavery Act, as well as federal and state regulations in the U.S. when it comes to improving supply chain transparency to mitigate modern slavery risk. Moreover, many consumers today expect social compliance from brands—and they won't wait until 2021—which increases reputational risk should a company fail to identify human rights abuses in its supply chain.
As a result, companies need to start now on developing effective processes for risk assessment, due diligence and monitoring. Using a PESTLE-based approach can help companies right-size these processes to ensure efficient, effective risk mitigation. Risks are classified based on Political Economic, Socio-cultural, Technological, Legal and Environmental factors. Based on the initial assessment, companies can determine whether enhanced due diligence is merited and the key risk areas to focus on when monitoring for adverse news mentions and regulatory, industry, country or company mentions. What will it take to get your own organisation's processes ready?
3 Ways to Apply This Information Now
- Download the eBook The Risk Monitoring Imperative to read more about the importance of ongoing monitoring to help mitigate business risk.
- Request a free demo of LexisNexis Entity Insight - our newest tool for proactive supply chain and third-party risk monitoring.
- Share this blog on LinkedIn to keep the dialogue going with your colleagues and contacts.