EU conflict minerals legislation set to strengthen

3rd February 2020 By: Simone Liedtke - Writer

EU conflict minerals legislation set to strengthen

Photo by: Reuters

The European Union’s (EU’s) new conflict minerals regulation is due to come into force on January 1, 2021, almost four years after the text of the legislation was initially published in May 2017.

Law firm Fieldfisher partners Laurent Ruessman, Jonathan Brooks and Andrew Hood say the new regulations “aim to boost corporate transparency and encourage companies to embrace a more sustainable approach to sourcing four key metals”, namely tin, tantalum, tungsten and gold (3TG).

The new regulations also avoid supporting conflicts in areas where these minerals are produced.

With less than a year to go until the regulation’s implementation deadline, the Fieldfisher partners note that scrutiny of the legislation is increasing, and its shortcomings “are being laid bare”.

Some of these shortcomings have been cited as the EU has only just started to catch up in the area of conflict minerals, while a number of mining industry initiatives have already been developed in response to the Organisation for Economic Cooperation and Development’s Guidance for Conflict Affected and High Risk Areas.

In response, standards introduced by the mining industry include the International Tin Supply Chain Initiative, the Responsible Gold Mining Principles and the responsible sourcing protocols, as launched by the London Metal Exchange.

With many mining companies having already adopted one of these voluntary initiatives, the Fieldfisher partners note that companies “will therefore have existing systems and procedures”, as well as the right corporate ethos, in place to enable them to implement the requirements of the EU regulation.

However, it is currently unclear to what extent there will be consequences for noncompliance, they point out.

Additionally, they note that, as with other EU regulations, enforcement will take place in member States, but “there is currently no basis under the regulations for member States to impose penalties for infringement”.

In addition, the obligations within the regulations do not apply to all actors in the supply chain but sit solely with the importer of the offending minerals, and only if they exceed certain thresholds.

This makes the regulation something of an anomaly in EU legislation, the partners point out, adding that it begs the question as to why the EU has “gone to the trouble of adopting regulations that cannot be enforced”.

Despite its limitations, there are a number of reasons for proponents of greater supply chain transparency to be cheerful about the EU regulations, the partners say, pointing out that if a member State wants to impose meaningful penalties on a company that fails to comply, there is nothing in the regulations stopping them from doing so.

That said, if a member State does take that course of action, lawyers might argue against any penalties on the grounds that there is no basis in the regulations for imposing them.

While the US rules are limited to minerals sourced from the Democratic Republic of Congo (DRC) and contiguous countries, the EU rules cover all countries exporting 3TG minerals into the EU – a broader scope, but one which seems slightly meaningless given the lack of penalties for infringement, the partners note.

However, the EU regulations expressly limits its scope to "tin, tantalum and tungsten, their ores, and gold".

Another positive from an ethical perspective is that the EU has the opportunity to review the legislation and toughen it up before the January 1, 2023, compliance deadline.

According to the law firm, the regulation was passed by the previous EU Commission, so “it is possible that the new Commission, which took office on December 1, 2019, under the Presidency of Ursula von der Leyen, may decide to take a firmer stance on this issue”.

The law firm, however, mentions that “this will be no easy task” given the struggle to pass the legislation initially and the numerous concessions that were made to industry to get the regulations over the line.

More broadly, the regulation has brought the matter of conflict minerals to the attention of EU consumers, the partners say, adding that the regulations “still have room to become tougher”.

Harder-hitting provisions will most likely be effected in response to pressure from civil society, as opposed to regulators – a trend that is already manifesting itself in the rise of ethical consumerism and investor emphasis on environmental, social and corporate governance (ESG) credentials.

While many multinational organisations will already be more than prepared for the EU's conflict minerals regulations, the law firm says “there are undoubtedly businesses which will have to develop the necessary compliance procedures for the first time”.

Fortunately, the partners believe there is enough guidance and expertise available from existing voluntary initiatives, industry bodies and professional advisers to make this a relatively smooth process.  

Companies will also understand the commercial sense in complying with and demonstrating their compliance with the regulations in light of the ever-increasing focus by customers and investors on good ESG practice.

The law firm notes that ESG in the mining sector is expected to be among the most important topics to be discussed at this year’s Investing in African Mining Indaba event, being held in Cape Town, South Africa, this week.