MATERIAL DECLARATIONS: FULL MATERIAL DISCLOSURES

Transcription

1 MATERIAL DECLARATIONS: FULL MATERIAL DISCLOSURES

2 Today s Presenter Travis Miller Assent Compliance General Counsel 2

3 Agenda What is driving these requests? What is a materials regulation? Practical Application Best Practices Questions 3

4 What is driving these requests?

5 A New Environmental Movement is Underway The current legal changes are as big as those from the 1960s and 1970s The population's awareness and attention to environmental matters is practically at an all-time high The number of new rules and regulations are also surging. In fact, the environmental code is second only to the tax code in the sheer volume of text and law dedicated to the matters Most citizen animosity towards corporations is no longer focused on profits, it is focused on behavior and culture This regulatory climate requires an understanding of very complex rules and the ability to build programs that manage them

6 An Analogy The Environmental, Health and Safety (EHS) Movement Natural Resource Protection (Conservation) Rivers and Harbors Act Lacey Act National Monuments Act Impact Assessments (Research) Air Pollution Control Act Solid Waste Control Act National Environmental Policy Act Factory Output Regulation (Regulating the Source) Clean Air Act Clean Water Act Resource Conservation and Recovery Act (RCRA) Superfund (CERCLA)

7 Hallmark Events Drive Change Case Study: Impact Assessments - Research Before Approval First offshore oil wells to blow out contaminating 100+ miles of California coastline. No diligence prior to approval. Result NEPA.

8 Hallmark Events Drive Change Factory Output Regulation - Regulating the Source River near industrial area catches fire. Result Clean Water Act.

9 Fast Forward to Today Product Compliance Regulations Material Regulations (Substance Controls) Packaging and Packaging Waste RoHS REACH Supply Chain Transparency (Labor Practice Disclosures) Conflict Minerals CA Transparency in Supply Chains (effective 2012) UK Modern Slavery Data Privacy (Protecting the Disclosure) Data Privacy Act Law on the Protection of Consumer Rights and Interests Defend Trade Secrets Act

10 Hallmark Events Drive Change Case Study: Slavery and Human Trafficking Disclosures Slavery and human trafficking found to be used in the supply chain of products. Result Mandatory disclosures.

11 Hallmark Events Drive Change Case Study: Restrictions on the Use of Materials in Products We have no idea if the vast number of chemicals used in everyday products are toxic, if they cause birth defects, or cancer. Result - REACH

12 What is a Materials Declaration?

13 What is a Materials Declaration? A materials declaration is a declaration of the substances contained within a manufactured item. Materials declarations generally take one of three forms: Negative declaration: A certification that a manufactured item does not contain a restricted substance. Conformity declaration: A statement that a manufactured item meets the requirement of a regulation or engineering specification that restricts substances. Full material declaration: A breakdown of all of the substances in a product by weight andor concentration.

14 What is a Material Declaration? Negative Declarations Negative declarations are most typically deployed by companies who have limited regulatory exposure to materials regulations. Negative declaration are a rapidly deployable solution that offers a cursory level of due diligence. (industry examples include business to business and professional use tools).

15 What is a Material Declaration? Negative Declarations Negative declarations are most typically deployed by companies who have limited regulatory exposure to materials regulations. Negative declaration are a rapidly deployable solution that offers a cursory level of due diligence. (industry examples include business to business and professional use tools). A negative declaration serves as a legal compliance statement that satisfies basic market access requirements, like the RoHS EN standard for CE Marking) The legal team usually drafts a sample certification or one is obtained from a customer request that is transposed onto the company s letterhead Campaigns focus on having the supplier endorse the specific form without edit or alteration

16 What is a Material Declaration? Negative Declarations Negative declarations are most typically deployed by companies who have limited regulatory exposure to materials regulations. Negative declaration are a rapidly deployable solution that offers a cursory level of due diligence. (industry examples include business to business and professional use tools). A negative declaration serves as a legal compliance statement that satisfies basic market access requirements, like the RoHS EN standard for CE Marking) The legal team usually drafts a sample certification or one is obtained from a customer request that is transposed onto the company s letterhead Campaigns focus on having the supplier endorse the specific form without edit or alteration Effective negative declarations campaigns are concise and accurate. Suppliers must be trained on the requirement and format for response. Regular updates are a requirement, typically every 6 months or to align with impactful changes to the legislation.

17 What is a Material Declaration? Conformity Declarations Conformity declarations are most typically deployed by companies who have a high level of control over the engineering, design, and materials selection used by suppliers. Conformity declaration require a master specification or reference document that outlines all of the industry requirements. (industry examples include electronics OEMs and the automotive GADSL).

18 What is a Material Declaration? Conformity Declarations Conformity declarations are most typically deployed by companies who have a high level of control over the engineering, design, and materials selection used by suppliers. Conformity declaration require a master specification or reference document that outlines all of the industry requirements. (industry examples include electronics OEMs and the automotive GADSL). A conformity declaration serves as a legal compliance statement that provide assurances on all of the major legal and customer requirements. The engineering andor regulatory teams usually drafts a specification along with a imbedded certification and a requirement for any additional testing documentation that is passed to the supply base at a systematic interval. Acceptance is treated as a precursor to purchase or sign-off by the engineering function.

19 What is a Material Declaration? Conformity Declarations Conformity declarations are most typically deployed by companies who have a high level of control over the engineering, design, and materials selection used by suppliers. Conformity declaration require a master specification or reference document that outlines all of the industry requirements. (industry examples include electronics OEMs and the automotive GADSL). A conformity declaration serves as a legal compliance statement that provide assurances on all of the major legal and customer requirements. The engineering andor regulatory teams usually drafts a specification along with a imbedded certification and a requirement for any additional testing documentation that is passed to the supply base at a systematic interval. Acceptance is treated as a precursor to purchase or sign-off by the engineering function. Effective conformity declarations campaigns are difficult to roll-out, because there is a substantial learning curve for the supply chain. They require a very diligence supplier management team who can explain the requirements and assess the responses along with any evidentiary collateral provided.

20 What is a Material Declaration? Full Material Declarations Full material declarations are an formatless methodology to obtain the necessary data for independent compliance analysis. Full material declarations require a significant amount of initial effort and supplier engagement to build trust and support the development of processes to gain the required data. (industry examples include: piece part manufacturers and global consumer electronics)

21 What is a Material Declaration? Full Material Declarations Full material declarations are an formatless methodology to obtain the necessary data for independent compliance analysis. Full material declarations require a significant amount of initial effort and supplier engagement to build trust and support the development of processes to gain the required data. (industry examples include: piece part manufacturers and global consumer electronics) Full material declarations are pure data transfers that require the recipient to conduct a necessary analysis. The a sophisticated supply chain outreach operation is necessary at the outset, after which the engineering andor regulatory teams can conduct reviews of the received data and new compliance requirements come online. Updates to the data typically are only required which product or material changes occur.

22 What is a Material Declaration? Full Material Declarations Full material declarations are an formatless methodology to obtain the necessary data for independent compliance analysis. Full material declarations require a significant amount of initial effort and supplier engagement to build trust and support the development of processes to gain the required data. (industry examples include: piece part manufacturers and global consumer electronics) Full material declarations are pure data transfers that require the recipient to conduct a necessary analysis. The a sophisticated supply chain outreach operation is necessary at the outset, after which the engineering andor regulatory teams can conduct reviews of the received data and new compliance requirements come online. Updates to the data typically are only required which product or material changes occur. Effective full material declaration projects require a significant level of supply chain engagement at the outset and an on-going commitment to vet new suppliers and new parts added to bills of materials with the due diligence process.

23 What is the most practical thing to do?

24 Choosing a Methodology

25 A Clear Return on Investment There are a lot of materials compliance regulations; most are in a state of flux and adaptation. EU RoHS is undergoing its second recast, anticipate the other RoHS legislations to follow in the next several years. EU REACH updates every six months by adding new substances that require a refresh of negative declarations and declarations of compliance. California Proposition 65 is being reformed to obligate companies to perform materials due diligence.

26 Evaluating Your Return on Investment There is a balance between the time and expense that a company must expend and the ability to retain market access and satisfy client s prerequisites for sale. The basic ROI formula is as follows: Let s look at what you put into these buckets to complete the equation

27 Case Study: CE Mark and REACh ROI There are a few qualifying requirements to allow a company to sell a product in Europe. Assuming a business makes the ethical judgment to follow the law, this creates a good metric for establishing a ROI for our calculation. Data points for our ROI calculation: Gain from investment = Value of European Union sales andor the Projected Value of Future European Union Sales. Cost of investment = Take into account the cost of human labor, softwarehardware investment, facility costs, and educationtraining or the cost of outsourcinghiring third parties to perform these functions.

28 Case Study: CE Mark & REACh ROI Assumptions to calculate the gain Suppose we have $1,000,000 in EU sales projected for calendar year We have a health 40% margin on those sales (excluding compliance costs), so we are looking at $400,000 in profit. This will be your Gain from Investment. Assumptions to calculate the cost Suppose you have 50 suppliers that are required to product the product. To adequately vet those suppliers, you will need: Hire 1 compliance person (est. salary $50,000, benefits $12,000) = labor cost $62,000 Sharepoint databasethird party software costs ~$15,000 Annual office space $23.00 sq. 150 sq. ft =$3,450 Trainingconsultancy budget = $5,000 The total internal cost would be about $85,450, which is your Cost of Investment

29 Case Study: CE Mark and REACh ROI Applying the Internal Cost to the Formula ($400,000 - $85,450)$85,450 = or a % ROI Compared to Outsourcing If you could say find a vendor to take on the project and these costs for a fixed fee of $60,000, you calculation would be as follows: ($400,000 - $60,000)$60,000 = 5.67 or a % ROI

30 Case Study: CE Mark and REACh ROI Comparing the Declaration Types Some costs are fixed, some are front loaded. Here is a basic way to perform the year 1 cost analysis and resource requirements. Negative Declaration Engineering -- Declaration of Conformity Full Material Declaration 25% of resource, heavy consultancytraining Minor cost if industry standard used Legal 1-2 page document, review of supplier responses 1-2 page document, review of supplier responses 1-2 page letter explaining process Supply Chain 2-3 months for survey; at least 2 times a year 2-3 months for a survey; at least 2 times a year 6-12 months for a survey 1 time RegulatorySupplier Training 2-3 months annually with recurring support for surveys 2-3 months annually with recurring support for surveys 4-6 months in first year RegulatoryCustomer Support Dedicated internal resources; additional supplier survey s likely needed Dedicated internal resource, additional engineering and supplier resources likely needed Dedicated internal resource

31 Scalability & Risk Reduction Assent advises clients that full material declarations are the most economical choice based upon these two elements Scalability: There will be more substance restriction regulations. Of the three methods discussed only FMD has a high probability of mitigating the cost of re-surveying the supply chain as you enter new markets or are presented with new knowledge requirements in the markets you are in. Risk Reduction: Declarations of conformity and negative declarations are both good legal tools for allowing a brand owner to bring additional parties into civil or criminal prosecutions. However, the brand owner is still the brand owner, and if a noncompliance is discovered it will still be the brand owner that is targeted by the authorities and importers of record. The best case scenario is to avoid the violation all together. The best methodology for doing so, is FMD.

32 Best Practices for an FMD Project

33 Two Key Considerations Format: Can you and your supply chain communicate? PDF Excel Word XML HTML Pen and Pencil Mind reading There are lots of format types. But... they only work if the format makes sense to exchange complicated data structures in a common format for one system s output to be readable in another system. Otherwise, one is unable to perform analysis and judgement. To create a common structure, the format must contain logic within its data population.

34 The Key Considerations Comparing the Format Types Things you need to consider, when selecting a format. Produces Evidence Trail Electronically Transferrable Common Tool with a Standard Machine Processable PDF X X X Excel X X X X Word X X XML X X X X HTML X X Pen & Pencil X Functions with a Large Datafile X Mind Reading X

35 The Key Considerations What is XML Extensible Markup Language Provides a set of rules for encoding documents into a human and machine readable format The importance of set up rules Without the rules, data exchanges would result in files being passed from one machine to another resulting in dump of uncommon data Examples of XML formats currently able to support full material disclosure IPC-1752A, Class D IPC-1754 (in development) IEC ChemSHERPA

36 The Key Considerations The Importance of a Standard Industry standards are a set of criteria within an industry relating to the standard functioning and carrying out of operations in their respective fields of production. In other words it is the generally accepted requirements followed by the members of an industry.

37 The Key Considerations Assent Recommends the IPC 175X Family of Declarations Institute of Printed Circuits Created a data exchange standard to support not only the requirements of RoHS and REACH, but also those to come in the future IPC-1752 First released as a PDF, but has not been supported in years Currently available in XML The most highly adopted standard for materials data exchange

38 The Key Considerations Assent Recommends the IPC 175X Family of Declarations The standards are flexible, well adopted and machine processable Class A - Provides an answer to a query For example, Query for RoHS is answered by Product Meets EU RoHS Requirements Without any Exemption A Class B - Provides the amount of different material classes within a product For example, 50% stainless steel, 25% polyvinylchloride, 25% zinc and its alloys B C D Class C - Provides substances details if above or below threshold against a specific list or lists of substances For example, Product contains DEHP at 0.25% after being asked for the presence of SVHC substances

39 The Key Considerations Assent Recommends the IPC 175X Family of Declarations Class D - Provides the location, mass, and substances at the homogenous level If I have a Class D, am I able to demonstrate compliance to all regulated substances? Not necessarily The standard has been created to be open for a variety of uses and many fields are optional

40 Q & A Discussion Questions?