COLFAX CONFLICT MINERALS COMPLIANCE: PROGRAM OVERVIEW AND Q&A SESSION

Transcription

1 COLFAX CONFLICT MINERALS COMPLIANCE: PROGRAM OVERVIEW AND Q&A SESSION

2 Mark Allegretti Director, Implementation & Strategic Integration Organization: Corporate Legal / Global Sourcing Contact Information: Phone: , Ext mark.allegretti@colfaxcorp.com Colfax s Authorized Service Provider is Assent Compliance: Providing Turnkey Services Sarah McDonald Colfax Account Manager Assent Compliance Assent Contact Information: Phone: sarah.mcdonald@assentcompliance.com 1

3 Colfax Conflict Minerals Program Approximate Program Timeline and Information for 2015: August / September 2015 No Reply outreach to suppliers providing: Advance notice as to our forthcoming Reasonable Country of Origin Inquiry (RCOI) survey request. Insights as to improvements expected based on prior year survey results. Copies of our Conflict Minerals Policy and Conflict Minerals Purchasing Terms. RCOI: End of October / Early November 2015 through end of April Colfax Report Filing: By May 31, What We Do with Assent s Assistance: 1. RCOI Survey Outreach Activities 2. Data Validation Process a. All completed Conflict Minerals Reporting Templates (CMRTs) are programmatically and manually checked by Assent for errors, omissions or inconsistencies following regimented and automated best practice review protocols. b. When a CMRT contains issue(s) requiring clarification(s), an is automatically sent to the suppliers via Assent s portal including an explanation of the issue(s) along with a specific request for review and resubmittal. c. Suppliers then resubmit their revised CMRT through Assent s portal. d. Assent s compliance team is always available to work with and provide assistance to our suppliers. 3. Basic categorization of our suppliers is accomplished including responsiveness, CMRT validity, conflict mineral program strength and supply chain risk. 2

4 Colfax Conflict Minerals Program 4. Smelter or Refiners (SORs) Due Diligence is accomplished. Additional specifics on these points are covered in more detail once we get into the Q&A. 3

5 Question 1 None of my parts have tin, tungsten, tantalum or gold in them. What should I do? The short answer is to complete and return the requested Conflict Minerals Reporting Template (CMRT) through Assent s portal accordingly. Specifically, to reflect no usage of tin, tungsten, tantalum or gold (3TG), you would need to complete the Declaration tab of the CMRT as follows: 1. Complete the Company Information section at the top. 2. For Questions 1 and 2, enter No to all metals. This will result in Questions 3-7 becoming grayed out (meaning no answer is required or expected). 3. Submit your completed CMRT through Assent s portal and you re done. Going a little deeper to describe what happens on our side: Assent will review your response with Colfax and, depending on your business and your other responses (if any), we will either: 1. Remove you from Conflict Minerals (CMs) scope for the reporting year under consideration, 2. Permanently remove you from CMs scope (if, for example, you are a pure service company or you supply only products not becoming part of our end products), 3. Contact you with questions or requests for clarification, or 4. Simply accept your completed CMRT as received. 4

6 Question 2 We are a distributor and not in scope of the conflict minerals regulation. Why do I need to submit a CMRT? First of all, Colfax is subject to the Securities & Exchange Commission (SEC) CMs Rule. This means that we are obliged by the Rule to conduct a reasonable country of origin inquiry (RCOI), engage in due diligence, and include the results in our annual disclosure reporting to the SEC. Unfortunately, the CMs Rule provides no channel related distinctions between distributors, resellers, or manufacturers in terms of providing special exemptions for distributors. Thus, distributors are NOT exempt from the CMs Rule and we cannot remove them from CMs scope. In view of these requirements, Colfax policy must treat distributors like all other suppliers where we request completed CMRTs from distributors just like any of our other suppliers. Two additional points to keep in mind: 1. The good news for distributors who supply materials and equipment to Colfax is that Assent, at no cost to the distributor, can receive multiple CMRTs from many different distributor principals including preparation of roll-up compilations for Colfax on behalf of the distributor. Therefore, distributors have no worries about compiling and rolling up information into one CMRT for Colfax. For example, if a distributor has say 10 principals from whom they purchase materials and equipment for supply to Colfax, the distributor can simply solicit, receive, and submit 10 unique CMRTs to Assent. Assent will then roll up the 10 CMRTs into one CMRT for Colfax. 5

7 Question 2 Continued 2. Distributors shouldn t worry about difficulties in securing CMRT information from their principals. To illustrate, there are cases where Colfax acts as a supplier (principal) to distributors where the distributor is actually a customer of Colfax. In such cases, the distributor may request CMRT information from Colfax which we are happy to provide because the distributor is a customer. Colfax views such requests as routine because we understand the distributor needs this information to reply to one or more requests they received from their customers. The key takeaways here are that distributors should feel comfortable in requesting and securing CMRT information from their principals. And, with the CMRT roll-up benefit of working with Colfax and Assent, the distributor can provide separate CMRTs from their principals without worrying about the additional resources needed to roll the information into one CMRT for Colfax. 6

8 Question 3 We are a small business and find it difficult to determine the source of our minerals. What can I do to help comply with Colfax's request? First of all, small businesses need to recognize they are not alone in terms of experiencing difficulty in securing 3TG chain of custody information. All companies regardless of size and including Colfax find difficulties in tracing 3TG materials all the way back to their upstream smelting, refining and mining sources. This is one of the reasons we conduct webinars like this to raise awareness as well as educate and work with our suppliers to continually improve our respective CMs programs. With that said, several things come to mind in terms of how small companies can help us: 1. You should always submit your CMRT based on your honest circumstances and present status regarding the CMs requirements. Again, you are not alone with respect to the difficulties involved and Colfax is honestly most willing to work with you. 2. The key to remember is this: It is ALWAYS better to submit your CMRT and allow Colfax to work with you rather than ignoring our requests thereby putting yourself into a non-responsive category requiring risk mitigation on the part of Colfax. 3. If you have no 3TG in your scope of supply, the process to reply to Colfax through Assent s portal is relatively easy as addressed in Question If your products contain 3TG, you will need to survey your suppliers just like we do in order to provide us with your CMRT information. One way to make this process less and less difficult over time is to require your suppliers to 7

9 Question 3 Continued cooperate with you in terms of providing 3TG sourcing information. This can be accomplished by including these requirements in your flow down conditions of purchase similar to the purchasing conditions we place on our suppliers. Ultimately, you need to rely on your suppliers just like we rely on you. Including these requirements as part of your everyday purchasing terms should raise awareness throughout your supply chains and lower the difficulties in securing sourcing information as you improve your program going forward. 8

10 Question 4 We do not sell to Colfax USA, we only sell to a Colfax business unit outside of the USA. Do we need to comply with this request? Yes, we are a U.S. company and the CMs regulations apply to Colfax USA as well as all non-usa Colfax businesses. Therefore, we request and expect our suppliers to comply with and respond to CMs requests received from Assent on our behalf. For those who may not be fully familiar with Colfax or perhaps know us under another name, note that Colfax operates under three business platforms ESAB, Howden, and Fluid Handling. Each of these platforms, in turn, works through many business units around the world. For more information, please feel free to browse the Our Businesses tab of our website at Also, please always feel free to contact us or Assent if you have any questions or need additional information. 9

11 Question 5 What timelines should I use for my internal program? Generally, your responses are due as directed by Assent Compliance and must cover the full calendar year of the reporting year under consideration. Depending on where we are in the reporting cycle of a given reporting year, Assent is directed by Colfax to provide a generous amount of time for suppliers to respond. We generally start with one month. With respect to the bigger picture, our reporting to the SEC is due by May 31 (or the next business day) of the year following the reporting year in question. So, for the 2014 reporting year, our report was due by June 1, For the 2015 reporting year, our report will be due by May 31, As a general rule, the closer we get to the reporting deadline, the less time we can provide for your response to either our original or follow-up requests. With this brief overview in mind, the timeline Colfax follows is basically as follows: Initial RCOI requests: End of October / early November. Follow-up requests: Early to mid-december and continuing through three follow-up requests. Final due date: End of April including a last call request for those who haven t yet responded. Requests to some suppliers could fall outside this timeframe. However, we always try our best to initially allow a one-month response time depending on where we are in the reporting cycle. We also remain attentive to the holidays with respect to our initial send-outs and follow-up requests. 10

12 Question 5 Continued Sprinkled into these time frames are follow-up requests from Assent as we attempt to validate and clarify response information. This includes basic Declaration information as well as smelter and other information reported by our suppliers. Finally, we reach out to all suppliers in the August / September timeframe to provide a heads-up as to our forthcoming survey request and, more importantly, to provide suppliers with insights as to improvements expected based on prior year survey results. 11

13 Question 6 How does Colfax assess and ensure smelter data accuracy? This is an excellent question one that could take us into multiple webinars to adequately cover all the ins and outs. But let me see if I can unravel some of the mysteries. First of all, Colfax is generally far removed from smelters, refiners, and the mines from whom smelters or refiners (SORs) source their CMs. However, despite our position in the supply chain, we still have certain obligations under the CMs Rule. These obligations include investigating the chain of custody of CMs included in the products we sell to customers. Also, if the chain of custody is determined to originate in the Covered Countries and is not from scrap or recycled materials, a review as to whether or not the sale of CMs through the supply chain has benefited or financed armed groups or are from conflict-free sources is required. We are also responsible to exert influence over our suppliers and the SORs in our supplier s supply chains to encourage them to participate in conflict-free certification programs. You might envision this process as chain of custody leverage Colfax to our suppliers, our suppliers to their suppliers, and so on. With all of this said, Colfax places heavy reliance on Assent s robust smelter review and verification program. To explain Assent s process a little further, we need to first take a quick step back to consider the critical role that SORs play regarding their knowledge of the full 3TG chain of custody. You might think of SORs as the pinch point in the 3TG supply chain between the far upstream actors (i.e., the mines) and the far downstream participants (i.e., the resellers, OEMs, and end industrial customers where Colfax and most of our suppliers reside). 12

14 Question 6 Continued Simply put, SORs are the bright line between the upstream and the downstream. They enjoy a birds eye view of the both the far upstream source mines (i.e., their suppliers) and where their output is going (i.e., their customers). We call them the pinch point because there are relatively few SORs when compared to their upstream source mines and downstream customers. So, when viewing the entire supply chain and the key role played by SORs, it s easy to see how critical they are in terms of the information they possess just by virtue of their pinch point position in the supply chain. Getting back to Assent s smelter review program, Assent uses what they call a merge and purge model of smelter verification to deal with incoming SOR information (i.e., the information we receive from our suppliers on the Smelter List tab of the CMRT). To accomplish this, Assent relies heavily on public and private stakeholders including the Conflict Free Sourcing Initiative (CFSI) and the London Bullion Market Association (LBMA). So what is this merge and purge model all about? 1. Assent s smelter team cross-references incoming SOR information again, the information we receive from our suppliers on the Smelter List tab of the CMRT against Assent s SOR data base while looking for matches related to: Unique smelter identification numbers or CIDs, Metal, Facility location, and Smelter name. 2. Where a match is found, duplicate information is merged into one SOR profile. 3. Where no match is found, the information is purged into an invalid bucket for further review and investigation by Assent. 13

15 Question 6 Continued To provide a little more insight into the activities of Assent s smelter verification team: 1. From the purged listing, data is reviewed to determine if the entity is a legitimate but otherwise undocumented SOR facility. This includes detailed research and worldwide native language outreach in order to enhance Assent s data gathering network as well as provide education on the benefits of conflict free sourcing certification along the way. 2. Assent also uses key indicators such as CFSI status (active or compliant), 3 rd part audit status, SOR location, and mine locations in their review and evaluation processes. 3. From all of this information and review, Assent generates three SOR risk levels (low, medium, and high) to help Colfax understand the levels of risk within our supply chains relative to Covered Country sourcing. 4. Finally, Assent combines this information into an overall Supplier Risk Level (also Low, Medium, or High) assigned to each of our suppliers. This helps Assent and Colfax in terms of focusing further outreach and assistance where it is needed most. In summary on how Colfax assesses and ensures SOR data accuracy: First, we rely on our suppliers to reach out into their supply chains to provide 3TG sourcing information. Next, this information is put through a rigorous review process by Assent with a risk level assigned to each of our suppliers accordingly. Finally, these risk level assignments help both Assent and Colfax to prioritize more focused outreach to both our suppliers and other upstream actors to promote conflict-free sourcing. 14

16 Question 7 What does Colfax consider "reasonable" for an RCOI? Generally, reasonable first means practical and practical means that you need to rely on the responsiveness, honesty, and integrity of your suppliers with respect to submitting valid and complete CMRT information. This is really the first step of any effective RCOI program and why we request the full cooperation of our suppliers with our CMs policy as a condition of doing business with us. Another way we look at the RCOI process is to view the results of the RCOI as the ground work for effective due diligence. In other words, with good practices governing an effective RCOI process on the front end, you ll end up with good data to guide your due diligence efforts on the back end. Within the RCOI process itself, what would we consider reasonable? 1. Allow sufficient response time. Generally, we allow a month between initial CMRT request and response depending on where we are in the reporting cycle of given reporting year. 2. Use a universally accepted RCOI instrument. We, as do most other companies, use the Conflict Minerals Reporting Template (CMRT) as developed and maintained by the Conflict Free Sourcing Initiative (CFSI). 3. The next steps are follow-up and follow-through. We generally follow-up three times with non-responsive suppliers including a last call request before we close out the reporting year. 4. Follow-through relates to areas such as CMRT validation and initial smelter review. Each of these activities may require reaching back out to suppliers to answer questions and gain clarifying information to complete the RCOI process. 15

17 Question 7 Continued Diving a little deeper into what we do and what we consider reasonable : 5. The CMRT information you provide on the Declaration tab is first reviewed for completeness and consistency between and among answers in order to establish overall CMRT validity. 6. Then, based on your answers related to policies, practices, and due diligence, a rating of Strong or Weak is assigned as a measure of your CMs program strength. Specifically, CMRT questions A, E, H, and I cover these program characteristics. 7. In addition, and in support of other activities covered by Question 6, the SOR information on the Smelter List tab is reviewed for completeness and accuracy starting with verifying that SOR information is included and that it corresponds to the metals reported on the Declaration tab. 8. Finally, we compile the results of our reviews into the following mutually exclusive categories: o Complete (including Program Strength and SOR risk). o Not Responded. o Invalid. This forms the basis for further review and due diligence on a prioritized and focused basis along the lines of improving responsiveness, assisting suppliers with weak programs or risky supply chains, and/or those who have submitted invalid information. I think these points cover what we consider reasonable in an effective RCOI program starting with surveying your supply chain through what to do with the information you receive and don t receive. 16

18 Question 8 What criteria does Colfax use to conduct Due Diligence on Supplier Responses? Our review process is generally threefold as follows: 1. Starting with the results of our RCOI program covered in Question 7, we engage in further supplier outreach activities with particular emphasis on working with non-responsive suppliers, suppliers who have provided invalid information, and those suppliers with weak CMs programs and/or risky SORs in their supply chains. 2. As addressed in Question 6, SOR information is processed through several layers of review to determine the sourcing of CMs, whether or not it is from scrap or recycled materials, and, through evaluations against the CFSI and other listings, whether the chain of custody is from compliant SORs or from SORs who source their CMs from outside the Covered Countries. Through Assent s smelter review and global outreach program as well as emphasis of our CMs policy requirements with our own suppliers (hopefully, influencing similar emphasis by our suppliers, their suppliers, and so on), SORs are continually encouraged to participate in Conflict Free Sourcing programs. 3. Finally, with a spin toward continuous improvement, we conduct a between-year outreach program designed to, first and foremost, thank those suppliers who have responded to our RCOI and other inquiries. This between-year outreach is also designed to encourage non-responsive suppliers to participate in our program going forward as well as to coach suppliers on ways to bolster the strength of their CMs program and assist those suppliers with risky SORs in their supply chains. The follow-up to validate and improve responses is an enormous part of risk mitigation and due diligence. Because the goal of the CMs legislation is 17

19 Question 8 Continued ultimately to understand the source of materials containing 3TGs, focusing on validating smelter information is vital to meeting CMs due diligence compliance. As a forward-looking note, it is essential that Assent s, and therefore Colfax s, program always emphasize continuous improvement. Thus, in the future you will see an increased focus on education for risk mitigation. 18

20 Question 9 What are some best practices that Colfax can recommend to other companies? As we enter year three of the program, experiences over the last two years do bring to light certain best practice program attributes. It should be noted, however, that these program attributes are not all-inclusive and, in many ways, are a function of the complexity and size of a firm s supply chain as well as the nature of the products they sell. So, a best practice to one company may be of lesser or greater importance to another. With this in mind, I can think of seven general best practices that would seem appropriate for any CMs program: 1. Perform a good supplier scoping effort so that you can emphasize only your 3TG suppliers as accurately as possible. This will provide you a more focused and targeted supply chain and therefore a more productive overall effort. At a minimum, focus only on your direct material suppliers (i.e., the suppliers that furnish materials for your end products). 2. Start your RCOI process early in the reporting year but not too early such that you need multiple responses to cover the entire reporting year. Late October / early November seems to be a good time to start your RCOI process. Some of your customers will start earlier and some may start as late as January (or later) of the year following the reporting year under consideration. 3. Be responsive to your customers. When you can t quite meet their requirements for any reason, communicate what you can do, by when, with all of them. 4. Create a program with a written policy you intend to enforce. For general guidelines, you are invited to review our Conflict Minerals Policy (CMP) available on our company website at under Investors 19

21 Question 9 Continued / Corporate Governance / Supply Chain Standards. Also, cooperation with Colfax regarding our CMP is a condition of doing business with Colfax and you should feel comfortable in similarly enforcing your own policy with your suppliers. 5. Flow down your requirements for CMs compliance to your suppliers via your purchasing terms and conditions. This will create a heightened level of awareness within your supply chains and also make your compliance efforts easier and easier as your CMs programs mature over time. 6. Appoint a dedicated CMs team within your organization under the direction of an associate provided with complete program authority and fully supported by your senior management organization. 7. Be stern but always practicable with the expectations you communicate to your supply chains. Two of the three key words here are practicable and communicate. For example, don t launch your RCOI with a request for a reply in a week. This is clearly impractical and your results will be disappointing. If you want your suppliers to cooperate with you, then you need to communicate reasonable expectations to them. Also, always encourage supplier responses with reassurances that an honest reply is better than no reply. The last key words to zero in on are supply chains. Remember that your supply chains consist of those who supply materials to you (i.e., your suppliers) as well as those to whom you supply your products (i.e., your customers). Always communicate practical expectations to your suppliers and what you can practicably do to assist your customers. And then always follow through with your expectations and commitments. 20