CONFLICT MINERALS ALL IS NOT LOST (FOR 2013) WSP USA - Amy Couch Schultz - Tord Dennis - Revati Pradhan-Kasmalkar Note: The information included in this presentation is provided for educational purposes only and does not constitute legal advice.
AGENDA Dodd-Frank Act and Securities and Exchange Commission (SEC) Final Rule Amy Couch Schultz Vice President/QA Officer Tord Dennis Practice Leader Revati Pradhan-Kasmalkar Senior Consultant Review of WSP survey Conflict minerals compliance process A sample customer case study What companies should be doing and how Summary what s next? 2
WHO IS WSP? $1.68 B n WE PLAN, DESIGN, ENGINEER AND MANAGE BUILDINGS, TRANSPORT, INFRASTRUCTURE, INDUSTRIAL, ENVIRONMENTAL, AND ENERGY PROJECTS 2013 Net Revenues $ 171.1 M EBITDA 15,000 EMPLOYEES WORLDWIDE BUILDINGS From achieving the highest levels of sustainable design to creating inspirational spaces in a cultural buildings and designing iconic landmark structures: buildings are for people. TRANSPORT AND INFRASTRUCTURE With over 5000 transportation and infrastructure professionals employed worldwide, our reputation as one of the foremost transport and infrastructure specialists has been developed over many successful global projects. INDUSTRY We help our clients to maximize industrial assets, improve efficiencies and translate the latest process technologies into workable designs whatever the field or the scale of their operations. ENERGY From efficiency programs, to front end design, engineering and project management, we help to reduce energy demand and deliver future energy schemes to help create a sustainable future. ENVIRONMENTAL We help to manage environmental, sustainability and climate change issues to reduce risk, optimize opportunities, create competitive advantage and deliver responsible and sustainable businesses MINING We support operations throughout the life of a mine with expert advice from ore evaluations during exploration through rehabilitation plans for mine closures and everything in between. 3
WSP S CONFLICT MINERALS SERVICES Trusted advisors on conflict minerals requirements providing pragmatic business strategies for product compliance & supply chain management Support end to end conflict minerals process including: strategy development, country of origin inquiries, risk assessment, due diligence and SEC filing Strong industry background in materials sciences and supply chain engagement to collect and interpret complex data Due diligence experts on all phases of product compliance & supply chain management Proven track record supporting clients needs for conflict minerals compliance 4
OVERVIEW OF SECTION 1502 OF THE DODD-FRANK ACT AND THE SEC FINAL RULE Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in July 2010 SEC published the final conflict minerals rule in August 2012 Final rule took effect beginning with the 2013 calendar year Conflict minerals are tin, tantalum, tungsten, and gold (and their derivatives) commonly known as 3TG Companies must conduct a reasonable country of origin inquiry (RCOI) to identify source of conflict minerals Disclosure to the SEC using Form SD must be completed by May 31 for previous year May need to include Conflict Minerals Report and an independent private sector audit 5
POST RESULTS OF SURVEY HERE How complete is your supplier response? Are you required to publically disclose of the use of Conflict Minerals? 25% + 50% + 75% + 100% Yes No I don't know When did you begin to contact your suppliers? Have you had a Conflict Minerals inquiry from any of your customers? don t need to before June 2013 2nd half of 2013 Yes No after January 2014 haven t started 6
FLOW CHART FROM FINAL RULE Step 1: Applicability Step 2: RCOI Step 3: Due Diligence Reporting: Form SD/ CMR/IPSA http://www.sec.gov/news/pressrelease/detail/pressrelease/1365171484002 7
DOES THE CONFLICT MINERALS RULE APPLY TO YOU? Rule applies to companies that file with SEC under Section 13(a) or 15(d) of the Securities Exchange Act (publicly traded companies, foreign private issuers) However, suppliers to reporting entities will be affected by rule Rule applies if conflict minerals are necessary to functionality or production of a product Conflict minerals must be present in product Intentionally added and not background concentration STEP 1: APPLICABILITY Rule applies if a product is manufactured or contracted to be manufactured by a company Focus is on whether entity has actual influence over the manufacture of product - Branders of third party products potentially excluded - Retailers may be excluded 8
DO YOU HAVE ANY CONFLICT MINERALS IN YOUR PRODUCTS AND WHERE DO THEY COME FROM? SEC final rule indicates that scope of RCOI must be conducted in good faith and reasonably designed to determine whether the conflict minerals originate from DRC or an adjoining country ( covered countries ) The scope of the RCOI will depend on your company s size, products, and supply chain, but the rule provides some guidance: STEP 2: RCOI Representations, directly from facility at which conflict minerals were processed or indirectly through immediate suppliers (if reasonably reliable) are ok Conflict free designations from a recognized industry group audit program are ok Scrap and recycled content is exempt Inquiry does not need to cover 100% of suppliers http://www.conflictfreesourcing.org/ 9
WHAT LEVEL OF DUE DILIGENCE IS REQUIRED FOR COMPLIANCE? Must conform to a nationally or internationally recognized framework - Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance is cited by SEC as meeting this requirement Each company s due diligence process will reflect the company s unique circumstances STEP 3: DUE DILIGENCE Independent Private Sector Audit (IPSA), if required, is a critical component Effective due diligence will flow from a written plan; it will be difficult to demonstrate knowledge in absence of good data 10
REPORTING File Disclosure with SEC by May 31 each year Form SD if RCOI or due diligence determines conflict minerals are not from covered countries or are from recycled or scrap sources (no CMR) Form SD + CMR (as exhibit to form) if conflict minerals originated from covered countries and are not from recycled or scrap sources - Majority of issuers (~6,000) will have to complete a CMR - Independent private sector audit (IPSA) may be required - Audit is expected to address conformance with established framework and implementation of due diligence process - End to end consistency of due diligence with a defined process (e.g., in a due diligence plan) is key to avoiding audit failures Post disclosure on company s external website (include web address in filing) 11
SUGGESTED BEST PRACTICES TO MEET 2014 FILING DEADLINE Dedicate a Project Manager! Decide on roles/responsibilities for compliance and align internally Develop a written Due Diligence Plan and a roadmap covering RCOI, due diligence implementation, and reporting Document in the Due Diligence Plan what is reasonable for your company and supply chain Focus the scope of the RCOI Use available tools such as the EICC/GeSI template Version 2.03a Use resources - http://www.conflictfreesourcing.org/ Initiate the RCOI with your direct suppliers - Focus on company level reporting - Focus on suppliers with parts most likely to contain 3TG - Set a clear drop-dead deadline for responses 12
SUGGESTED BEST PRACTICES TO MEET 2014 DEADLINE (cont.) Analyze supplier responses for completeness & conflict minerals Compare smelters with those on approved lists: - Such as - http://www.conflictfreesourcing.org/ - Remember that disclosure of products as DRC conflict undeterminable is a valid response for calendar year 2013 - Transition period - 2 years for large companies, 4 years for small companies - Not all mines in covered countries are conflict mines You do not need to be conflict free! Conduct due diligence and retain independent auditor, if needed File with SEC (Form SD and CMR including audit, as required) Post required information on your external company website 13
POINTS TO NOTE Don t underestimate the length/depth of your supply chain Don t underestimate the accuracy of your supply chain info The longest part of the process is waiting for your suppliers to respond you can t control this Distributors can be a dead-end Don t rely completely on software Leverage industry knowledge DRC conflict free or Not 14
CASE STUDY: SUPPLIER EICC CMRT COLLECTION FOR WSP CLIENT % of Suppliers 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 93% 94% 91% 83% 65% 51% 40% 35% 32% 25% 19% 9% 0% 12/30/2013 1/9/2014 1/19/2014 1/29/2014 2/8/2014 2/18/2014 2/28/2014 3/10/2014 3/20/2014 Summary Began 1/02/2014 Number of suppliers 300 Current data collection status Used WSP s PCM tool 95% Supplier CMRTs Collected Based on RCOI DRC conflict undeterminable No trigger for IPSA Due Diligence process mapped out Ready for SEC filing May 2014 15
POST MAY 31, 2014 Review lessons learned Evaluate software tools Learn more about IPC 1755 standard http://www.pic.org/ EICC/GeSI template is evolving Communicate your conflict minerals policy to your suppliers, make it part of your PO process Embed conflict minerals compliance into day-to-day management systems 16
HOW TO PROCEED FROM HERE PREPARE RCOI DUE DILIGENCE REPORT REPEAT Prepare Due Diligence Plan Assemble product data; eliminate out of scope materials and suppliers Define management system approach Prepare policy, supplier contract language, internal communications Establish data requirements/software Collect and validate EICC Templates from suppliers Evaluate risk, reason to believe and warning signs Prioritize suppliers for due diligence Document RCOI as specified in Plan Conduct due diligence on supplier information Perform supplier audits (on-site, desk top) of hi-risk suppliers to verify origin and chain of custody Document due diligence per Plan Prepare Form SD or Form SD + CMR If CMR prepared, have due diligence process audited, if required File with SEC Post disclosure on website Repeat process in future CYs Adjust based on lessons learned re: material and supplier risk Migrate data to onpremise software when available Maintain data in system of record Today May 31, 2014 First required disclosure 17
SUMMARY May 31, 2014 reporting date remains in effect The issue is not going away SEC requires record retention for 7 years Prepare a due diligence plan and identify internal resources Add conflict minerals clauses to supplier terms and conditions Visit our website www.wspgroup.com/usa Webinar series: Conflict Minerals - the Road to 2016 18
QUESTIONS? For more information, please contact: Also follow us on @WSP_USA WSP USA www.wspgroup.com/usa www.youtube.com/wspusa Tord Dennis Phone: 720.974.0250 Email: tord.dennis@wspgroup.com Amy Couch Schultz Phone: 412.269.0470 Email: amy.couch-schultz@wspgroup.com Revati Pradhan-Kasmalkar Phone: 408.693.4474 Email: revati.pradhan-kasmalkar@wspgroup.com 19
RESOURCES & LINKS SEC Final Rule https://www.federalregister.gov/articles/2012/09/12/2012-21153/conflict-minerals Form SD http://www.sec.gov/about/forms/formsd.pdf EU proposes responsible trading strategy for minerals from conflict zones March 5, 2014 http://europa.eu/rapid/press-release_ip-14-218_en.htm 2013 EBJ Business Achievement Award http://ebionline.org/2013-ebj-business-achievement-awards Conflicts free sourcing http://www.conflictfreesourcing.org/ SEC Adopts Rule for Disclosing Use of Conflict Minerals http://www.sec.gov/news/pressrelease/detail/pressrelease/1365171484002 20
Q&A Are banks and financial institutions subject to the conflict minerals rule? Answer is: it depends. The focus of the Conflict Minerals Law is on whether the entity has actual influence over the manufacture of product. One item that comes to mind is credit cards. Typically this would be a no. Credit cards are pretty generic and the design is fairly standard but if the financial institution gives the manufacturer specific guidelines that requires the use of specific materials then yes. If you think the conflict minerals rule may apply, you should contact legal counsel to help you make the final determination. How do you determine if a smelter is conflict free or not? Some companies have taken on the task of sending representatives out to visit the smelters and the mines they source the ores from (putting boots on the ground) to do inspections. But this is very resource intensive. One observation that has come to light is that there are a reasonable number of smelters for some ores particularly tungsten. So the emphasis has switched to getting those smelters to source only from conflict free mines. The idea is that if a smelter voluntarily certifies that they are conflict free, manufacturers would prefer to source from them than from smelters who source from unknown mines. That s the basis of the conflict free smelter program. Smelters self-register and follow the process to undergo an audit. The list of approved conflict-free smelters is publically available at http://www.conflictfreesourcing.org/ What is the difference between the EICC/GeSI template and the IPC 1755 format? Are they competing formats? The EICC/GeSi template is a spreadsheet based form that suppliers can type into or select information from drop down menus to disclose the presence of conflict minerals. The IPC-1755 format is a machine readable XML document that can be used by software tools to exchange information. Think of the IPC-1755 format as the html code that a website sends to your computer. The EICC/GeSI template is then Firefox or Google Chrome or your favorite browser that interprets and displays the code for you to view. It is expected that the EICC/GeSI spreadsheet will export information as IPC-1755 which can then be read into software programs for analysis. Learn more at http://www.conflictfreesourcing.org/ http://www.ipc.org/ Is there a list of smelters that are known to be using 3TG from conflict sources? To our knowledge there is not such a list that is publically available today. However the opposite, a list that includes the names, locations and links to conflict minerals policies of all smelters or refiners that are compliant with the Conflict-Free Smelter Program assessment protocols, is available at http://www.conflictfreesourcing.org/conflict-free-smelter-refiner-lists/ 21