A Man on a Mission: Conflict Minerals

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    Stockholm (NordSIP) – Tin, tantalum, tungsten, cobalt, gold – these are some of the indispensable ingredients that are powering the green transition. Unfortunately, most of them are sourced in politically unstable regions, such as the African Great Lakes, where armed groups and criminal networks incessantly fight for control. Hence the appropriate moniker, ‘conflict minerals’, that they are collectively known by.

    One asset management firm determined to find a solution to this conundrum is Stewart Investors, an active, long-only equity specialist focused on sustainable investing. The firm has been rallying like-minded investors for a few years now to engage with the semiconductor industry on the conflict minerals in their supply chains. Recently, it also became the founding member of the Responsible Minerals Initiative Investor Network.

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    NordSIP caught up with the person behind Stewart Investors’ conflict minerals drive, Senior Investment Analyst Chris McGoldrick, during his short visit to Stockholm.

    “It was a book I read some years ago that jolted my thoughts and made me want to do something about it,” recalls McGoldrick. “Did you know that in the Democratic Republic of the Congo (DRC) alone some 40.000 children are involved in artisanal mining? Instead of attending school, these kids are often forced to work in unsafe and unhealthy pits with no more than basic hand tools,” he says.

    And yet, accelerating the transition towards a lower carbon economy requires a very large increase in the production of conflict minerals. From personal electronics to electric vehicles and renewable energy systems, the green shift relies on these tainted ingredients. “More technology equals more dehumanising mining practices,” laments McGoldrick. “Unfortunately, nothing has really changed despite a few legislative attempts.”

    Regulation alone is not the answer

    Speaking of legislation, McGoldrick is of the opinion that it is insufficient and poorly implemented. “The issue of conflict minerals first received international attention in 2010, with the introduction of the US Dodd-Frank Wall Street Reform and Consumer Protection Act, which required companies to determine and disclose the source of these minerals,” he explains. “It was, however, Obama’s last act, and things changed soon after.” He points out that there hasn’t been a single prosecution under the relevant clauses of the Dodd-Frank Act yet.

    “The problem is that the regulation was rather poorly crafted, almost like an afterthought. It really leaves it up to companies to do the right thing. And when companies are experiencing an extremely high demand, as those in the semiconductor industry are, they are tempted to cut corners.”

    The EU picked up legislating the supply chains first in 2017, following the OECD Due Diligence Guidance. They are now extending it to include all minerals and to encompass human rights in general rather than just mining practices. “The trouble, as we know, is that the EU can be very slow,” adds McGoldrick, commenting swiftly on the indeterminately delayed Corporate Sustainability Due Diligence Directive (CSDDD).

    Investors to the rescue

    So, if regulation is still toothless, allowing companies to turn a blind eye to the issue, what else can be done? “I believe investors have a role to play in ensuring that global mineral supply chains are free of human rights abuses,” says McGoldrick. That is what Stewart Investors has been doing by engaging on conflict minerals in the semiconductor supply chain. At the end of 2021, the firm launched a collaborative engagement initiative, attracting 160 signatories with USD 6.59 trillion of assets under management.

    Joining the Responsible Minerals Initiative (RMI) earlier this year marks the next step in the firm’s long-term commitment to promoting sustainable development and engagement on conflict minerals in the semiconductor supply chain.

    “The RMI is very pleased to welcome Stewart Investors as the first company to join the newly formed RMI Investor Network,” commented Jennifer Peyser, Executive Director RMI last month. The trade body was not always as welcoming, though, confesses McGoldrick. “A couple of years ago, when I first approached the RMI at their annual conference in Santa Clara, I was greeted with suspicion and made to understand that the organisation did not want investors as members.” He kept persevering, however, and, eventually, got invited as a speaker at the next conference.

    The key was explaining what investors can bring to the table. “I soon realised that it was the companies’ Head of ESG, or procurement, or supply chain, who would attend an RMI conference,” explains McGoldrick. “There were no CEOs there, just cost centres’ representatives who don’t have the access to CEOs that we as investors do. We can be their best allies.”

    McGoldrick tells us that it took some convincing and conversations behind closed doors for the members to realise that not all investors are ‘wolves of Wall Street’ looking for shorting opportunities. “It is quite sensitive: if they admit there is a problem, they admit a liability,” he explains. “Eventually, though, they did open up and shared some practices. And I hope they continue to see us as partners trying to help them achieve their long-term ambitions and overcome challenges.”

    Transcending the silos problem

    While visiting Sweden, McGoldrick is true to his mission, discussing the conflict minerals issue with the institutional investors he meets and urging them to join the RMI. What he finds is that some of them are already engaging, but perhaps with companies in different parts of the supply chain. “Many are looking primarily at upstream activities, engaging directly with the mining companies. Our focus, meanwhile, is more downstream, past the smelters and refiners. The trouble is there is no communication between these different silos along the value chain,” he says.

    A more cohesive approach transcending supply chains is, therefore, high up on his wish list. “Also, a lot of the standards now are mineral-specific, or product-specific. Having one overarching standard would be much more efficient,” he adds.

    Showing progress

    Currently, the RMI membership is heavily skewed towards the US, according to McGoldrick. And yet, most semiconductors are produced in Asia. “Raising awareness among these Asian companies, encouraging them to become members, is essential,” he says.

    Some success has already been achieved with Korean producers. “Many Taiwanese companies, meanwhile, are content with fulfilling minimal credible reporting and there is no passion behind the issue there.” Larger asset owners and managers could collectively apply some pressure there.

    “Keeping up the pressure is our duty,” asserts McGoldrick. “Mind you, it is a multi-year effort. There will be bouts of progress and periods when very little happens. The important thing to remember is that while there are still children slaving in those mines, our job is not done.”

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.
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