What does Dodd-Frank have to do with ESG?
Posted on by Paul Ellis
Written by Dr Carrie Giunta, @CarrieGiunta. Dr. Giunta is a freelance writer and visiting research fellow at Central Saint Martins, University of the Arts London. She has published articles about conflict minerals in Telesur and Pambazuka.
Advisors may well be aware of the banking industry provisions that came into effect with the Dodd-Frank Act of 2010. But what they might not know about is a section included in the act, which specifies conflict mineral supply chain optimization. Section 1502 of Dodd-Frank requires companies to report to the Securities and Exchange Commission about the products they make which contain the metals tantalum, tungsten, tin and gold sourced in the Democratic Republic of Congo (DRC). Section 1502 requires companies to declare whether their sources of these minerals are: DRC Conflict Free, Not DRC Conflict Free or DRC Conflict Free Indeterminable. The idea is for manufacturers of products containing tantalum, tungsten, tin and gold to give their supply chains more transparency, thus improving sustainability. All of this will, in theory, create supply chain optimization.
What is coltan?
The DRC has the richest source in the world of the rare mineral coltan. Tantalum is a high-grade metal processed from refining coltan. As it has superb heat resistance properties, tantalum capacitors are necessary for running applications that reach very high temperatures. The demand for tantalum doesn’t just come from the smart phone and tablet market. Tantalum is essential in powering new military applications and medical equipment. Advances in military and medical technology generate extremely high temperatures, increasing the need for tantalum capacitors.
The eastern provinces of the DRC hold eighty percent of the world’s coltan reserves. The Congolese minerals trade fuels a long-running conflict in the region, which since 1996, has killed over six million people. Hundreds of thousands of women and young girls have been raped as a weapon of war. There is a reason this rare mineral is known as ‘blood coltan’. Coltan mining, trading and smuggling all support the conflict, as rebel forces control the mines and traffic the minerals.
Coltan and Playstation 2
As a result, violence in mining areas is proportionate to competition for coltan. When there is a tantalum shortage in the US, the price of coltan soars. Price hikes cause competition for minerals and the violence to intensify in the mining areas. We saw this in the run up to Christmas, 2000, when the demand for Sony’s Playstation 2 increased the price of coltan tenfold overnight. The price of coltan rose from $49 to $275 a pound. The moment of the price hike and dramatic fall was also a time of sharp increase in violence in the eastern DRC. Subsequent price hikes only escalate the situation.
Dodd-Frank oversees more than just banking regulations. It is meant to control how tech companies optimize minerals supply chains. Advisors can start a conversation with investor clients about their views on issues pertaining to conflict minerals and factor these perspectives into sustainable investment decisions.
I urge advisors to discuss with their clients the need for greater transparency from all sectors of the economy that use conflict minerals. Last year’s impressive report from Responsible Sourcing Network and Sustainalytics collects data from a limited selection of companies from “high exposure industries.”