The last weeks Publish summarized the main conclusions of the reports and accompanying fact sheet published by the White House on Supply Chain Resilience Pursuant to Executive Order 14017 “America’s Supply Chains” (“the Reports”). In this article, we delve into the transparency and supply chain governance recommendations for regulations governing the supply of critical minerals.
This part of the reports presented findings and recommendations relevant to companies managing critical minerals supply chains, including cobalt, graphite and lithium. First, the reports conceded that while the relocation of more of the strategic and critical mineral production chain is in the United States’ strategic defensive and economic interest, this process will take years given the the technical and manufacturing expertise required to support such a transition. In addition, the reports examined the risks posed by disruption and instability along the critical mineral production chain resulting from links to organized crime and human rights violations. Finally, in line with the administration’s previous commitments to mainstream climate change management strategies at all levels of government, the reports also noted the growing role essential minerals play in green energy development and development. energy conservation solutions.
Importantly, alongside recommendations to encourage relocation, the reports focused on responsible sourcing of critical minerals and included policy recommendations to promote greater transparency to improve stability and tackle abuses. in critical mineral supply chains overseas. These recommendations are likely to lead to increased obligations for companies to monitor human rights and other ESG-related violations. The reports began by recommending that the United States pursue greater support and collaboration with multilateral groups, including the Energy Resources Governance Initiative (ERGI), Responsible Mining Insurance Initiative (IRMA ) and the Extractive Industries Transparency Initiative (EITI). Perhaps more importantly, the reports asked the SEC to examine existing compliance with the obligations of Section 1502 of Dodd-Frank (the Conflict Minerals Rule) still intact after a court case Circuit Appeal of 2015 partially repealed the rule and strengthened enforcement measures where possible. In what will likely lead to an expansion of due diligence and reporting obligations by companies, the reports recommended that the Secretary of State pursue legislative authorization to expand the geographic areas covered by the conflict minerals rule to the United States. -beyond the African Great Lakes to include other high-risk areas. affected by conflict, in accordance with comparable regulations foreseen in the EU. The reports further advised that the Secretary of State provide a plan to staff all existing supply chain transparency and governance initiatives, including those through his Office of Energy Resources.
Finally, in a broad demonstration of the administration’s desire to increase both obligations and enforcement against companies with human rights violations or ESGs in their supply chains, the reports charge the federal government to establish an interdepartmental task force to assess and build a plan to promote increased transparency in mining and finished product supply chains for all materials with ‘high risk of human rights abuse’ man and corruption ”. These same agencies are also urged to seek comprehensive resources for initiatives to trace supply chains of strategic and critical materials and to investigate money laundering, corruption, links to organized crime and violations of human rights. human rights, with civil, criminal and administrative enforcement measures carried out to the extent possible. Signaling the importance the administration places on supply chain governance and ESG issues, the reports encouraged President Biden to demand periodic updates on the matter from the attorney general and secretaries of state. , from the Treasury, internal security and labor to the National Security Council and the national economy. Advice. As we wrote previously, the Biden administration has already taken other steps to demand greater supply chain transparency to promote ESG initiatives; the conclusions and recommendations of the reports are a further step in this direction.
Key points to remember
- The recommendations in the reports will likely lead to new, more extensive corporate disclosure obligations under the SEC’s conflict minerals rule and pose increased risk to companies operating without a chain due diligence program. responsible sourcing or sourcing in place.
- In addition to human rights violations, the reports specifically mention the Biden administration’s desire to step up money laundering and corruption law enforcement in corporate supply chains, which could lead to further scrutiny and stricter enforcement of the Foreign Corrupt Practices Act (FCPA) violations in supply chains. Companies that have focused their FCPA compliance programs solely on distribution and agency relationships should consider risk-based approaches to extend due diligence and related program efforts into supply chains.
- In light of the administration’s continued signals that it plans to pursue further integration of ESG supply chain initiatives into corporate disclosure obligations, even companies that have established compliance processes in place. Responsible sourcing should assess existing risks and consider developing more robust compliance regimes for the supply chain. transparency and governance.
The content is provided for educational and informational purposes only and is not intended and should not be construed as legal advice. This may be termed a “lawyer advertisement” requiring notice in some jurisdictions. Past results do not guarantee similar results. For more information, please visit: www.bakermckenzie.com/en/disclaimers.