Conflict minerals and investor engagement 

Headlines around rare earth minerals and tariffs have dominated news cycles of late. But the ethics of extractives has long been a deeper concern for ethical investors, particularly around the sourcing of conflict minerals – natural resources mined in regions affected by armed conflict.  

See also: Castlefield’s Ita McMahon: Engaging on AI

Although separate to rare earth commodities, conflict minerals are used in a wide array of consumer electronic equipment like laptops, mobile phones and medical devices. Given the prolific nature of these materials, many equity funds, no matter how ethical, will have exposure to them.  

As responsible investors, we see our role as engaging with affected companies and applying pressure as shareholders for companies to uphold high standards in this area.  

In recent months we’ve been reviewing our own funds’ exposure to conflict minerals. This article explains what conflict minerals are and how we’ve been assessing and engaging with companies on this topic at present.  

What are conflict minerals? 

Conflict minerals are the collective term given to tin, tantalum, tungsten and gold. These minerals are also known as 3TGs and are essential components in numerous consumer goods, as well as medical equipment and jewellery. They’re often found in countries with high levels of instability and conflict, primarily the Democratic Republic of Congo (DRC) and the surrounding region. These areas have high levels of civil warfare and corruption. The concern is that by sourcing these minerals from conflict regions, buyers risk funding armed groups and prolonging hostilities. There are also heightened risks of child labour, poor working conditions and environmental damage associated with conflict mineral extraction.    

The issue has been significant enough for major economies like the EU and the US to introduce legislation requiring companies to disclose whether their product range contains any 3TGs and establish due diligence frameworks to address sourcing issues. 

See also: Critical minerals: The cornerstone of a just transition

Our engagement 

Recognising the issue of conflict minerals is important to our client base, we’ve undertaken an exercise to ascertain which of the companies in our investment portfolios use 3TGs.  

For a consistent evaluation, our team assessed each company against three key milestones: 

1. Awareness: does the company publicly acknowledge the issues around conflict minerals and does it have a policy in place? Here, the vast majority of companies scored well, and this is no doubt driven by regulation requirements in major markets.  

2. Reporting: does the company explain its due diligence process? Does it publish the name and location of its suppliers? Our findings here show varying degrees of transparency, with larger firms more likely to publish more detailed information. Some of the big tech firms, like Microsoft, Apple and Nvidia take the additional step of publishing the names and location of its suppliers of 3TGs, which is to be welcomed. Smaller firms, with more limited resources, tend not to disclose this information.  

3. Performance: does the company report on the performance of its suppliers? Does it disclose the percentage of smelters that conform with recognised standards? This is the category where we have seen the least progress to date, with only a handful of firms willing to publish this data. Again, the tech firms are taking the lead, with Apple publishing the number of suppliers removed from its supply chain due to non-conformance and Apple stating that 74% of its smelters conform to standards set by the Responsible Minerals Initiative.    

Following this assessment, we undertook a round of engagement with portfolio companies and a recurring theme was the difficulty in obtaining reliable data from suppliers. Through these discussions we ascertained that, although legislation has resulted in improved disclosure, companies are still struggling to identify and eradicate the issue from their supply chains. For example, one company we spoke to has not been able to elicit responses on responsible sourcing from a significant proportion of its supply base. They’ve also questioned the unfeasibly high level of suppliers stating that their minerals are “conflict-free”, resulting in the company undertaking new and enhanced due diligence procedures to establish a fuller understanding of the true picture.  

See also: Clean energy: The hidden costs of transition minerals

It’s a good reminder that some ESG issues are entrenched and difficult to make progress on. This is very much the case with supply chain issues, where companies are reliant on accurate and honest reporting through several tiers of supplier. As investors, it would be unrealistic to expect an instant resolution, but we can and should remain supportive and ask for updates on progress.  

The final part of our engagement plan is to use insights from our analysis and engagement with more advanced companies to support smaller, or less-resourced, firms in our portfolios. By sharing best practices and encouraging initial steps toward responsible sourcing, we aim to foster broader accountability and progress across the supply chain.