Conflict minerals and responsible investing

Conflict stones have, for worse, been a part of the legitimate trade in precious metals and minerals for many decades. With the issue of conflict stones like “blood diamonds” popularized by various Hollywood film-makers over the years (Edward Zwick’s rendition comes to mind), Western audiences have become familiar with the controversies surrounding precious minerals, and perhaps are more concerned about the origins of their diamonds, sapphires, emeralds, gold, silver, and other high-end valuables than at any previous time. Despite the fact that the plight of communities producing conflict stones is a rather public matter, repeated attempts by international organizations to control or ban the sale of minerals originating from war zones have been largely unsuccessful in the past decade.

The Kimberly Process was one such attempt to stem the circulation of conflict stones. As a key mandate tabled by the UN General Assembly and NGOs in 2003 to enforce a ban on conflict diamonds entering the licit global economy, this agreement was hailed by world leaders as a great achievement in halting the illegal trade in conflict stones, and by extension cutting off the funding for various armed groups and hostile governments committing unspeakable crimes against their own people. Unfortunately, completely eradicating an extremely lucrative trade such as the sale of conflict stones is often prevented by the existence of transnational crime and corruption, a rather pervasive and unfortunate illness that manifests itself widely in the global economy.

With international criminal networks operating while many national governments drag their heels on implementing stricter policies to stem the tide of conflict stones, the Kimberly Process has been the subject of damning criticism from leading institutions dedicated to human rights research. Global Witness (GW) summed up the “achievements” of the Kimberly Process by stating that “despite the existence of the Kimberley Process, diamonds are still fueling violence and human rights abuses. Although the scheme makes it more difficult for diamonds from rebel-held areas to reach international markets, there are still significant weaknesses in the scheme that undermine its effectiveness and allows the trade in blood diamonds to continue.” GW further stated that “the KP will not achieve its aim of stamping out diamond-fueled violence for good without the introduction of far reaching reforms or a serious injection of political will.”

Where failures to combat the procurement and sale of conflict stones is concerned, the Kimberly Process is just the tip of the iceberg. Indeed, only in the past month has the World Diamond Council voted to extend the status of “conflict diamond” to stones that “could be connected to any kind of armed violence, not only intra-national strife,” a move that can likely be seen by outside observers as too little, too late. Closer to home in Canada, responsible investment firms and advisors are sounding a note of caution when dealing with minerals originating in known conflict zones, but they are not completely closing off business with war-torn regions.

While companies like “Nokia, Apple, Samsung, Motorola, and Research in Motion” have been caught up at one point or another in the controversy surrounding conflict minerals, these companies all claim to be managing their resource connections in Africa with care being taken to avoid the acquisition of blood diamonds and other minerals procured through conflict. Further, there remains an ethical and moral dilemma of completely cutting off the purchase of diamonds from known conflict zones like the Democratic Republic of Congo (DRC). Michelle de Cordova, director of Corporate Engagement and Public Policy for Ethical Funds at NEI Investments, correctly pointed out that “the minerals trade is a very important part of the economy in that part of the world” and that “a lot of people depend on it for their livelihoods.” In turn, de Cordova and other responsible investment advisors suggest that “companies stay in the [conflict] regions responsibly.”

One example of a company which shows all signs of following the ESG philosophy vis-à-vis conflict minerals is South Carolina-based Kemet Corporation, a firm that describes itself as “the world’s most complete line of capacitor technologies across tantalum, ceramic, film, aluminum, electrolytic and paper dielectrics.” Kemet Corp. has been praised by the US Government Accountability Office recently for establishing a “closed-pipe supply chain for responsible sourcing of tantalum from Katanga Province in the DRC”. Kemet is also noted for its achievement in responsible investing with its ‘Making Africa Work’ social sustainability project which has seen the firm contribute “$1.5 million USD over a two-year period for infrastructure development and improvements such as the construction of schools, health clinics, and fresh water wells at and around the Kisengo mine site in DRC.”

In keeping with attempts by Western corporations to avoid becoming entangled in the trade of conflict minerals, the World Gold Council (WGC) released a draft in March 2012 for an international standard that they are urging gold mining companies to adopt the “Conflict-Free Gold Standard”. In addition, a landmark ruling by the US Securities and Exchange Commission (SEC) is set to be adopted at special meeting scheduled for August 22 when the members of this federal agency will vote on “controversial new rules requiring companies to disclose payments to governments and whether any of their products use certain African ‘conflict minerals’”.

While the motions are made and the right noises are heard from important organizations and individuals involved in curbing the conflict minerals trade, the difficulty of on-the-ground realities in Africa and elsewhere once again struck close to home again in early July 2012. Reuters reported recently that heavy fighting between rebels and DRC government troops in North Kivu province has hampered “an international push to curb the traffic of gold, tin, and other metals by rebel groups, efforts which campaigners say are key to ending violence and encouraging legitimate mining.” The cycle continues, but it is not in our power nor is it our immediate responsibility to go it alone in ending these conflicts. However, as responsible investors, we can contribute positively to stemming the flow of conflict minerals through wise investment decisions while urging our national governments and local as well as multinational corporations to do the same.