Conflict Minerals

“Conflict minerals” generally refer to those minerals that may have directly or indirectly contributed to the financing of armed groups. Such armed groups are responsible for violence – often toward women and children – and human rights violations in the Democratic Republic of Congo (DRC). Armed groups may directly manage a given mine or tax the mine and/or the transport routes for the minerals. The minerals then typically change hands eight to 12 times before they are incorporated into end products. See the known supply chain stages associated with conflict minerals.

In the U.S., a new federal law passed by Congress and signed by President Obama in 2010 – the Dodd-Frank Wall Street Reform and Consumer Protection Act – includes a provision relating to conflict minerals. This provision requires many manufacturers to report to the Securities and Exchange Commission (SEC) annually on whether their products contain metals derived from certain conflict minerals if those metals are necessary for the functionality and production of their products. The sourcing region subject to full reporting includes the DRC and the nine surrounding countries.

According to the federal legislation, columbite-tantalite, cassiterite, wolframite and gold – which are refined into tantalum, tin, tungsten and gold, respectively – are considered to be conflict minerals. The metals derived from conflict minerals are used in a variety of automotive applications, including onboard electronics, metal alloys, lubricity coatings, hot-dip coatings, trim components and more.

In the European Union, similar legislation is being considered, with an EU Commission communication on conflict minerals scheduled for the summer of 2011 and reform of the EU’s Transparency Directive in the autumn of 2011.

Ford is concerned with the potential connection between the automotive industry and conflict in the DRC region. Initial research and engagement has demonstrated that the underlying causes of conflict in this region are complex. A multilateral approach to solutions will be required, and we believe that companies in the downstream supply chain for these minerals have a role to play. We intend to require suppliers to use only metals that have been procured through a validated supply chain, so as to ensure that they have not, at any point, financed conflict. The processes to support validation are in development by local governments, industry groups, international organizations and NGOs, with support from other governments outside of Central Africa. While these processes are being developed and implemented, Ford is taking action to educate ourselves and our suppliers, initiate automotive industry activity and begin the necessary due diligence.

Policy Engagement

Ford worked with companies such as Microsoft, GE and Hewlett Packard, as well as NGOs and investors such as the Interfaith Center on Corporate Responsibility, to issue multi-stakeholder comments on the SEC rules as they were being developed and finalized. Representatives from Ford also separately met with the SEC and the U.S. State Department to discuss issues relating to procedures and implementation within the automotive supply chain. In March 2011, we submitted a formal comment letter to the SEC stating our position. The intent of this engagement was to inform, to the best of our ability, policy makers and other stakeholders on the current status of information available to Ford while the rules for implementing the conflict minerals legislation were in development.

In addition, through an international forum provided by the Organization for Economic Cooperation and Development (OECD), the United Nations and the governments of the affected African states, Ford has participated in dialogue with multiple stakeholders, including NGOs active in the area of concern. We have also provided input to the development and upcoming implementation phase of the OECD Framework for Due Diligence regarding conflict minerals. This framework provides practical guidance to companies throughout the supply chain on a set of actions that can be taken to ensure responsible due diligence.

Risk Assessment

Ford intends to utilize an existing automotive industry database that tracks material content at the part level to analyze the presence of conflict minerals in our vehicles. The database currently tracks material content to monitor for the presence of certain regulated substances; it does not indicate where materials originated. While the presence of the four conflict minerals may, in some cases, be reported to the system by suppliers, reporting of the geographic source of these minerals has not been required to date (as it previously had not been regulated).

In 2011, Ford issued new reporting requirements to suppliers asking for full content reporting of the four conflict minerals so as to achieve a more complete assessment of risk in our supply base of 1,400+ companies. This will give us a starting point for further supply chain inquiries, which should in turn enable the tracing of metals to the point of processing (i.e., the smelter).

Supply Chain Management Systems

Ford is implementing due diligence actions as guided by the OECD and United Nations Frameworks for Due Diligence. Critical to these frameworks is the identification of upstream and downstream portions of the supply chain from the central “pinch point” – the smelter or processor. In this model, Ford and all downstream companies are responsible for identifying the smelters used in the supply chain and ensuring that those smelters are appropriately validated as sourcing minerals that have not financially supported conflict. Ford is monitoring closely the development of these validation systems.

Within our direct control are Company policies and direct supplier relationships. Although Tier 1 suppliers to Ford make independent sourcing decisions – as do most companies within the automotive supply chain between Ford and the mines – we include in all of our contracts with suppliers explicit human rights terms. We also engage with our suppliers on the topic of policy and management systems through our strategic supplier framework, the Aligned Business Framework. Our ongoing work with these suppliers includes the development or enhancement of supply chain sustainability management. It is important that we fully align with suppliers on the approach to responsible sourcing of raw materials so as to avoid, where possible, unintended consequences, such as absolute bans on sourcing from the 10 countries listed in the U.S. legislation.

Industry Engagement

Industry engagement and a coordinated approach to supply chain requirements will greatly enable success and reduce the duplication of efforts and cost of implementation of due diligence. Ford is pursuing automotive industry collaboration at the AIAG, consistent with our approach to other supply chain sustainability opportunities. Ford chairs the industry workgroup on conflict minerals – a group consisting of six global automakers and several global Tier 1 suppliers. Actions taken by the group thus far include:

Wide distribution of a Conflict Minerals Awareness letter from the six OEM vice presidents of purchasing to the CEOs of Tier 1 suppliers. The intent of the letter was to demonstrate a unified face to the supply chain on the issue, as well as to increase awareness to ensure timely action.
Participation in a January 2011 industry conference on corporate responsibility, with a heavy emphasis on raw materials transparency in purchasing.
Planning of a May 2011 webinar and a September/October 2011 industry event to keep the supply base well informed of evolving activity related to regulation, validation programs and customer requirements.

Future activity for the industry group may include collective action for information management, actual data requests and data management. The AIAG conflict minerals workgroup has been actively pursuing collaborative action with the electronics sector as well, given that industry’s experience with this issue and possible solutions.

As this complex process unfolds – from mine certification to smelter validation programs to the publication of the SEC rules for federal regulatory compliance – Ford will strive to meet all expectations and require compliance and commitment to due diligence from our suppliers.