With the first reporting requirements for the Securities and Exchange Commission's conflict minerals rule due on May 31, many public companies are still in the early stages of compliance and risk falling behind, according to a new survey by audit firm PwC. It found that only four percent of companies have completed a draft of their filings, and 90 percent either have only developed initial drafts, or none at all, with significant work still needed ahead of a fast-approaching deadline.

According to the survey of 700 respondents across 15 industries, businesses continue to find compliance with the rule to be challenging at nearly every step: scoping, surveying suppliers, performing due diligence, and drafting filings. As a result, two-thirds of respondents said they will need one or two two full-time employees dedicated to their conflict minerals compliance efforts; 21 percent said they needed to bolster staff by as many as five employees. Less than half of respondents had sent a “reasonable country of origin inquiry” to more than three-quarters of their in-scope suppliers; only 47 percent had received fully-completed responses from more than half of the suppliers queried.

The SEC rule requires companies to disclose information each calendar year on the source of conflict minerals—tantalum, tin, gold, and tungsten—in their products, using the new, electronically filed Form SD. Congress included the provision in the Dodd-Frank Act to address concerns over the role of these minerals in funding armed militias in the Democratic Republic of the Congo and adjoining countries. Companies must conduct a “reasonable” country-of-origin inquiry to determine if the minerals originated from the covered countries; track and document the source and chain of custody; and include findings in a public Conflict Minerals Report.

The extensive conflict minerals compliance process, coupled with business risks associated with sourcing products in the Congo, has many companies considering conflict-free sourcing. PwC's survey found that 45 percent of respondents have plans to be conflict free, citing among their concerns the potential loss of customers (36 percent), potential risk to their brand (31 percent), shareholder backlash (19 percent), and the potential for product boycotts (eight percent). 

Although compliance with the conflict minerals rule has proven to be resource-intensive, PwC's survey found that 67 percent of respondents do not anticipate needing an independent private sector audit in the first two years, either because they source their minerals from outside the covered countries or expect them to be Democratic Republic of Congo conflict undeterminable. Only 12 percent expect to require an IPSA for either or both years, although PwC expects that number to increase in future years.

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