Conflict Minerals: New Developments and Preparing for 2017 Disclosures

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Conflict Minerals: New Developments and Preparing for 2017 Disclosures ACC Environmental & Sustainability Legal Quick Hit Paul Hagen, phagen@bdlaw.com Lauren Hopkins, lhopkins@bdlaw.com April 13, 2017

SEC Conflict Minerals Rule: Refresher Dodd-Frank Section 1502 à SEC Rule Supply Chain Inquiry Reasonable country of origin inquiry (RCOI) for conflict minerals (gold and derivatives tin, tantalum and tungsten, or 3TG ) Conduct heightened due diligence à OECD Guidance if sourcing from DRC region Form of Disclosure Form Specialized Disclosure (SD) only Summary of RCOI Form SD plus Conflict Minerals Report Summary of due diligence Information on products, facilities, countries, and efforts to determine mine or location of origin Steps to improve due diligence Independent private sector audit 2

Litigation: NAM v. SEC Conflict Minerals Decision (D.C. Cir. Apr. 2014) Not found to be DRC conflict free descriptor held unconstitutional Remainder of rule upheld Panel Rehearing of Conflict Minerals Decision (D.C. Cir. Aug. 2015) Reaffirmed Apr. 2014 decision En banc rehearing denied, no petition for certiorari to Supreme Court, remanded to District Court Final Judgment Entered (Dist. D.C. Apr. 2017) Remanded to SEC for further action consistent with Apr. 2014 decision Case closed

State Department request for recommendations SEC statements and rule reconsideration New EU Regulation Dodd-Frank 1502 and SEC Rules Congressional hearings Expected Presidential Memorandum criteria 4

April 7 SEC Statements Statement of SEC s Division of Corporate Finance Difficult to conceive of a circumstance that would counsel in favor of enforcing paragraph (c) of Item 1.01 of Form SD Division will not recommend enforcement action to Commission for companies that only conduct RCOI and file Form SD disclosure (even if required to conduct due diligence and file a Conflict Minerals Report) Statement of SEC Acting Chairman Michael Piwowar Legal uncertainty: SEC rule remains in effect, no explicit changes made to SEC s 2014 partial stay Declared that statement: Is subject to any further action that may be taken by the Commission Expresses the Division s position on enforcement action only Does not express any legal conclusion on the rule 5

Civil Society Organization Responses "One commissioner doesn't have the authority to change the conflict minerals law or regulation unilaterally. Companies are still legally required to file conflict minerals reports and disclose their due diligence, according to the law that Congress passed and the SEC rule that the courts upheld. We look forward to reading companies' full conflict minerals reports in May. - Sasha Lezhnev, Enough Project Associate Director of Policy "We are concerned about the apparent attempt to gut the essence of conflict minerals due diligence without authority or cause. The goal of reports pursuant to Section 1502, and the focus of review by investors and the public, is to understand the specific steps companies have taken to address conflict minerals concerns. Specific labeling or description is not the essence of due diligence; meaningful and transparent action is. - Brad Brooks-Rubin, Enough Project Policy Advisor 6

Civil Society Organization Responses Acting Chairman Piwowar s interpretation of the rule is both misguided and inaccurate. Supply chain due diligence is not purely a function that informs product labelling, as his statement incorrectly suggests. - Carly Oboth, Global Witness Global Witness urges an immediate retraction of this statement and for companies to disclose their supply chain due diligence efforts in reports to the SEC regardless of Friday s decision. 7

Ongoing SEC Reconsideration of Conflict Minerals Rule Implementation SEC Acting Chairman Michael Piwowar initiated rule reconsideration in January 2017 Directed SEC staff to consider whether 2014 guidance [i.e., partial stay] is still appropriate and whether any additional relief is appropriate Raised concerns about effectiveness of SEC rule to address armed conflict in DRC region and de facto boycott of region Requested comment on all aspects of the rule and guidance

State Department Initiative Request for comments on responsible sourcing of tin, tantalum, tungsten and gold Brief notice includes high-level overview of U.S. efforts to break link between armed groups and mineral sourcing in region May be seeking alternative approaches to Dodd-Frank / SEC rule framework Comments due April 28, 2017

Draft Presidential Memorandum Circulated in early February 2017 Indicated White House could seek to suspend SEC rule for up to 2 years based on Dodd-Frank waiver provision Provision would require SEC to waive rule if President transmits to the SEC a determination that waiver is in the national security interest of the U.S. Cites harm to the region contributing to instability as basis for threat to national security Timing uncertain, but reports indicate President may be awaiting outcome of SEC activity

Congressional Review Hearing on the impacts of Section 1502 on the Democratic Republic of the Congo and the region Held on April 5, 2017, before the Senate Committee on Foreign Relations Subcommittee on Africa and Global Health Policy 114 th Congress considered bills that would have repealed Section 1502; expect similar bills to be introduced in this 115 th Congress Senators calling for investigation into SEC actions on conflict minerals 11

What should companies be doing now? If you are an SEC issuer Continue to monitor for potential activity that could alter the regulatory landscape Discuss approach to 2017 filing with internal stakeholders, compliance teams and management taking into account: Recent SEC statements / activity have not altered the SEC rule, which remains in effect It is not clear that SEC is of one mind on the enforcement position Democrats on the Senate Banking Committee requested that the SEC Inspector General begin an investigation of the validity of the SEC Acting Chairman s rule reconsideration efforts, a request that could be renewed in light of recent action External expectations from NGOs and rankings organizations are likely to remain high regarding compliance with the full set of requirements under the SEC rule Possibility of Section 18 investor suit liability, even if unlikely, can t be ruled out Consider potentially related risk areas Sanctions, labor/human trafficking issues, consistency with other corporate transparency initiatives, other reputational or legal risks

EU & EPEAT 13

EU Conflict Minerals Regulation EU Parliament and Council have adopted a new EU regulation on supply chain due diligence Required to conduct due diligence in accordance with OECD Due Diligence Guidance Final Rule expected in Official Journal this summer Due diligence obligations on importers would take effect in in January 2021 (four years out) 14

Key Differences from Dodd Frank Covers EU importers of 3TG minerals and ores but not downstream users Watch for guidance under Non-financial Reporting Directive Potential procurement initiatives Broader Geographic Scope: Conflict Affected and High Risk areas Likely to set global investor and NGO expectations over time All covered companies obligated to undertake due diligence 15

What is EPEAT? Electronic Product Environmental Assessment Tool managed by the Green Electronics Council Global environmental rating system for electronics Important procurement tool that is expanding in terms of covered products and criteria 16

Executive Branch on EPEAT Federal Acquisition Regulation ( FAR ) requires EPEAT-registered products Executive Order 13693 directs federal agencies to ensure procurement preference for environmentally sustainable electronics.... Proposed FAR amendments would remove direct reference to EPEAT in favor of specifications, standards, or labels recommended by EPA 17

Covered Products PCs and displays (including tablets) Imaging equipment (including printers, copiers, scanners, multifunction devices) Televisions Mobile phones Note: Server standard in development, but status is uncertain 18

Criteria for Conflict Minerals in Mobile Phones Required: Conflict minerals public disclosure Optional: Conflict minerals sourcing Optional: Participation in conflict mineral responsible sourcing program Not limited to SEC issuers 19

What s Next? 20

Questions? Thank you! Paul Hagen Principal phagen@bdlaw.com 202.789.6022 Lauren Hopkins Principal lhopkins@bdlaw.com 415.262.4013 This presentation is not intended as, nor is it a substitute for, legal advice. You should consult with legal counsel for advice specific to your circumstances. This presentation may be considered lawyer advertising under applicable laws regarding electronic communications. 21