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Conflict Minerals: Procurement Stress? Experience from Philips

Jan-Willem Scheijgrond, Philips24 October, Bern

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What minerals?What sector?

64%

36%40%

60% 70%

30%

Electrical Non-electrical

91%

9%

Tin (Sn)Tantalum (Ta) Tungsten (W) Gold (Au)

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Simplified supply chain for electronics

Typically 7+ tiers between mine and end-user

Finished Product

Mine Trader Smelter Component producer

Contract manufacturer

/ assemblyEnd-user

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Smelter is at key point in supply chain to enforce responsible purchasing

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Illustration of global tantalum supply chain

Tens of Ta smelters globally

Ten thousands of 1st tier suppliers globally

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Actions that need to be taken by US Stock-listed Companies for DF1502

Step 1: Do your

manufactured products contain

conflict minerals?

Step 2: Do the conflict

minerals originate in the

Covered Countries?

Step 3: If “yes”, then conduct due

diligence, and potentially provide a

Conflict Minerals Report

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‘bagging & tagging’

Conflict Free Smelter Program

Due Diligence

Finished Product

MINE SMELTER/REFINERY OEMS

EICC and GeSI Approach to Conflict-Free Sourcing

Philips’ Responsible Sourcing of Minerals

3rd party audit

Responsible sourcing of Minerals Program

Conflict Resolution1. Conflict Free Tin Initiative2. Indonesia Conflict

Due Diligence (OECD compliant)

1. Risk based approach 360 risk suppliers

2. EICC/GeSI template3. ID CFSP compliance4. Smelter list online

SEC Conflict Minerals Report

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Due diligence at Philips – results Summer 2013

>300,000 products

10,000 suppliers

360 risk suppliers

158 smelters

40 CFS smelters

ZERO conflict mines

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Conflict Free Smelters in Philips supply chainnumber of identified smelters per region (yes/no CFS compliant, total: 231)

Asia excl. China China Europe North America South America Others0

10

20

30

40

50

60

70

80

90

100

7680

1410

29

17 6

4 9

2

2

YesNo

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The Conflict Free Tin Initiativewith support of Dutch Government

Finished Product

Mine in Congo Exporter

Smelter MSC

(Malaysia Smelting Corp.)

Solder manufacturer

AIMAlpha

End usersPhilips,

Tata, Blackberry, Intel,

Motorola Solutions

Upstream: implement traceability mechanism

Downstream: create a market with industry partners

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CFTI: Travelling to the mine site

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At the mine site

• 800 workers are working at the mine site

• Children and pregnant women are not allowed at the mine site.

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‘bagging & tagging’

• Minerals are weighed and tagged at the mine site

• ID tags, quantities, prices, miner, trader, date, etc. are administered

• Data is entered in a database to enable traceability.

• Minerals without a tag cannot be sold

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Bags are sold to traders (negociants), who further filter the minerals

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The ‘comptoir’ further processes and exports the minerals to the smelter

What should EU do?Follow De Gucht’s six principles and…

De Gucht’s six principles Philips’ position1. Comprehensive approach 1. EU should function as neutral broker

bringing all relevant stakeholders together2. Compatibility with existing

approaches 2. Only compatible with OECD guidelines,

don’t repeat mistakes of DFA

3. Do no harm 3. Incentivize conflict resolution, such as CFTI

4. Broad geographical scope 4. Include all resource related conflicts

5. Targeted approach 5. Focus on smelters not on individual products

6. No unintended consequences 6. EU to convince non-EU governments to adopt similar approach