Conflict Minerals: Procurement Stress? Experience from Philips Jan-Willem Scheijgrond, Philips 24 October, Bern

What minerals? What sector? Tantalum (Ta) Tin (Sn) Tungsten (W) Gold (Au) In iedere auto zit 15 kg tin. In een PC een paar gram... Electronics includes not just ICT, but any electronic device such as automotive, household, etc Data sources from: 1 US Geological survey 2 GeSI report: http://www.gesi.org/files/20080620_ghgm_ser_metalstoelectronics.pdf 3 MakeITfair reports: http://makeitfair.org/the-facts/reports 4 Enough: http://www.enoughproject.org/publications/comprehensive-approach-conflict-minerals-strategy-paper 5 GHGm report: http://www.gesi.org/LinkC Electrical Non-electrical 2

Contract manufacturer / assembly Simplified supply chain for electronics Finished Product Mine Trader Smelter Component producer Contract manufacturer / assembly End-user Typically 7+ tiers between mine and end-user

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

Illustration of global tantalum supply chain Ten thousands of 1st tier suppliers globally Tens of Ta smelters globally

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

EICC and GeSI Approach to Conflict-Free Sourcing Finished Product MINE SMELTER/REFINERY OEMS ‘bagging & tagging’ Conflict Free Smelter Program Due Diligence

Philips’ Responsible Sourcing of Minerals Responsible sourcing of Minerals Program Due Diligence (OECD compliant) Risk based approach  360 risk suppliers EICC/GeSI template ID CFSP compliance Smelter list online Conflict Resolution Conflict Free Tin Initiative Indonesia Conflict Supply chain investigations with priority suppliers: Focus is on top 80% of purchasing spend, covering ~350 suppliers Suppliers requested to Investigate their supply chain for 3TG metals; Determine the country of origin (cascade request down to next tier suppliers if needed); Identify all smelters used in the supply chain to process these materials (cascade request down to next tier suppliers if needed); Fill in the results in the “EICC-GeSI Reporting Template” and send it back to Philips within 2 months (work with industry organizations EICC and GeSI to standardize approach); Philips uses responses from suppliers to answer customer request and for SEC disclosures. Prepare for Conflict Minerals Report and Audit 3rd party audit SEC Conflict Minerals Report

Due diligence at Philips – results Summer 2013 >300,000 products 10,000 suppliers 360 risk suppliers 158 smelters 40 CFS smelters ZERO conflict mines

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

The Conflict Free Tin Initiative with support of Dutch Government Finished Product Mine in Congo Exporter Smelter MSC (Malaysia Smelting Corp.) Solder manufacturer AIM Alpha End users Philips, Tata, Blackberry, Intel, Motorola Solutions Upstream: implement traceability mechanism Downstream: create a market with industry partners

CFTI: Travelling to the mine site

At the mine site 800 workers are working at the mine site Children and pregnant women are not allowed at the mine site.

‘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

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

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

What should EU do? Follow De Gucht’s six principles and… Philips’ position Comprehensive approach EU should function as neutral broker bringing all relevant stakeholders together Compatibility with existing approaches Only compatible with OECD guidelines, don’t repeat mistakes of DFA Do no harm Incentivize conflict resolution, such as CFTI Broad geographical scope Include all resource related conflicts Targeted approach Focus on smelters not on individual products No unintended consequences 6. EU to convince non-EU governments to adopt similar approach EU should function as neutral broker on “resource related conflicts” Bring together relevant parties / Analyze root causes of the conflict / Design roadmap toward resolution / Give each players their respective responsibilities Be compatible with OECD guidelines, don’t copy DFA mistakes Incentivize schemes as CFTI e.g. authorities stimulate via public procurement programs iso asking for certificates of guarantees of non-conflict Agree: include all conflicts DRC is not the only region where industry can have a positive impact Focus on smelters not on individual products approaches must be risk based, go beyond due diligence, and allow companies to focus there where they can have most impact EU to convince non-EU governments to adopt similar approach