SEC conflict mineral rules hit building industry

James Vallette | August 30, 2012 | Newsletter

Some publicly traded building product manufacturers, beginning in 2013, will be required to report on the presence of tin, tantalum, tungsten, and gold in their products.   In a 3-2 vote last week, the US Securities and Exchange Commission adopted final rules that implement disclosure requirements for “conflict minerals.” These rules are required under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Public companies will have to take certain actions if these metals are “necessary to the functionality or production of a product.”  The final rule says companies must conduct an inquiry to determine whether the metals originated in the covered countries (the Democratic Republic of the Congo and adjoining countries). If the materials are not recycled or scrap, and the origin was either the covered region or can not be determined, the company must file annual reports with the SEC, and make a Conflict Minerals Report available on its website. 

Loophole

As I reported in February, the Society of the Plastics Industry told the SEC that this rule should not apply to catalysts used in the production of polyurethane, PVC, and other plastics.  At first glance, they seem to have won that argument.   

The SEC’s ruling includes this statement: “We do not consider a conflict mineral ‘necessary to the production’ of a product if the conflict mineral is used as a catalyst, or in a similar manner in another process, that is necessary to produce the product but is not contained in that product.” 

This makes no sense. In the same sentence, the SEC says catalysts that are “necessary to produce the product” are not “’necessary to the production’ of a product.”  And the reality is, metal catalysts – including tin-based catalysts – routinely wind up in final products as residual content.  

Direct ingredients covered

The SEC’s final rule more clearly applies to manufacturers who deliberately add tin compound to their product formulations. In the building industry, dibutyltin dilaureate is an ingredient in some isocyanate-based adhesive and insulation products.

And many vinyl flooring manufacturers add organotin stabilizers to their products.  In 2010, the nonprofit Ecology Center tested sixty-one vinyl flooring tiles, and found organotin stabilizers in almost two-thirds (64%) of them. 

Socially responsible investors react

Manufacturers may balk at the extra diligence required by this rule, but responsible sourcing advocates see the rule as an incomplete, but groundbreaking, move toward corporate accountability.

Bennett Freeman of Calvert Investments said, “While the disclosure provided by the rule is not as extensive as we had hoped, nonetheless investors will be able for the first time to assess one of the most critical human right-related risks they face in the world.” 

This is also one of the first human rights rules to reach the very building blocks of the building industry. It will be fascinating to see how this unfolds in the coming years.

At the Healthy Building Network, we are disappointed in the loopholes that the SEC leaves for catalysts and other process chemicals. However, this final rule still represents a huge advancement in tying material selection policies to human rights issues.