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Nike Finds Instances of Conflict Minerals in Supply Chain

Companies may be doing their level best to keep conflict minerals out of the supply chain, but with visibility often lacking, suspect materials can find their way in.

Nike released a report Tuesday saying it had reason to believe materials used in some of its athletic footwear, apparel and equipment products were sourced in the Democratic Republic of Congo (DRC).

In short, the Security and Exchange Commission’s rule on conflict minerals—the Dodd Frank Act—requires that all publicly traded companies that use tantalum (found in electronics and watches), tin (can appear in zippers or fasteners), gold (at times used for plating zippers or in metallized yarns) or tungsten (sometimes used for high-end dyes but not necessarily in apparel or footwear), because it’s “necessary to the functionality or production of a product,” have to disclose the use.

Once concerns arose that trade in conflict minerals sourced from the DRC and neighboring countries was helping finance deadly conflict in the region, Congress added a provision to the act in 2010 requiring companies to note whether they use raw materials from the conflict countries.

The so-called Covered countries all share a border with the DRC and include: Angola, Burundi, Central African Republic, Rwanda, South Sudan, Tanzania, Uganda and Zambia.

Tantalum, tin, tungsten and gold aren’t necessary to production for the majority of Nike’s products, which means the company doesn’t have to disclose the use, but it chose to.

“We are filing this report because, after a reasonable country of origin inquiry, we had reason to believe that a portion of the 3TG [an abbreviated reference for conflict minerals] necessary to the functionality or production of some of the athletic footwear, apparel, and equipment products that we contracted to manufacture may have originated in the Democratic Republic of the Congo or its adjoining countries (collectively, the ‘Covered Countries’) and may not have come from recycled or scrap sources,” Nike said.

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The company stressed that it doesn’t buy 3TG directly from mines and it doesn’t have any manufacturing operations where products are subject to the conflict minerals rule.

“Our products are contracted to be manufactured for us. Our supply chain with respect to these products is complex,” Nike said. “There are many third parties in the supply chain between the ultimate manufacturer of the products containing Covered 3TG and the original source of the Covered 3TG. As a result, we must rely on our supply chain to provide information regarding the origin of Covered 3TG in our products.”

Having visibility into all tiers of the supply chain isn’t just a Nike problem, it’s an everyone problem. Retailers the world over are working on better ways to map their supply chains in order to have an idea of what’s actually going on and to try and maintain greater standards of compliance.

Nike did its due diligence to find out where the questionable materials came from and found that at least three smelters or refiners could have sourced the materials from the conflict countries. The company then followed up with its suppliers with training on the reporting requirements for 3TG and letters asking those who weren’t compliant to become compliant.

“We intend to continue to engage with our Covered Suppliers to obtain current, accurate and complete information about our 3TG supply chain, using the 2016 major revision of the CMRT [Conflict Minerals Reporting Template],” Nike said. “We also intend to continue to participate in the CFSI [Conflict-Free Sourcing Initiative] and the RILA Responsible Sourcing Work Group. On an annual basis, we plan to continue to contact non-conflict free compliant smelters and ask them to participate in conflict-free smelter certification programs.”