Conflict minerals

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In 2015, we continued working to achieve a supply chain free of minerals mined and processed in the conflict regions of the Democratic Republic of the Congo.

Throughout 2015, IBM and other members of the Electronic Industry Citizenship Coalition (EICC), in conjunction with over 300 companies from seven business sectors, continued working to achieve a supply chain free of conflict-originated Democratic Republic of the Congo (DRC) minerals. IBM participates in the Conflict-Free Sourcing Initiative (CFSI) industry group, where interested companies participate in working to resolve challenges associated with this issue.

Relating to the DRC, four minerals (tantalum, tin, tungsten and gold) are considered conflict minerals. With proper care, however, market access for legitimate sources of supply from within the DRC is possible to support a compliant supply chain. Like the majority of companies using these four materials, IBM is not a direct purchaser of conflict minerals and is four to six tiers downstream from the smelters or refiners of such minerals. As a result, we rely on processes developed by the CFSI and on information received from our in-scope direct suppliers relating to sources of supply.

IBM’s conflict minerals program is executed by a dedicated team of experienced supply chain professionals within the IBM Global Procurement organization. The Conflict Minerals Program team structure reports into IBM’s vice president and chief procurement officer. Relative to IBM’s use of conflict minerals, the following products designed and manufactured by IBM are within the scope of our conflict minerals work:

Servers

A range of high-performing systems designed to address capacity, security, speed and compute power needs for businesses, organizations and technical computing applications. The portfolio includes z Systems and Power Systems.

Storage

Data storage products and solutions that allow clients to retain and manage rapidly growing, complex volumes of digital information. The portfolio consists of a broad range of software-defined storage solutions, flash storage, disk and tape storage solutions.

Microelectronics

In 2014, IBM announced a definitive agreement to divest its microelectronics business and manufacturing operations. This transaction closed in 2015 with GlobalFoundries. Prior to the closing, all conflict mineral activities associated with the supply chain were included in our 2015 work. Consistent with the divestiture, IBM provided GlobalFoundries with training and records to enable them to continue working with the supply chain on conflict minerals.

In 2015, our results reflected the work of the past five years in preparing for the reporting documentation required to be filed with the U.S. Securities and Exchange Commission under the Dodd-Frank Wall Street Reform and Consumer Protection Act, section 1502; specifically, the Specialized Declaration Form (Form SD) and related Conflict Minerals Report.

IBM’s due diligence measures for conflict minerals conform to the framework set forth in the Organisation for Economic Co-operation and Development (OECD) Due Diligence Guidance for Responsible Supply Chain of Minerals from Conflict-Affected and High-Risk Areas. Our work to date can be summarized in four categories: establishing a supply chain standard for conflict minerals; performing a Reasonable Country of Origin Inquiry (RCOI) regarding the potential sources of conflict minerals in our products; performing due diligence by surveying our in-scope direct suppliers using the CFSI Conflict Mineral Reporting Template (CMRT) to ascertain the smelters or refiners present in the supply chain, and working with those smelters and refiners to gain their engagement in the Conflict-Free Smelter Program (CFSP) or equivalent programs.

IBM’s conflict minerals standard outlines our recognition of the importance of this issue and our plans to take definitive steps to keep conflict-sourced materials out of our extended supply chain. This standard is posted on our Global Procurement website and has been brought to the attention of our upstream suppliers through multiple avenues of communication.

We have repeatedly conducted our RCOI regarding potential sources of conflict minerals and concluded in good faith that — in the absence of complete visibility to the sources of these materials within our extended supply chain — IBM would need to conduct due diligence regarding its supply chain to better understand the sources of these four materials.

To determine information about its upstream sources of the four materials, IBM used multiple iterations of the CFSI CMRT with its in-scope direct suppliers. The CMRT was developed to provide companies with a common format for their upstream suppliers to identify the use of the four materials, the smelters or refiners used in the extended supply chain and, where possible, the country of origin of the four minerals. In the fourth quarter of 2015, IBM deployed the CMRT to 205 in-scope suppliers representing greater than 85 percent of our total supply chain expenditures for our covered products. We received responses from 100 percent of the 205 suppliers and learned the identities of 295 upstream tantalum, tin and tungsten smelters, and gold refiners, located in 38 countries and used by our direct suppliers. (The number of smelters or refiners increased from 264 the prior year as our suppliers reported a higher number of upstream entities in their CMRTs and additional entities were approved as eligible smelters by CFSI.) The specific names and locations of these smelters or refiners can be found in IBM’s 2015 Conflict Minerals Report. Illustrating the interest that companies have in conflict minerals, during 2015 IBM shared its own consolidated CMRT with 52 customers in support of their work on this topic.

IBM and members of CFSI are working together to identify, vet, converse with and lead the entire portfolio of member-identified smelters and refiners to participate in the CFSP. The CFSP was created for smelters and refiners that play a crucial role in the extended supply chain, as they are the point at which concentrated ores are refined into the higher-level materials that cascade into technology products. CFSP frequently updates its online list of conflict-free smelters and refiners, and as of June 2016 has identified 46 tantalum smelters, 59 tin smelters, 34 tungsten smelters and 83 gold refiners. Included in the CFSP listing are smelters and refiners with CFSP cross-recognized conflict-free standards from the gold industry; in the spirit of collaborative work, IBM accepts these as proof of conflict-free stature.

By comparing the IBM-identified smelters and refiners to the CFSP list, we determined at the end of 2015 that 73 percent of the smelters and refiners identified by our upstream suppliers were conflict-free (up from 49 percent at year-end 2014), with 100 percent of the tantalum smelters, 73 percent of the tin smelters, 67 percent of the tungsten smelters and 66 percent of the gold refiners in IBM’s supply chain conflict-free. Including smelters and refiners in the CFSP process, 86 percent are either conflict-free or waiting for their assessment.

Another aspect of our efforts to drive change is direct interaction with smelters and trade groups that are associated with the processing of these materials. Our global conflict minerals team works in association with the CFSI smelter engagement team to contact smelters and bring them into the CFSP process. In 2015, IBM along with other member companies of CFSI met with 12 smelters in China, Indonesia and the United States to advance their participation in CFSP. IBM also had a speaking engagement at the 2015 China Gold Forum in Shandong, where we presented material on the benefits of CFSP participation.

For more details on our overall conflict minerals work and plans to further our efforts, please see our 2015 Conflict Minerals Report.