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Hope from the Heart of Darkness: How Dodd-Frank is Changing the Regulatory Landscape

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August 22, 2012Connie Prostko-BellBlog

This morning the SEC voted 3-2 to adopt rules regarding disclosure and reporting obligations with respect to the use of conflict minerals to implement the requirements of Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Although further review of the final rule is required, several significant elements jumped out during initial inspection, including:

  • The final rule requires filing of disclosures rather than the commenter requested ‘furnishing’;
  • Form SD will be due May 31 for reporting year January – December in response to comments;
  • No issuers will be exempt, no minimum threshold established.

Section 1502 of the Dodd Frank Act may possibly represent the most difficult compliance obligation yet faced by this generation of compliance and risk managers. We struggled with the CAA, we bent under TSCA, and we reeled at REACH. However even REACH compliance may prove to be a cake walk in the tea park compared to Dodd Frank.

As EH&S and compliance professionals, we are accustomed to doing work that matters, but while clean air is inarguably a critical human requirement and an environment free of toxic chemicals is both necessary and urgent, the problems that Section 1502 seeks to address may well be the single most profound and immediate calamity any of us will ever try to remedy in our professional lives.  Can paperwork defend the innocent against atrocity?  Does legislation enacted on the other side of the globe in any way improve the life of a child in bondage?  And are we actually doing more harm than good?  Many fear this legislative action will make things worse by creating a de-facto embargo and imperiling artesian miners and those who make a living supporting miners. I don’t know if Section 1502 is the right answer. And though I agree that we must do something, I am not a huge fan of action for action’s sake.

Whether or not it is it a legitimate strategy, tactically it is like standing under one of those confetti guns and trying to catch only the pink pieces on a spoon.  Implementation in a meaningful way is a daunting task: impractical at best, preposterous at worst and, as always, expensive. Estimates range from $9-16B (NAM) all the way up to $7.93B (Tulane University). Today’s SEC hearing did not present any other cost estimates.

Of course there are passionate opinions from both sides of the aisle. Some are compelled to outrage, others to vehement endorsement.  Motivations are often admirable, but sometimes less so. Of course the issue is political, financial and moral, which when mixed typically result in something bubbly and foul smelling (definitely do not spill on the rug). Many of the criticisms are legitimate (“… the rule will create an unworkable regulatory regime that will be exploited by bad actors and difficult to implement for honest market participants.” – Thomas P. Quaadman, vice president of the Center for Capital Markets Competitiveness, U.S. Chamber of Commerce). However, there does seem to be a lack of alternative solutions being proposed.

But even in this election year, where emotions and hyperbole rule the day, and Dodd Frank in its entirety faces an uncertain future, the considerable, admirable and heartening actions undertaken by industry will I hope serve as a model for who we are to become as a society. Command and control as a way of managing damage to the environment (including people) served a purpose and delivered results. But if we are to get to the next level, where we are truly not externalizing costs of any kind, then it will be because we choose to (where we see the long term benefits), not because we are forced to.  Leading companies have made real things happen such as EICC’s GeSI Smelter Certification program. This good work has happened ahead of any regulatory obligation. It is beautiful, even if the underlying strategy has challenges.

This industry driven activity has gained such momentum that even in the event Dodd Frank is modified under a new Administration, a palpable shift has occurred in the way American companies approach cooperating to manage their impacts and wield their influence.  Can you feel it?  I think it feels good.

Stay tuned!  We’re also talking about Dodd-Frank in the Ask the Experts column of the August edition of our newsletter, the 3E EH&S Express.