Necessary to Functionality or Production

Under SEC Rule 13p-1, a conflict mineral is ‘necessary to the functionality or production’ of a product when it is intentionally included in the product and either (a) necessary for the product to function as intended (‘necessary to functionality’) or (b) required in the production process that creates the product (‘necessary to production’). Conflict minerals that are incidentally present in the product or that are contained in common materials (such as off-the-shelf components) where the manufacturer had no influence over their inclusion may not be considered ‘necessary.’

SEC Rule 13p-1; Exchange Act Release No. 34-67716 (August 22, 2012), pages 38–60; SEC Guidance CF Disclosure Guidance: Topic 5.

This determination is one of the most consequential in conflict minerals compliance: if conflict minerals are not ‘necessary’ to your products, you are not required to file Form SD. The SEC has stated that if a manufacturer did not exercise any influence over the inclusion of a conflict mineral in an off-the-shelf component, it may not be considered ‘necessary.’ However, if the manufacturer specified that the component must contain a certain material, or if the conflict mineral is intrinsic to the product’s function, it is likely necessary.

A furniture manufacturer uses fasteners containing trace tungsten from the alloying process. The tungsten is not specified or required for the fasteners’ functionality. Based on SEC guidance, the tungsten may not be ‘necessary’ to the furniture’s functionality or production, potentially excluding the company from Form SD requirements for tungsten.