Due Diligence Framework

Step 1

Baker Hughes is establishing strong company management systems of control and transparency over our supply chain due diligence to facilitate:

  • An on-going commitment to a supply chain policy for minerals originating from conflict-affected areas. The Conflict Minerals Policy for Baker Hughes may be accessed at the link below.
  • A process to map and create transparency into the conflict minerals supply chain, and to retain related records for a minimum of five years.
  • Strengthening engagement with our suppliers.

Baker Hughes has established a cross-functional team to address the challenge of conflict minerals in the supply chain. This Baker Hughes enterprise team is led by Global Supply Chain and is supported by the members of Corporate Finance, Materials, Engineering, Quality Assurance, Investor Relations, Internal Audit and Legal teams. A clear target has been established for supplier due diligence reporting. This team is responsible for working with suppliers as well as tracking progress, reporting and achieving the target.

In 2013, we formulated and published the Baker Hughes Conflict Minerals Policy. We expressly encourage our suppliers to adopt and enforce a similar code of practice and to have their subcontractors do so, and will incorporate appropriate language into our standard terms and conditions. We also plan to provide guidance on supply chain due diligence and sourcing from conflict-affected areas in our Supplier Conflict Minerals Web Site. Our engagement with suppliers may include:

  • An annual survey of their sourcing of conflict minerals and compliance with Baker Hughes policies and procedures.
  • Requests for documentation of compliance with Baker Hughes policies and procedures, as applicable.
  • Follow-up one-on-one engagement as needed.
  • Periodic informational communications and a permanent web-based document library regarding laws and regulations affecting conflict minerals sourcing and the Baker Hughes-supplier relationship.
  • Training and help desk support for suppliers regarding conflict minerals.
  • Maintaining a method by which suppliers may voice grievances and concerns regarding conflict minerals policies and practices, accessible through the Baker Hughes Conflict Minerals web site for suppliers.

In addition to encouraging our suppliers to adopt and enforce a code of practice similar to the Baker Hughes Conflict Minerals Policy, we plan to include explicit terms in all of our contracts with suppliers which require compliance with our stated policies, full responses to all requests for supply chain information and flowdown of all requirements to their suppliers. We may engage with our suppliers on the topics of policy and management systems through our strategic supplier framework. Our ongoing work with these suppliers includes the development or enhancement of supply chain sustainability management.

Step 2

Baker Hughes has begun identifying and assessing risk in the supply chain by:

  • Examining our entire catalog of products and services, to identify those products which potentially contain conflict minerals and are subject to the Act.
  • Conducting an in-depth review of the identified products, to eliminate those products found not to contain conflict minerals or to which the legislation does not apply.
  • Identifying the suppliers which furnished raw materials or components used in the production of the remaining identified products.
  • Utilizing a system of controls and transparency over our conflict mineral supply chain by requesting from identified suppliers information on their sourcing of relevant minerals, including information gathered by first-tier suppliers about their own supply chains.
  • Requiring all new suppliers to complete a conflict minerals survey as part of the on-boarding process.
  • Identifying, to the best of our ability, the smelters/refiners in the supply chain, and assessing their due diligence processes for sourcing minerals from conflict-affected and high-risk areas.

Our process for identifying suppliers for which the Act does not apply includes the categorical exclusion of Baker Hughes offerings not affected by the legislation, including chemicals, services only, rental equipment, and packaging used in the shipment of products. By doing so, we limit our focus to relevant suppliers.

Beginning in 2013, we will ask that relevant global production supply base to identify the use of tantalum, tin, tungsten, gold and their derivatives and report that use into a central database. We plan to utilize the internationally recognized standard survey, commonly referred to as the “EICC/GeSI template”. Based on responses to the survey, we will then assess risk in the supply base for the use of the materials and prioritize follow-up with suppliers for further information. Our expectation for 2013 is that suppliers continue to track and improve material content reporting for conflict minerals compliance requirements while also gathering relevant information from their suppliers, as well. A red flag system will be applied based on materials reporting (or lack thereof), and the system will evolve as the scope of information collected from suppliers grows.

In assessing smelter/refiner due diligence processes for sourcing materials from conflict areas, we plan to use leverage information gathered through internationally recognized certification and monitoring programs.

Step 3

Baker Hughes will design and implement a strategy to respond to identified risks, to include:

  • Reporting risk assessment findings to senior management, devising a risk management plan, and undertaking additional fact and risk assessments for risks requiring mitigation as circumstances change.
  • Implementation of the risk management plan, whereby the conflict minerals team will monitor and track performance of risk mitigation, report progress to senior management, who will consider re-evaluation of continued business with suppliers that do not comply with the stated Baker Hughes policy regarding conflict minerals.

We understand our assessment of risk will be a continuous and evolving process as more information is made available to us by our suppliers and from all parties involved in internal validation along our supply chain routes that may ultimately lead to our finished products. Therefore, our strategy is purposely dynamic, to allow for continued development and improvement. Given the scope and complexity of the issue, it is also a balanced strategy that relies on both Baker Hughes and collective industry action to maximize impact. Additionally, Baker Hughes will look to outside initiatives – such as The Public-Private Alliance for Responsible Minerals Trade, the Conflict-Free Smelter Program, and industry groups – as they work toward building a process for sustained responsible mineral sourcing throughout the supply chain. These combined activities will appropriately address identified and anticipated risks.

Our risk assessment efforts may include:

  • Transmittal of a notification letter to those suppliers who provide to Baker Hughes materials or components potentially containing conflict minerals, informing them of our request that they complete a conflict minerals questionnaire and submit supporting documentation as appropriate.
  • Follow-up with those suppliers who do not reply, or who provide incomplete or inconsistent information or documentation.
  • Analysis of information and documents provided by suppliers, to identify suppliers who are non-compliant with Baker Hughes Conflict Minerals Policy.
  • Notification to suppliers that Baker Hughes will evaluate the continuation of relationships with those suppliers who do not conform to compliance with Baker Hughes Conflict Minerals Policy.

Step 4

Baker Hughes anticipates leveraging independent third-party audits of supply chain due diligence at the smelter/refiner level in the supply chain.

To fully understand the possible presence of conflict minerals in products and processes, it is critical to identify upstream and downstream portions of the supply chain from the central “pinch point” – the smelter or processor. The OECD conflict minerals due diligence framework recommends that downstream companies such as Baker Hughes be responsible for identifying the smelters used in the supply chain and ensuring that those smelters are appropriately certified as sourcing minerals that have not financially supported conflict. Baker Hughes supports programs and initiatives, which identify, audit and certify smelters that process mineral ores that do not directly or indirectly benefit armed groups in the Conflict Area. It is our intention to encourage suppliers to use only metals that have been procured through a conflict-free mineral supply chain.

Step 5

Report on supply chain due diligence efforts to responsibly source minerals from conflict-affected and high-risk areas, by:

  • Setting out Baker Hughes’ supply chain due diligence policy; and explaining the management structure responsible for the company’s due diligence and who in the company is directly responsible for executing the due diligence process.
  • Publishing the audit reports of Baker Hughes due diligence practices.

We will continue to refine and improve our processes for implementing the necessary due diligence on conflict minerals. As we work with our suppliers and other key stakeholders on this issue, we will continue to implement the Five-Step process. The final step in our due diligence process is reporting annually on our due diligence.

Baker Hughes anticipates that performing this due diligence process may result in the determination that suppliers sourced minerals that are not conflict-free. We plan to encourage those suppliers, utilizing the measures outlined above, to comply with our stated conflict minerals policy. We also anticipate that we may identify smelters/refiners who are not certified as processing only conflict-free minerals. To the extent possible, we plan to directly, or indirectly through our supply chain, encourage those smelters/refiners to seek certification through one or more of the programs or initiatives identified above; alternatively, we plan to discourage the sourcing of smelted or refined minerals from these smelters/refiners within our supply chain.