1 HaMada Street

Herziliya Pituach 4673335, Israel

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SolarEdge Technologies, Inc.

Conflict Minerals Report

For the calendar year ended December 31, 2016

 

1.  Introduction

 

SolarEdge Technologies, Inc., together with its wholly-owned subsidiaries (“SolarEdge” or the “Company,” “we,” “our” or “us”), has prepared this Conflict Minerals Report pursuant to Rule 13p-1 under the Securities Exchange Act of 1934 and the requirements of Form SD (collectively, the “Rule”).

 

 

We were founded in 2006 and began commercial shipments in 2010. As of March 31, 2017, we have shipped approximately 16.8 million power optimizers and 691,000 inverters. We estimate that approximately 427,000 installations, many of which may include multiple inverters, are currently connected to, and monitored through, our cloud based monitoring platform.

 

2.  Overview; Applicability of Conflict Minerals Rule to SolarEdge

SolarEdge has performed an internal assessment and determined that certain Conflict Minerals are necessary to the functionality or production of our products. Accordingly, for the purposes of this assessment, all of the products that were in production in the calendar year 2016 were considered (the “Covered Products”).

SolarEdge is several levels removed from the mining of minerals (Conflict Minerals or otherwise). We also do not make purchases of raw ore or unrefined minerals and make no purchases in the Democratic Republic of Congo (“DRC”) or an adjoining country (together, the “covered countries”). SolarEdge therefore has limited influence over the sourcing of the necessary Conflict Minerals in the products that it manufactures or contracts to manufacture (we sometimes refer herein to these products that contain necessary Conflict Minerals as “in-scope products”). In addition, due to its position in the supply chain, SolarEdge depends upon its suppliers for information concerning the origin of the Conflict Minerals contained in its in-scope products. However, through the efforts described in this Conflict Minerals Report, SolarEdge seeks to ensure that its suppliers source responsibly. Minerals including tantalum, tin, tungsten and gold (“3TG”) are classified as “Conflict Minerals” and are necessary to the functionality or production of certain products that we manufacture or contract to manufacture. As such, we are subject to the Rule with respect to those necessary Conflict Minerals. The Rule requires us to conduct in good faith a reasonable country of origin inquiry (“RCOI”) into those necessary Conflict Minerals to determine whether they originated in the covered countries or are from recycled or scrap sources. If, as a result of our RCOI procedures, we know that any of our necessary Conflict Minerals originated in a covered country and are not from recycled or scrap materials, or if we have reason to believe that our necessary Conflict Minerals may have originated in a covered country and have reason to believe that they may not be from recycled or scrap sources, then we are required to exercise due diligence to determine the source and chain of custody of such Conflict Minerals to conclude if they are DRC conflict free or not.

3.  Description of Product Identification and RCOI Processes

 

We have concluded that, during the 2016 calendar year, we have manufactured and contracted to manufacture products containing certain Conflict Minerals. As such, we conducted an RCOI process to determine whether any of the Conflict Minerals originated, or may have originated, in the covered countries and whether such Conflict Minerals originated from recycled or scrap sources.

 

We conducted an assessment to determine which of our direct suppliers may be providing components of our products that are likely to contain Conflict Minerals. We employed a collaborative process to identify the applicable list of components and suppliers to focus our efforts, consulting with members of our supply chain department including suppliers, senior management and other individuals familiar with the manufacturing and component sourcing processes. We verified with such personnel that the population of components and suppliers was complete and comprehensive for our 2016 products. We then identified the list of suppliers that we directly procured materials from (“tier one” or “direct” suppliers) to survey. This list includes suppliers that supplied components to our third-party equipment manufacturers on our behalf and those suppliers from whom we purchased components directly, all between January 1, 2016 and December 31, 2016.

We used a Conflict Minerals Reporting Template (the “CMRT” or the “Template”), which was developed by Conflict-Free Sourcing Initiative’s (CFSI) to facilitate disclosure and communication of information regarding smelters that provide material to a company’s supply chain. Our RCOI consisted of surveying tier one suppliers confirmed to have supplied products or components to us that contain Conflict Minerals that are used to manufacture our products.

SolarEdge identified 457 suppliers (the “Suppliers”) that provided components for products manufactured during the calendar year 2016. Of those Suppliers, SolarEdge’s outreach was to 391 Suppliers that provided components, parts or products that SolarEdge determined contained or potentially contained necessary Conflict Minerals. In connection with its scoping determination, SolarEdge reviewed product specifications, supply chain records and bills of material, made internal engineering and supplier inquiries, commissioned an independent third-party consultant and made use of other information known to it regarding the materials composition of its products.

 

4.  Reasonable Country of Origin Inquiry (RCOI)

As required by the Rule, SolarEdge conducted a “reasonable country of origin inquiry” with respect to calendar year 2016. Our outreach included 391suppliers (the “Suppliers”) that provided components, parts or products that SolarEdge determined contained or potentially contained necessary Conflict Minerals incorporated into products manufactured by us. In connection with this examination, SolarEdge reviewed product specifications, supply chain records and bills of material, made internal engineering and supplier inquiries and utilized other information known to us regarding the materials composition of our products.

In order to identify the source of those components, parts and products, SolarEdge sent letters to its suppliers, informing them of the Rule and SolarEdge's policy on Conflict Minerals, asking them to comply with the Rule. We also requested suppliers to use the last CMRT revision for their compliance declaration (version 4.01 or later version) as a method to query and transmit sourcing information along the supply chain. The CMRT includes questions regarding a company’s conflict-free policy, engagement with its direct suppliers, and a listing of the smelters the company and its suppliers use. The total number of Suppliers who delivered satisfactory CMRT was 276.

We compared the smelters and refiners identified in the surveys against the lists of facilities which have received a conflict free designation by the Conflict-Free Smelter Program (“CFSP”), a program of CFSI, or other independent third-party audit program. We rely on the CFSP as an independent third-party audit solution through which mineral sources are identified and independently evaluated.

When Suppliers provided us with chain surveys containing incomplete or potentially inaccurate information, we followed up with such Suppliers to seek additional clarifying information. Unresponsive suppliers were contacted on a regular basis both by email and manual outreach.

 

Pursuant to the Conflict Minerals Rule, based on the results of its reasonable country of origin inquiry, SolarEdge was required to conduct due diligence for 2016. Because we were unable to identify the source of all products in our supply chain, our reasonable country of origin inquiry utilized the same processes and procedures as our due diligence. These processes and procedures are described below.

 

Due Diligence

 

Design of Due Diligence

 

 

Due Diligence Performed

 

Step 1: Establish Strong Company Management Systems

 

 

As part of our policy, SolarEdge is committed to respect human rights and the environment in accordance with accepted international conventions and practices, and we strive to ensure that all materials used in our products come from socially and environmentally responsible sources.

We communicate our policy to our suppliers and it is available at: http://media.corporate-ir.net/media_files/IROL/25/253935/SolarEdge_CM%20Policy_comments_%20v7%20clean.pdf (the “Conflict Mineral Policy”). In addition, in support of our compliance efforts, we have established a steering committee for enforcement of this Conflict Mineral Policy. The steering committee team consists of senior staff under SolarEdge’s legal department, supply chain management group and core technologies. The team members have been made aware of the Conflict Minerals Rule, the OECD Guidance, SolarEdge’s Conflict Minerals Policy and governance charter and have established SolarEdge’s procedures for reviewing and validating supplier responses to its inquiries.

 

SolarEdge also utilizes an outside consultant to advise it on certain aspects of its compliance, as well as a third-party software provider to enhanced supplier data collection process and help minimize responsible sourcing risks.

 

The following steps have also been adopted:

 

1.          Implementing a system of controls and transparency over the mineral supply chain through the use of the CFSI reporting template.

2.          Maintaining records relating to our Conflict Minerals program for 5 years.

3.          Implementing standard contract language requiring suppliers to agree to timely respond to answer, and conduct an appropriate due diligence inquiry following, any request by SolarEdge for information on any goods delivered containing Conflict Minerals, as defined under the Rule.

 

Step 2. Identify and Assess Risks in the Supply Chain

 

To assist us with our supply chain due diligence, we engaged a third-party consultant for conducing outreach to our Suppliers and archiving responses from Suppliers. We conducted a supply chain survey requesting direct suppliers to identify smelters and refiners and country of origin, through use of the Template.

We, in conjunction with our third-party consultant, reviewed our entire known component and outsourced manufacturing supply chain for the calendar year 2016, which consisted of approximately 457 suppliers. Our outreach included 391Suppliers that provided components, parts or products that were determined by SolarEdge to contain or potentially contain necessary Conflict Minerals and that were incorporated into products manufactured by us. The responses were reviewed against criteria developed internally and, where necessary, we reached out for further engagement and to receive additional information from our suppliers. These criteria included untimely or incomplete responses, as well as inconsistencies within the data reported in the Template. We worked directly with these suppliers to receive revised responses.

 

Step 3. Design and Implement a Strategy to Respond to Identified Risks

 

If a completed CMRT indicates a smelter or refiner, SolarEdge reviews this information against the Standard Smelter Names tab of the CMRT and the lists of “compliant” and “active” smelters and refiners published by the CFSI. If an indicated smelter or refiner is not listed on the Standard Smelter Names tab or the Commerce Department List or listed as compliant by the CFSI, SolarEdge requests the assistance of the supplier or contacts the listed entity to attempt to determine whether that entity is actually a smelter or refiner, the mine or location of origin of the Conflict Minerals processed by the smelter or refiner and whether it is known to obtain Conflict Minerals from sources that directly or indirectly finance or benefit armed groups in any of the Covered Countries.

 

SolarEdge reports back to senior management, summarizing our risk mitigation efforts.

 

Step 4. Independent Third-Party Audit of Smelter/Refiner’s Due Diligence Practices

 

SolarEdge does not have a direct relationship with 3TG smelters and refiners. As a result, SolarEdge does not perform direct audits of these entities within its supply chain, but rather relies on due diligence performed by organizations such as the CFSI.

 

Step 5.  Report Annually on Supply Chain Due Diligence

 

SolarEdge files a Form SD and, to the extent required, a Conflict Minerals Report, with the Securities and Exchange Commission and makes these filings publicly available on the Company’s corporate website at http://media.corporate-ir.net/media_files/IROL/25/253935/Conflict_Minerals_Report.pdf.

Results of Assessment

 

Based on the information obtained through the due diligence process described above, we do not have sufficient information to determine the products containing Conflict Minerals and/or the country of origin of the Conflict Minerals in those products and/or the facilities used to process Conflict Minerals in those products.

Tracing minerals back to the mine of origin is a complex aspect of responsible sourcing in our supply chain. By adopting methodology outlined by the CFSI’s joint industry programs and outreach initiatives and requiring that our Suppliers conform with standards that meet the OECD guidelines and report to us using the Template, we have determined that seeking information about 3TG smelters and refiners in our supply chain represents the most reasonable effort we can make to determine the mines or location of origin of the 3TG in our supply chain and responses to such inquiries represent the most reasonable source information available. Through this industry joint effort, we have made reasonable efforts to make a reasonable determination of the mines or locations of origin of the 3TG in our supply chain. We were unable, however, to ascertain the specific country of origin and/or chain of custody of all necessary Conflict Minerals processed by the facilities that contributed to our Covered Products.

 

SolarEdge approached 391 suppliers.  Out of these:

Number of suppliers who replied (response rate): 297 (75.9%). Out of these:

Number of suppliers who provided data at a company level: 170 (43.5%)

Number of suppliers who provided data at a product level: 65 (16.6%)

Number of suppliers which were classified as "Free no 3TG": 54 (13.8%)

Number of suppliers which were classified as "DRC conflict free" (from DRC, all SORs are certified): 143 (36.6%)

Number of suppliers which were classified as "DRC, due diligence not yet completed": 11 (2.8%)

Number of suppliers which were classified as "Not from DRC due diligence not yet completed":  8 (2.0 %)

Number of suppliers which were classified as "Not from DRC not all smelters are certified": 21 (5.4%)

 

Smelter and Refiner list attached as Annex A as well as in the Country of Origin Information attached as Annex B.

 

 

 

 

 

 

Improvement to Mitigate Risks

 

As we further develop our due diligence program, we intend to enhance supplier communication and escalation processes to improve due diligence data accuracy and completion and continue to influence additional smelters to be designated as “conflict-free”, where possible. To the extent we are not able to determine in the future that we are sourcing from non-conflict free smelters we plan to move toward using Conflict Free smelters within a reasonable time frame. We also intend to request of any of our suppliers that we have reason to believe are supplying us with 3TG from sources that may support conflict in the Covered Countries, that they establish an alternative source of 3TG that does not support such conflict, as provided in the OECD guidance.

 

We understand that supply chain Due Diligence is a dynamic process and requires on-going risk monitoring. Therefore, after implementing our risk mitigation strategy, SolarEdge intends to go back to Step 2 of the OECD guidelines to ensure effective management of risks.

 

Cautionary Note on Forward-Looking Statements

 

This Report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and other federal securities laws. Investors are cautioned that statements in this Report that are not strictly historical statements, including without limitation, SolarEdge’s intentions and expectations and future results regarding further supplier engagement and risk mitigation efforts and strategy, constitute forward-looking statements that involve risks and uncertainties. Actual results could differ materially from the forward-looking statements. Risks and uncertainties that could cause actual results to differ include, without limitation, risks and uncertainties associated with the progress of industry and other supply chain transparency and smelter or refiner validation programs for Conflict Minerals (including the possibility of inaccurate information, fraud and other irregularities), inadequate supplier education and knowledge, limitations on the ability or willingness of suppliers to provide more accurate, complete and detailed information and limitations on SolarEdge’s ability to verify the accuracy or completeness of any information received from Suppliers or others.

 

 

Annex A

 

Smelter and Refiner list