Just as Covid-19 catalyzed the digital shift, the war in Ukraine could be the boost the industry needs to step up its responsible sourcing.
If in every crisis there is an opportunity, as Albert Einstein so aptly put it, Russia’s war in Ukraine offers the diamond industry the opportunity to adopt source verification programs.
The ability to track a diamond and assure consumers of its ethical origins may prove to be as much of a lifeline in the current crisis as digital was during the Covid-19 lockdowns. In fact, there are parallels in the relationship of trade to both trends.
Just as there was widespread skepticism that consumers would confidently buy diamond jewelry online, there are those who are unconvinced that source verification is possible to implement effectively, or that it is even necessary. Moreover, the digital and traceability channels were in development long before the respective crises which reinforced their relevance, which provided a solid foundation now that the trade needs them.
Before the pandemic, most wholesalers and retailers created online platforms as part of a branding exercise and to direct traffic to their physical locations. The shutdowns put e-commerce at the heart of their retail operations and accelerated the adoption of digital tools at retailer and consumer levels.
Similarly, industry has already put in place a framework for source verification systems, both through private initiatives and through industry bodies. However, uptake of these programs has been slow, as they require a significant shift in mindset and a change in the way the trade buys and markets its diamonds.
Lay the foundation
The industry’s desire to know the origin of its diamonds and to separate “kosher” products from less desirable products is not new. It dates back to the establishment in the early 2000s of the Kimberley Process (KP) certification system, which aimed to verify whether diamond production came from conflict-free areas. The problem with the KP – a government-run program – was that the tracking stopped with the crude. He also maintained a narrow definition of “conflict diamonds”: those that fund rebel movements involved in wars against legitimate governments. This meant that the KP continued to allow diamonds tainted with human rights violations or torture, including those from government-run operations.
To some extent, the Responsible Jewelery Council (RJC) has filled the void. Recognizing the shortcomings of the KP, the industry initiative has created an auditing system to establish ethical sourcing standards through its chain-of-custody program (which does not include diamonds) and Code of Custody certification. practices (who does it). It covered a wide range of issues within ethical sourcing, including human rights, labor rights and, more recently, issues such as environmental protection and gender equality in the workplace. of work.
In the early years, the so-called disadvantage of the RJC was that it audited companies rather than diamonds. But that seemed like the best solution available, as there was an apparent mental block in the trade regarding tracking individual stones.
This problem came to the fore between 2007 and 2011, when the KP failed to ban Zimbabwe after the government seized ownership of the Marange fields and killed around 200 people in the process, according to Human Rights Watch. While the KP had a mechanism to deal with rebel forces, it was not equipped to deal with ethical challenges beyond that scope – particularly abuses committed by a member government.
Industry parties had to follow the legal requirements of their respective jurisdictions. The United States has placed the owners of the Marange operations – including the state-owned Zimbabwe Consolidated Diamond Company (ZCDC) – on the Office of Foreign Assets Control (OFAC) sanctions list. This made trading Zimbabwe’s diamonds illegal in the United States, but they were still allowed in other regions, including China, India, Israel and the European Union. Trade therefore had to separate Marange products from others in its production and distribution circuits. But the cutters were skeptical at the time, arguing that it was nearly impossible to do so given the dynamic and hybrid nature of their operations and the diamond market in general.
In a position to act
Much has changed in the decade since. Technology has advanced exponentially and there are now mechanisms that can track diamonds both in the factory production line and in the wider market. The consumer and business landscape has also changed. There is greater awareness of environmental, social and governance (ESG) issues and corporate social responsibility (CSR) standards have increased. Consumers, businesses and regulators simply expect more from each other.
The diamond and jewelery industry is able to respond more effectively to the Russian crisis than to previous ones. Not only is it better equipped now, but there’s more at stake. While Marange had a relatively small production of mostly lower-grade rough, Russia accounts for around 28% of global production. This affects a larger number of consumers, who are likely to push back if they find out their diamonds are funding the war in Ukraine. Since the United States has placed Alrosa on the OFAC list and other countries like the United Kingdom are targeting Russian diamonds with their own sanctions, the industry has no choice but to fork its diamond supply.
It has the tools to do it: De Beers, the Gemological Institute of America (GIA), the blockchain company Everledger and the equipment manufacturer Sarine Technologies are among the major players who have developed traceability programs. Despite recent turmoil at the RJC over its belated response to Russia’s actions, the trade body has the structure in place to facilitate an ethical supply chain. He is busy building a community of like-minded and principled businesses throughout the pipeline.
Suppliers would do well to be part of this community. But creating an ethical supply chain also depends on buyers, whether it’s raw, polished or finished jewelry. Businesses need to know their suppliers and their suppliers’ suppliers and verify the origin of their goods. Only by buying responsibly can commerce sell ethically and turn the current crisis into opportunity.
Article from Rapaport Magazine – May 2022. To subscribe click here.