Why More Companies Want to Know Exactly Where Their Materials Come From

In the last year, we have heard a lot of talk about industry players developing traceable “chains of custody” for the raw materials in their jewelry. The Responsible Jewelry Council has begun studying ways to “certify” companies’ supply chains. But this is about more than just one group. Rapaport is looking at this too. De Beers’ Forevermark requires all its manufacturers prove their diamonds are sourced from certain mines. And Tiffany just set up a site that includes extensive information about the origin of its products. And that’s not to mention the older initiatives, including the “Canadamark,” the Rand, and Walmart’s “traceable” Love Earth brand.   

With all this, we are now starting to see certain corners of the industry pushing back against these initiatives.  Some diamantaires worry about costs, and industry “middlemen” fear this is just another attempt, like Supplier of Choice, to cut them out of the supply chain.  Some think it’s not possible to trace a diamond’s origin for every size stone, and worry it will interfere with their ability to compose parcels and re-sort their goods. (For more on these complaints, see Edahn Golan’s column from last week, as well as this anti-RJC article from Chaim Even-Zohar, which is currently not behind a paywall.)

There are very real issues here, particularly the fears of the middlemen, and they will have to be looked at as these initiatives develop further.  (The RJC was unavailable for comment on any of these topics.) But for the moment, I would like to step back and discuss why so many big people have become interested in this, and why I feel more transparent sourcing is inevitable:

First, let’s look at where the industry is right now. It’s widely expected that the United Nations will next year lift sanctions against Ivory Coast diamonds. Which means there will be no official source of “traditional definition” conflict diamonds. That’s great, but let’s not break out the champagne. This industry still has problems—with violence happening around diamond areas in Angola, and of course, Zimbabwe. Efforts to expand the Kimberley Process mandate to address these issues have been, to say the least, problematic, with many now realizing that a consensus-based organization comprised of governments is not the best forum to settle these questions. 

So then, we must ask: What should companies do if they don’t want to be associated with certain sources of diamonds—especially now that the Kimberley Process has proven it can’t be the cure-all for the industry’s problems?

This isn’t just an ethical question, but a business one. Every one of us, particularly those of us in the United States, operates in a certain regulatory and public relations climate.  Where diamonds come from has been an issue for this industry for over a decade, and all signs point to the scrutiny increasing, from governments, from consumers, and from the media.

American jewelers have been put on notice that certain diamonds from the Marange region of Zimbabwe are illegal, due to U.S. sanctions. Chances are not much will be done about this, but, companies—public ones, especially—are always looking to minimize risk. They certainly don’t want to be selling prohibited goods, if they can help it. There is also the conflict minerals provision of the Dodd-Frank financial reform bill, which requires public companies to publicly disclose how they source certain minerals, including gold, as well as the current ban on Burmese rubies. You may think these laws are wrong-headed, but companies don’t have the option to disobey laws, as much as a few people in this industry sometimes seem to think otherwise.  

There is also the public relations and consumer environment. There hasn’t been much publicity about, say, human rights abuses around the diamond fields in Angola, but, again, a good company seeks to minimize risk, and get ahead of bad publicity instead of having to cope with it when it comes. The last thing we need is another situation where the good mines and people in this industry suffer as a result of the actions of the bad ones.

All of this means big retailers will in the future want to know exactly where their materials come from, and while suppliers may grumble about this, they will have to adjust. And I believe they will. 

I know not everyone is rushing to embrace this concept, and I certainly respect their opinions and will be discussing them further in future posts. Yes, there will be costs—but when I talked to the Forevermark, executives estimated that these systems only added a one to two percent cost onto the diamonds. Not a big deal in a year when diamond prices have risen over 20 percent. It may also be difficult, if not impossible, to provably track smaller stones. But remember, these programs are still getting off the ground. They aren’t likely to be perfect or all-inclusive right off the bat. That doesn’t mean they aren’t worthy, or won’t substantially improve on what we have now. 

In the end, there is a reason that smart companies—and no one denies, Walmart and Tiffany are smart companies—have lined up behind “chain of custody” programs. It’s not because they are charities; it’s because these programs make good business sense. They are, I believe, the future, and we should only expect more of them in years to come. 

JCK News Director