Transparency efforts are stepping up, and this is one of the best things that can happen to the diamond industry. These efforts can elevate the diamond industry both in the eyes of consumers as well and bankers, the two areas where diamonds are struggling most.
Over the past year, we have been hearing more and more about blockchain efforts in the diamond industry. These efforts are by well-known and established companies such as De Beers, upstarts with a view to the financial market, and a variety of other efforts that collectively include tracking diamond transactions through the diamond pipeline and making that data available in one way or another in their core plans. In a way, their business plan is less important, not because I’m indifferent, but because I believe that at this point in time how each particular venture intends to make money from the project is secondary to the collective wave of efforts to track diamonds.
Governments are also stepping up efforts to ensure more disclosure. It seems like a package deal – governments are willing to help the local diamond industries, but demand greater disclosure in return. These efforts include the agreement recently concluded in Israel: a change in the tax regimen and, in return, the opening of a disclosure track that allows diamond traders to reveal previously undisclosed transactions. The government gets more tax payments, and the erring diamond traders get peace of mind that allows them to retire after paying taxes and a reasonable fine, without having to constantly look over their shoulders and worry about a possible stiff sentence if they get caught.
A number of industry organizations are acting to bring transparency to the jewelry trade. RJC (Responsible Jewellery Council), for example, is an organization that sets standards for jewelry materials sourcing, as well as human rights, labor rights, environmental impact, mining practices, product disclosure and many other important topics in the jewelry supply chain. It certifies companies and stakeholders in the jewelry business to ensure that they meet the set standards. An example of this organization bringing transparency is their Chain of Custody standard. The one that deals with platinum and gold is a voluntary standard to create a chain of custody for precious metals that are responsibly produced, processed and traded through jewelry supply chains and that are third-party assured at every stage. The 2017 version of the standard for gold and platinum group metals continues to do this, and now includes clarifications and improvements on due diligence, eligibility of CoC material and harmonization with other standards.
The system works well. Gold mining, refining, and trading have gone through a deep transformation in the past few years. Currently there are ways to track gold through its value chain to ensure that the gold used in a jewelry item you see in a store was ethically sourced. The ‘ethically sourced’ guarantee elevated gold sales and serves as an example how other natural resources, such as diamonds, can be tracked and documented in such a way that it does not harm commerce and traders. On the contrary, it supports them by enabling consumers to buy gold jewelry with peace of mind. Clearly something that the diamond industry can leverage as inspiration.
High-end jewelry company Chopard intends to demonstrate that it is possible to fully adopt and implement ethical standard practices. It started to transfer its gold purchases to fully ethically-proven sources, and in July of this year will be fully ethically sourced. I highly recommend that you read their manifesto and learn about their sustainability and supply chain commitments.
Chopard received a great deal of very positive press for their decision on gold, which means that not only did they and their suppliers do something right and just, they also benefitted from it economically. We must all wonder how the precious metals pipeline succeeded in doing something that is far easier to do with respect to diamonds. And despite this, our industry has still not done so.
If the diamond industry adopts a way to track diamonds and clearly show consumers how diamonds move through the pipeline ethically, it will clear the path for consumers who have voiced concerns about the diamond pipeline to buy with confidence. If these initiatives are adopted, the banks will have a way to ensure that diamond movements through the value chain are clear, meeting Know Your Customer (KYC) requirements, which will allow them to provide financing to the diamond industry with the knowledge that the funds they provide are not misappropriated or misdirected – among the leading concerns banks have today when they consider finance facilities to diamond traders, wholesalers and manufacturers.
Whether we like it or not, we must harness the available tools, or create new ones, and find a way to bring greater transparency to the diamond industry. Many diamond traders reading these lines are possibly thinking to themselves, “Yes, but…” We are masters at identifying why something will not work, finding flaws and problems in every proposed solution. In my many years in the business, I have found that finding the flaws is easy, but does not advance my business. To make money, bold decisions are required. Moving forward with creativity, flexibility, and with a far-reaching plan works better. We need to think through the risks, not be shackled by them. Assess the risks and then find solutions; understand the economics of the plan and then execute a strategy. Doing the same old thing is not a strategy.
The diamond industry has great potential. We need to turn that potential into reality. This requires a new vision for diamonds. A completely new approach has to be based on a fully transparent market to gain the trust and understanding of the marketplace. This means everything from disclosing everything about the characteristics of the diamond, through how it was priced, to continuous and always available information on its current value. Consumer education about every parameter of a diamond and how each component of the diamond pushes the price up or down must be created and offered smartly so all understand the premise and the promise.
Knowledge is more important today than ever before, because differentiation and trust is at the heart of selling and pricing. This, of course, is true everywhere, not only when selling a polished diamond to the end user. We need consumers and banks to know – not believe, but to actually know – that we are acting in full compliance with the highest standards. For the world to know that we need to be transparent so they can see for themselves that we are not playing around. We mean it when we say we are ethical and are therefore embracing transparency.
If we add to transparency other essential components to doing business - education, marketing, and full disclosure –we will be able to succeed and thrive in the coming years.
The views expressed here are solely those of the author in his private capacity. No one should act upon any opinion or information in this website without consulting a professional qualified adviser.