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News, Feature Stories, The Great Diamond Debate













Making the call for total transparency and trust

For reasons that are inherent to the nature of the product and the history of the industry, the diamond sector has long been seen as lacking transparency.

Key points

• One of the priorities of the Diamond Producers Association is establishing transparency in all diamond supply chains

• Large-scale diamond mining operations produce $US16 billion in socioeconomic benefits annually

• In regard to synthetic diamonds, consumers remain confused about both terminology and value

For decades, this did not much matter to consumers – and it even provided industry participants with opportunities to secure and protect their margins.

However, these days, all key stakeholders – including consumers and, critically, financial providers – demand an unprecedented level of transparency in exchange for their trust.

Providing that transparency has become a matter of survival for most businesses.

In 2019, in addition to our consumer-facing communications programs, the Diamond Producers Association (DPA) launched two important transparency initiatives: TOTAL-CLARITY and ASSURE.

Both are designed to increase confidence in our product and industry by providing independently verified information on important matters.

TOTAL-CLARITY is the first independent evaluation of DPA members’ collective socio-economic and environmental footprint. Representing a combined 75 per cent of world diamond production, DPA members operate 35 large-scale diamond mines on four continents and employ 77,000 people.

Trucost – a corporate advisory firm specialising in climate change, natural resource constraints, and broader environmental risks – collected thousands of data points from all operations over a two-year period.

It consolidated its findings in a report titled The Socio-economic and Environmental Impact of Large Scale Diamond Mining, which is available to read in full at diamondproducers.com. The report’s major finding is that DPA members collectively create net benefits totalling $US16 billion ($AU23.45 billion) per year, of which more than 80 per cent flows to local communities in the form of local procurement of goods and services, employment and payments to local and national governments.

Value for local communities
In other words, the $US25 billion ($AU36.6 billion) trade of polished diamonds generates about $US14 billion ($AU20.5 billion) of value for local communities, solely through associated mining activities; if included, the impact of diamond manufacturing would add even more to that amount.

This is an important finding: very few industries can boast the same redistributive power as the diamond industry.

Trucost also reported that DPA members pay their employees 66 per cent more than the average local wage, or five times the living wage, and that these employees’ working conditions are safer even when compared to the retail sector.

The report also assessed the environmental impact of large-scale diamond mining and found that almost 100 per cent is attributable to CO2 emissions, as arithmetically, biodiversity and land preservation programs offset land and water usage.

Emissions are equivalent to 160kg of CO2 per polished carat, versus about 60kg for a smartphone and more than 250kg for a laptop computer.

Trucost also gathered publicly available information about the energy use of laboratory grown diamond manufacturers and found that the energy use per carat is on average 37 per cent higher, while CO2 emissions are on average three times higher than those of natural diamonds.

This is because despite some claims to the contrary, laboratory-grown diamond producers do not use renewable energy.

As Walter Huhn, CEO Element Six – a division of De Beers, which manufactures synthetic diamonds for industrial applications – explains: “It is theoretically possible to synthesise diamond using renewable energy sources, but it is entirely impractical economically and environmentally.

“The problem is that the energy supply from renewable sources is inconsistent, and diamond synthesis requires a continuing, consistent energy supply throughout the synthesis process.”

The DPA’s purpose is not to labour the point that natural diamonds are more environmentally sustainable than lab-grown diamonds, and in fact this might change if and when some synthetic manufacturers move closer to hydropower sources. Instead, we make the call for transparent and verified information. As far as large-scale diamond mining is concerned, this information can be found at total-clarity.com.

We are satisfied that we have triggered synthetic manufacturers to investigate their own practices, which should result in greater transparency in the future.

Testing and transparency

The DPA launched another important program in 2019 under the theme of transparency and trust: our ASSURE Program supports trade participants in the selection of the most appropriate diamond verification instrument for their business.

It does so by providing independently tested performance measures for major testing machines available in the market.

This is fundamental because the assurance a diamantaire can give to their customers about the product they sell is only as robust as the testing equipment and processes used.

"We are satisfied that we have triggered synthetic manufacturers to investigate their own practices"

For the ASSURE program, we partnered with major industry experts from leading laboratories and contracted Underwriters Laboratory – a global certification company – to develop independent testing standards and protocols for assessing the functionality and performance of the diamond verification instruments available in the market.

To date, the program counts 16 ASSURE Partners and 23 instrument results are available in the ASSURE Directory, which can be found at diamondproducers.com/assure. Another 10 instruments are being tested for future publication.

The program is just six months old but it is a success, with over 10,000 trade visitors to the website to date and 1,300 unique trade visitors every month, demonstrating the jewellery industry’s appetite for high quality, independent information.

We are marking our samples to be able to provide verification instrument manufacturers with even more precise feedback about the performance of their equipment against different types of lab-grown diamonds.

This is a way to accelerate performance improvements.

Consumer confusion

Two key areas of consumer confusion remain, which also require higher levels of transparency, mostly in relation to the way lab-grown diamonds are marketed.

The first is terminology.

Following months of advising the US Federal Trade Commission (FTC) on the risks associated with the ambiguity of its guidelines and the change of diamond definition, the commission issued warning letters to eight synthetic diamond companies asking them to clarify their product disclosure.

At the same time, the FTC issued a very important clarification on its website about the need to place a qualifier immediately before the word ‘diamond’:

“The Jewelry Guides caution marketers not to use the name of any precious stone, including diamonds, to describe a simulated or laboratory-created stone, unless the name is immediately preceded by a clear disclosure of the nature of the product and that it’s not a mined stone.”

It is also noteworthy that the FTC Jewelry Guides continue to ban the use of the terms ‘real’ and ‘genuine’ to qualify laboratory-grown diamonds: “It is unfair or deceptive to use the word ‘real’, ’genuine’, ‘natural’, ‘precious’, ’semi-precious’ or similar terms to describe any industry product that is manufactured or produced artificially.”

Despite this, some lab-grown diamond brands continued to ignore these directions well into 2019; numerous organisations, including the Jewelers Vigilance Committee and the DPA, continue to bring this to the FTC’s attention.

The second area of consumer confusion is value.

Even though lab-grown diamond retail prices have fallen quite significantly and continue to do so, they remain very high when compared to their production cost; $US350 per carat for a 1-carat stone is the typical cost attributed to producing a synthetic diamond. That’s especially important when considering that they have no resale value.

So, what does that have to do with transparency and trust? Our research shows that most consumers are still confused about lab-grown diamonds, what they are and how to value them. In this kind of situation, consumers typically hold onto price as a proxy for value.

But when cost and price are so disconnected – for no good reason other than temporary lack of supply of larger goods and lack of consumer information – you know that it will not last.

That will leave many early adopters/purchasers deceived and potentially disenchanted with the whole diamond category.

Products that are supported by a strong brand may fare better at retail level, but the premium will go to the brand owner, not to the manufacturer, as the product supplied will be increasingly standardised and commoditised.

It is not clear how long it will take for synthetic diamond prices to stabilise; however, just as sure as there is gravity, as supply increases, prices will converge towards the marginal cost of production – which keeps reducing.

In other words, there is a window of opportunity to earn margins, but it will be at the expense of the consumer.

And that is never a good thing, because consumers have a long memory.

 

'The Great Diamond Debate' Contents » 

The natural diamond industry is facing disruption in every aspect
Sergey Ivanov, CEO of Alrosa
Don’t blame synthetic diamonds for the natural industry’s woes
Garry Holloway, founder of Melbourne’s Holloway Diamonds
Both sides of the diamond debate should verify their claims
Danielle Max, editor in chief IDEX Online

 

 

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ABOUT THE AUTHOR
Jean-Marc Lieberherr

CEO • Diamond Producers Association


Jean-Marc Lieberherr is CEO Diamond Producers Association. He has held senior positions at Rio Tinto, LVMH and Unilever.

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Wednesday, 29 January, 2020 10:51am
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