Jee-Ho Kang | Palladium - Jul 03 2019
What's in the Blue Box? Why Sustainability is Critical to the Future of Jewelry

Source: The Diamond Loupe

A rock made headlines recently when the Lesendi La Rona was discovered and deemed the second largest gem-quality diamond ever found. The diamond was mined from a Canadian-owned mine in Botswana, toured all around the world for months, purchased by the British diamond company Graff for $53 million, and spent 18-months going through a cutting and polishing process to bring it to market.

Rarely is the source and supply chain of a diamond so transparent, despite consistent calls by consumers for jewelry companies to produce more sustainable products.

Conflict Diamonds

In the early 2000s, the "Fowler Report" outlined how companies and governments have broken UN sanctions and largely caused the growth of an illegal diamond trade that fueled conflict in Africa. This led to the creation of the Kimberly Process Certification Scheme to prevent "conflict diamonds" from entering the market, forcing companies to avoid, even indirectly, financing violence.

In recent years, organisations have begun to realize that compliance to these standards is not enough.

Companies are beginning to see how effective sustainability practices are tied directly to their bottom line.

Tiffany & Co. is one such company, having seen disappointing sales growth in recent years that led to a leadership turnover in 2017. The new CEO, Alessandro Bogliolo, made it a priority to improve their sustainability practices because "it’s relevant nowadays for customers … Customers are very educated, mature, and demanding."

The company recently launched a program to help customers identify the country where the diamond was mined and is planning to expand the program to tracing the cutting, polishing, and setting by 2020. Tiffany & Co. also granted millions of dollars through its foundation to support social programs such as certification of artisanal miners and environmental restoration groups.

Tiffany & Co. recognised the need to do better, and by taking responsibility set an example that could help the rest of the industry evolve.

"As customers become more aware and more responsive to sustainable practices, it will be critical for companies to transform the way they incorporate sustainability – not just compliance – into their strategies."

Beyond Compliance

However, more value can be unlocked by going a step further; beyond compliance and beyond philanthropic donations through foundations. Companies can find innovative ways to link sustainability directly to their corporate strategy and create true inclusive growth.

The first step requires a deeper dive into a company's supply chain, identifying actors that are being underutilised and opportunities to transform the system.

For instance, artisanal and small-scale mining (ASM) has grown from 13 million people in 1999 to 40.5 million people in 2017. The livelihoods of approximately 150 million people are dependent on this type of mining. Within the industry, 80% of sapphires and 20% of gold and diamonds are mined through ASM.

ASM is often conducted by unskilled labor without formal guidance, and can lead to devastating impacts such as deforestation, land-stripping and overburden, air and water pollution from chemicals and erosion, and deadly working conditions. Considering how dangerous and environmentally destructive ASM can be, while simultaneously important to the industry and for millions of people, there’s a clear opportunity for more than just donation programs to certify artisanal miners. These small-scale miners are often left out of sourcing schemes and traceability programs of large reputable companies due to compliance risks and logistical challenges.

Formalising the ASM Sector

What if Tiffany & Co. were to expand its traceability scheme to show more than just the country where the jewels are sourced? What if the company could trace the origins to an individual miner? This would provide an opportunity to bring ASM workers into its formal supply chain if they can meet the strict standards the company requires.

To tackle the logistical challenges of bringing ASM into its supply chain, Tiffany & Co. could reallocate the funds currently set aside for philanthropic initiatives and instead invest them into programs that formalise the ASM sector. Programs such as workforce development and sustainable mining training for ASM workers could enable ASM communities to meet the company's strict sourcing and quality requirements. Individuals involved in ASM could be organised into broader cooperatives that could guarantee quality and sufficient bargaining power to raise incomes for cooperative members.

These links to build up the capabilities of the ASM workforce would lead to increased community engagement and development of the regions while providing the company with growth opportunities in both supply and sales.

On the sales side, the traceability of jewels to miners in ASM would be a powerful way to tell the sustainability stories that the company's customers are attracted to. On the supply side, an effective means to incorporate ASM into the supply chain would be a game-changing strategic move at a time when management understands the eventual shortage of quality diamonds due to rising industry demand and slow development of mines.

The jewelry and mining industry has come a long way since the world was shocked by conflict diamonds twenty years ago. Jewelry companies are feeling the pressure to improve their sustainability practices based on how consumers, especially younger generations, are choosing to spend. As customers become more aware and more responsive to sustainable practices, it will be critical for companies to transform the way they incorporate sustainability – not just compliance – into their strategies.

Jee-Ho Kang is a member of Palladium's Commercial Innovation practice, which empowers clients and their stakeholders across industries to unlock unparalleled value. The team designs, builds, and implements Inclusive Growth solutions through capabilities in Strategy Execution, stakeholder identification and management, transformative supply chains, and social impact.

Attend the "Kaplan-Norton Strategy Execution Boot Camp: Positive Impact and the Execution Premium Process" to understand how your company can develop and execute a winning strategy with Inclusive Growth principles.

To learn more about Palladium's thought leadership in Inclusive Growth, read Palladium’s seminal Harvard Business Review article.