Strange Bedfellows: Diamonds, Blockchain and ESG
For more than a decade, the Kimberley Process is the de facto certification in eradicating blood diamond. As technology advances, more could be done to further complement the KP and strengthen the process.
You have visited a jewellery store online and a diamond ring caught your attention, curious as to how it will look on your hand, you make your way to the store to have a look at the piece. The diamond ring is of the highest quality: in terms of cut, colour and fire and brilliance; but when you ask about the origins of the diamond, the salesperson can’t give you a proper answer of where these gemstones were sourced from. They could very well be blood diamonds — mined in an area where there is war or fighting, and are sold to fund armed conflicts.
To curb the proliferation of blood diamonds and its associated impact, a certification process was introduced in 2003: The Kimberley Process (KP). It is a multilateral trade regime put into commitment by governments, civil society and the wider industry, with the goal of preventing the flow of conflict diamonds. At the core of the process is the Kimberley Process Certification Scheme (KPCS), under which countries implement safeguards on shipments of rough diamonds and certify them as “conflict free”.
About 99.8 per cent of the global supply for diamonds now sourced from the participating countries, and this proves to be an effective bulwark against the transaction of these illicit diamonds. Luxury jewellers like Tiffany & Co, Cartier, Bvlgari and Harry Winston are all compliant with the KP but that doesn’t answer the question regarding the origins.
While the KP is comprehensive, it has flaws that could invite questions regarding the legitimacy of such a process. Firstly, smuggling activities are the top disruptor to the efforts in combating blood diamonds. A non-participatory country could illegally export their illicit diamonds to participating countries. Over at the other side, the rough diamonds will be cut and polished which substantially transforms the quality of it. For example, a rough diamond from a conflict area, once polished in either Belgium or the United States, these countries become the country of origin. This means, the “conflict quality” is removed and the diamonds are allowed to be part of the supply chain, eventually making its way to the hands of the buyers as jewellery pieces.
Furthermore, under the KPCS batches of rough diamonds are verified and not individual stones, hence there is a lack of an even more thorough tracking system as these batches could be contaminated by smuggled diamonds. So, is the KP system truly the best for the jewellery industry that is set to be worth US$480 billion by 2025? There has to be a solution to improving the tracing process and these large jewellers have to be quick else they lose customers who are increasingly more discerning with their purchases.
Don’t get us wrong, the KP still serves as an important component in filtering out potential erroneous diamonds. However, it could be complemented with the latest technology to close the loophole. Enter blockchain. Basically, this technology is highly secured and permanent and allows for a record of transactions for the public to access. Information stored on a blockchain is unalterable, which confers higher transparency compared to traditional forms of ledgers.
Employing blockchain is not unfamiliar to luxury brands. LVMH, Richemont and Prada have announced an “unprecedented collaboration”, they are joining hands on a blockchain consortium called Aura. Just like how artworks are now connected to NFTs, individual diamonds can be tagged to a unique digital identity. On these digital certificates, it will record the origins of each stone. Setting the cogs in motion is luxury brand De Beers, which has developed a blockchain platform called Tracr where it “aims one day to track almost every natural diamond from the mine to the retail counter,” says Jim Duffy, the CEO of Tracr.
From a technology and process perspective, implementation is fairly straightforward. The difficulty lies in trying to enact this throughout the entire supply chain. Developed countries can have an easier time as they possess the necessary knowledge and infrastructure to do the tagging. On the other hand, developing countries can struggle in this aspect as they may not be adequately equipped, hence, a concerted effort is needed and the determination to eradicate blood diamonds has to be strong in order for change to be seen.
The intention of Tracr is “not to break the industry”, but to integrate with systems in place. As there are already existing data collected as companies have to earn the KPCS, it is about “using the latent data that’s been there.” As such, this ensures that the digital asset is of the highest quality.
The diamond industry as a whole has been fraught with many issues and the eradication of blood diamonds is merely just one of many associated obstacles it faces. On a broader perspective, this effort touches upon the governance aspect of the industry, which is part of the ESG (Environmental, Social and Governance) framework set out by the United Nations as a criterion for sustainable investment.
On the other aspects like environment, the diamond industry has been making progress such as implementing new initiatives to capture carbon dioxide emissions such as using kimberlite tailings from diamond mining. This is part of the “CarbonVault” project by De Beers that aims for carbon-neutral or even carbon-negative mining.
Socially, the industry is also leading the charge by putting more women in positions of management as well as surpassing the stipulated daily wage for the its workers. At Signet Jewelers, US’s largest jeweller iand parent of Zales, Kay and James Allen, more than 80 per cent of its workforce is represented by gender or ethnic diversity. It also raised its company’s minimum wage to US$15 per hour (the norm in the US is US$7.25).
As technology advances rapidly, more solutions are available for luxury brands to consider. This constant innovation is what is going to differentiate each company from the competition. Hence, in addressing the problem of blood diamonds, the technology is present and it is up to these luxury brands to adopt and make the move… and they have to be quick.
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