Apocalypse Files - Issue #6 - Diamonds
In each issue (bi-monthly), we'll explore the threats to the current business model of a company or of an entire industry, the forces that could take them down or drive systemic changes, and most importantly we'll imagine possible solutions, looking at new and evolving trends, untapped niches, new business models or venture opportunities...
In this issue, in the midst of your search for the perfect Christmas gifts, we will be taking a look at a shiny sector, the diamond industry. Welcome to the Apocalypse Files.
Remember Blood Diamond, with its huge gem and the conflicts the plot revolves around? The movie ending depicts the Kimberley Process (2003), during which the Kimberley Process Certification Scheme was established. For the first time, it provided a frame of reference for a more responsible production and trade of rough diamonds, in order to prevent conflict diamonds from entering the market, and thus stop fueling conflicts around the globe.
As of 2012, 81 countries were part of the Kimberley Process, representing 99,8% of the rough diamond world production, but conflicts and abuses are not a thing of the past. It is safe to say the Kimberley Process does not prevent humain rights and environmental violations in the diamond production sector as well as it should. Almost 20 years after its establishment, the Kimberley Process definitely does not seem strict enough for today's standards and NGOs are calling for an update, including measures to better protect the environment. Why have we failed to build a responsible diamond industry and what consequences does this industry face as a result?
The first thing you need to know about the gemstones industry is that its value chain is complex and opaque, for several reasons:
Geographic spread and secrecy: there are only a few major mining markets supplying the whole gemstones industry - namely Canada, Russia, countries in Central and South Africa - but mines are secret locations. The fact is, end-consumers do not know what happens inside these mines, and it is very difficult for jewellers to trace the diamonds from the mines to the end-consumers.
Numerous intermediate players: the value chain is divided into many steps including mining, sorting, cutting and polishing, and finally jewelry manufacturing and retail, which take place in different countries with numerous transactions between various players, making the stones' provenance and authenticity difficult to track.
In addition to having to deal with suspicious players & oppressive regimes, it is the level of complexity of the value & supply chain that explains a certain prevalence of human rights abuses, conflict finance and corruption up to today. Jewellers are increasingly called out to acknowledge their corporate responsibility in the gemstones industry, starting with two main topics:
First, its social impact: As long as diamond re-sellers do not have to investigate the gemstones' origin (the same occurs for precious metals), it is near-impossible to monitor work conditions inside the mines. Take a look at the Central African Republic (CAR) for instance: despite a ban, child labour in diamond mines has increased by 50% in the months after schools were closed in 2020! In a country where armed groups control more than 60% of the country, authorities are not focusing on this issue enough.
And of course, its environmental impact: the extraction & manufacturing of diamonds has many detrimental consequences such as soil erosion, deforestation, ecosystem destruction. First, diamant mining causes the removal of vegetation and topsoil, fauna displacement, release of pollutants and noise, which affect wildlife and biodiversity. During the mining process, acid mine drainage and contaminant leaks (cyanide, mercury, but also mine waste) cause severe water pollution and can contaminate soils over large areas and fuel combustion (mostly diesel, marine gas, oil, petrol) causes air pollution, which is amplified by wind transportation.
However, with growing public awareness (Media part), end-consumers will start making social & environmental responsibility a non-negligible purchasing condition and require proof rather than claims. What impacts can we foresee and on whom ?
How to Save a Life?
First in line: brands! They will be expected to be transparent & accountable for what they do. Several signals show that jewellers have already started to question the way they do business and to commit to increased corporate responsibility. In 2005, Cartier co-founded the Responsible Jewellery Council (RJC) around climate resilience, resources and inclusiveness . De Beers has created the "ReSet Forever Love" collection to "celebrate love and sustainability, through the lens of the next generation" : the jewels incorporate De Beers diamonds, sourced sustainably.
Next up : operations! They are the cornerstone of social & environmental impact, since guarantees for end-consumers won't have any value if extraction & manufacturing players are not dealt with. Mining companies will have to 1/ assess their production & supply chains, 2/ improve traceability along very complex supply chains and 3/ make strategic choices as to how important they want fair trade & impact to be in their core business.
If undertaken, will all these actions be enough to match the future standards in the jewelry industry with a new generation of end-consumers with high expectations? Will the players try to improve operations or rather get rid of certain assets & partnerships, making their future even more uncertain? What would be the impact on mining countries?
Lean with it, Rock with it
At Possible Future, we see three opportunities that could shape the future of the diamond industry, and to a larger extent, the future of jewelry. From immediate to more prospective:
1/ New business opportunities around traceability to provide reliable supply chain information. Traceability appears to be within reach, as new solutions emerge: Everledger offers a blockchain diamond provenance solution to help brands increase their knowledge on the provenance of their diamonds. Brands like Fred Meyer Jewelers, Chow Tai Fook and Brilliant Earth are already using this tool. Everledger has also partnered with Gem Certification and Assurance Lab (GCAL) to improve accountability on diamond sourcing via certification houses. The Tracr platform, initiated by DeBeers, creates a digital asset in the mining company, registering the diamond’s country of origin and authenticity, which is then passed on the downstream value chain players (manufacturer, retails and end-consumer), tracking "the diamond’s transformation from rough to polished and a change in the ownership".
2/ Synthetic or man-made diamonds are 100%-produced in a lab or factory and provide the benefit of giving full control to the manufacturer, including a better hand over the diamond's environmental & social impact. They also give countries without mineral ressources the chance to grow diamonds themselves. Currently, most synthetic gemstones come from China, India and Singapour. Annual production is estimated at 3-4m carats of rough diamonds, where 150m carats are extracted yearly from Russian, Canadian and African mines . There is definitely room for growth! Among emerging players, you might have heard of: Lab Rillante, Diamond Foundry, LightBow, Diam Concept, Aether Diamonds.
Synthetic diamonds are definitely a bet on the future. If consumers are increasingly aware of social benefits, certain questions remain - and they will impact the market value of lab-grown diamonds:
How will synthetic diamonds position in the minds of the consumers compared to gemstones with a strong geological heritage? Will they (and their 30-50% lower price) compete in the same market space or open up a whole new market ? A Lab Rillante executive estimates that in "less than 10 years, lab diamonds will represent over 50% of the market". But for Tiffany CEO Alessandro Bogliolo, "synthetic diamonds have little to do with the world of luxury [and rarity]". Moreover according to Bain, lab-grown diamonds are expected to remain a specific branch of the industry with a completely different image, representing around 5% to 15% in value terms through 2030. Nevertheless the re-naming of the Diamond Producers Association in the Natural Diamond Council reflects the sector's concerns about synthetic technologies.
Another potential barrier for lab diamonds could be their environmental impact. Is the life cycle assessment of lab-grown diamonds as good as we think?
At Possible Future, we always side with the consumers and believe that they will be the driving force of change in making the diamond industry more sustainable. So the question is not if, but when !
3/ Second-hand jewelery! Recycled and Upcycled jewels:
If some jewelers are still very much attached to a mother-to-daughter jewel transmission (Cartier), several scenarios around recycling & upcyling could be interesting to keep in mind for the future:
Keep the original materials of a family jewel and revamp the jewel to give it a more modern take. This is the promise of some craftsmen jewelers such as Bottazzi jewelry, specialized for more than 30 years in gemstones re-cutting.
Create jewels from another industry's precious metal waste. Since 2017, the jewelry brand Lylie's, based in London, offers jewelries with gold made from discarded technology, as well as dental waste.
Accessible jewelry with less emotional attachement or for unique vintage pieces : purchase from a second hand platform such as Vestiaire collective or Catawiki selling a wide range of jewelry from a few hundred to several thousand euros.
What you Know
The diamond sector is a sector with out-of-date ways that evolves by fits and starts, mostly triggered by big scandals. The technological progress in data tracking and the production of synthetic materials come to question the practices of the diamond industry and more generally of the whole jewel sector. Beyond diamonds, gold, silver but also Coltan (used in most of our mobile phone & laptops) face similar problems and grim prospects as our collective and individual awareness of their flaws and our role in sustaining them increases.
That's all folks!
PS: If you haven't guessed, all paragraph titles are from singles in the 2006 Billboard Hot 100, the year the blockbuster Blood Diamond with Di Caprio was released.
What do you think? Do you think consumer awareness can finally change the diamond industry for the better? Do you believe in 100% made in France jewels?
Do you think lab-grown diamonds will be well-received by consumers and impact the natural diamond market?
Have an industry or company in mind you want us to look at? Let us know and we'll add it to our roaster: it might be the focus of our next issue!