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Value-Added Ethics

04 july 2012

Two major trends are currently engulfing the diamond market – branding and ethical ‎consumerism, Avi Krawitz says on www.diamonds.net. Savvy diamond firms across the pipeline would do well to enmesh the ‎two. Ultimately, a company’s corporate social responsibility (CSR) strategy, which ‎defines its ethical practice, should enhance and not diminish its brand. ‎

The questions posed at the recent Rapaport Fair Trade Conference in Las Vegas are ‎therefore pertinent. What should motivate a company’s CSR activities? Are corporations ‎simply inspired by the drive to do the right thing? Or is their social awareness a means to ‎add value to their product and drive revenues?‎

It should be stated at the outset that both concepts are valid. Sometimes, it is the end ‎result that matters. But one must place a business’s purpose in perspective. Generally, ‎management’s primary goal is to drive profits for shareholders, as it should be in a free ‎market society. Any company would naturally consider its CSR program in the context of ‎its financial capabilities and the market in which it operates. ‎

The trend toward CSR is certainly positive. A recent report by Research And Markets ‎estimated that total sales of ethically-sourced products in the UK has grown 39 percent ‎over the past five years to reach $79.9 billion (GBP 50.76 billion) in 2011. The U.S. is ‎likely to present similar growth. The strong inclination among consumers to buy ethically ‎sourced products therefore presents unforeseen value-added opportunities.‎

It also presents challenges for the diamond industry, given the widespread, often less ‎than favorable perceptions about the trade. The trade ought to be brainstorming ways to ‎proactively reassure consumers, where it can, particularly as pressing ethical questions ‎remain.‎

Consider the significant incidents of fraud that have been revealed in just the past few ‎months, as outlined at the recent Rapaport Certification Conference. The International ‎Gemological Institute (IGI) reported that more than 500 synthetic CVD diamonds were ‎recently submitted to its laboratories by legitimate companies without disclosure. ‎Diamonds are being double or triple-treated to deceive laboratories into grading the ‎diamonds as natural, and diamond cutters are re-cutting lower quality diamonds to match ‎higher quality grading reports and selling them to the trade. These are just a few ‎scenarios that serve to diminish consumer confidence in the diamond market.   ‎

Then there is the question of human rights and the diamond industry. The Kimberley ‎Process (KP), stuck in its archaic definition of conflict diamonds, is unable to ensure that ‎the rough diamonds that are filtering into the market were not involved in human rights ‎abuses, or are funding rogue governments’ activities such as those in Zimbabwe or the ‎Democratic Republic of the Congo (DRC). The fact that industry leaders from the World ‎Diamond Council (WDC) will be courting Zimbabwe by participating in next month’s ‎Zimbabwe International Diamonds Forum does little to alleviate concerns – in fact, it ‎borders on scandalous. ‎

Rather, as more consumers start to ask questions, ethical jewelers and diamantaires ‎need to assure that they have investigated their sources, and that the products they are ‎offering are free of human rights violations, significant environmental damage, illegal ‎activities, or sanctions by U.S. or E.U. governments. They also need to provide ‎guarantees that the diamonds they are selling have been accurately graded by the ‎laboratories and correctly disclosed as untreated stones. ‎ ‎

Individual members of the trade must recognize that only they can make such ‎assurances and each individual should therefore take responsibility for the diamonds they ‎sell. They cannot rely on the KP, the WDC, or the laboratories for that matter. They also ‎need to ensure that diamonds and diamond revenues are used to bring about positive ‎change, especially in conflict areas. ‎

At the conference, Martin Rapaport, chairman of the Rapaport Group, emphasized that ‎the most efficient way to effect social change is to create demand for ethical products.‎

‎“We need to have competition, and the consumer needs to be educated to know that ‎they can buy a diamond that is an ethically sourced product,” he said. “Competition and ‎market forces work. It’s not the only solution but we would like to see ethical competition ‎drive the market place.”‎

The Rapaport Group has launched the Campaign for Ethical Jewelry (see ‎www.ethicalpledge.com) and has other projects in progress to contribute to this end.  ‎

The more consumers know that they have a choice to buy an ethically sourced diamond, ‎the greater value that ethical insurance obtains. The more that companies insist on the ‎highest ethical standards in the industry, the more worthwhile it becomes for those ‎involved in unethical practice to change their ways.‎

De Beers has recognized this concept as it has transitioned from being a generic-focused ‎to a brand-focused marketer. Charles Stanley, president of Forevermark U.S., noted that ‎a company’s ethical promise will hold far greater value when they are driven by ‎fundamental consumer needs. He added that Forevermark believes this will become ‎increasingly important in driving the sale of the product.‎

Not that brands such as Forevermark, BHP Billiton’s CanadaMark or others are making ‎their respective ethical pledge the central theme in their marketing. As Stanley stated, ‎quality and the lasting value of the diamond are more critical to the sale. But the ethical ‎assurance is growing in significance. “There’s a lot of altruism in what we do,” Stanley ‎said. “We can’t afford to have problems with diamonds.” ‎

Certainly for an industry selling the message of love and trust as much as its product, ‎companies ought to be aware of their weaknesses. Ethical apathy is one such weakness. ‎

But market forces will eventually kick in. Consumers deserve, and are demanding honest ‎and fair trade products, making such pledges socially as well as financially viable. ‎Adopting a strong CSR strategy with powerful ethical commitments is not only the right ‎thing to do, but it adds significant value to a business. Companies which ignore these ‎issues, risk diminishing their brand.‎