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Value-Added Ethics

Editorial

Jun 22, 2012 5:51 AM   By Avi Krawitz
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RAPAPORT... Two major trends are currently engulfing the diamond market – branding and ethical ‎consumerism. 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.‎

The writer can be contacted at avi@diamonds.net.

This article is an excerpt from a market report that is sent to Rapaport members on a weekly basis. To subscribe, go to www.rapnet.com or contact your local Rapaport office.

Copyright © 2012 by Martin Rapaport. All rights reserved. Rapaport USA Inc., Suite 100 133 E. Warm Springs Rd., Las Vegas, Nevada, USA. +1.702.893.9400.

Disclaimer: This Editorial is provided solely for your personal reading pleasure. Nothing published by The Rapaport Group of Companies and contained in this report should be deemed to be considered personalized industry or market advice. Any investment or purchase decisions should only be made after obtaining expert advice. All opinions and estimates contained in this report constitute Rapaport`s considered judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Thank you for respecting our intellectual property rights.

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Tags: Avi Krawitz, BHP Billiton, CanadaMark, Corporate Social Responsibility, CSR, De Beers, diamonds, ethics, Fair Trade, Forevermark, Rapaport, WDC, World Diamond Council
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