Primary Suppliers Exclusive: Market Insights

Is the Diamond Trade Ready for Chain of Custody?

By Avi Krawitz, Sept. 4, 2016.

Consumers are demanding it, but can the trade deliver on the need to prove their diamonds are responsibly sourced?

For an industry beset with reputational risk, diamond companies are under increasing pressure to show their product is responsibly sourced. But while initiatives claiming to track diamonds from mine to market have surfaced, doing so at the manufacturing and trading stages is still a stumbling block.

Source verification and chain of custody is difficult because a diamond changes hands so often. Nonetheless, some strides have been made through the implementation of various branding and hallmarking programs in the mining sector.

Stamp of Approval

The Forevermark brand, for example, inscribes each diamond with a unique serial number. This demonstrates it has been sourced at a mine that meets De Beers social responsible standards, and polished by a manufacturer who maintained that supply chain integrity. Similarly, Dominion Diamond Corp.’s CanadaMark inscribes a unique serial number on diamonds responsibly sourced in Canada’s Northwest Territories, cut by an authorized manufacturer and sold by authorized retailers.

However, Forevermark and CanadaMark are unable to specify the exact mine from which the diamond was extracted. For De Beers, that’s because it mixes supply from various mines in the sorting process.

Rio Tinto claims that capability through its Australian Diamond program, providing a mine-to-polished chain of custody for stones from the Argyle mine. Participating manufacturers are subject to a third-party audit that requires them to keep their Argyle inventory separate from other supply.

In fact, all three programs require manufacturers to demonstrate an ability to separate diamonds earmarked for those brands through the polishing process. That begs the question: why are manufacturers not applying such standards to all their production?

Providing Guarantees

The market is certainly moving in that direction. Mining companies require it in their branding efforts and jewelry retailers are insisting their suppliers can vouch for their source - or their own suppliers. Signet Jewelers introduced such standards in its Responsible Sourcing Protocol for Diamonds, which it hopes will become an industry benchmark.

The retail and mining sectors recognize that source verification is a necessity with the growing threat of synthetics. Consumers are demanding assurances their diamonds are real and not associated with human rights abuses or conflict. Failure to provide those guarantees is a reputational risk that impacts everyone along the supply chain.

If, according to investment guru Warren Buffett, “It takes 20 years to build a reputation and five minutes to ruin it,” diamond manufacturers must start to “do things differently” when it comes to supply chain management. A manufacturer’s ability to demonstrate their diamonds are responsibly sourced throughout the production cycle is critical not only for their own survival, but for the sustainability of the industry.