Premium

Can diamonds be a millennial's best friend too?

Diamond
Russian firm Alrosa is the world’s second-largest diamond producer, with revenues of 300bn roubles (£3.8bn) last year

In the heart of Siberia, the Sakha Republic is home to acres of evergreen larch trees, herds of reindeer, the indigenous Yakut people and, under its permafrost, diamonds.

Mining is one of the main industries in the region, with 95pc of Russia’s diamonds originating here, accounting for 27pc of the world’s supply.

In July, it’s hot. Temperatures reach 86F (30C), midges and flies are in abundance and feral dogs seek shade under the site office. In the harsh Siberian winters though, it can drop to -22F (-30C).

It’s a world diamond consumers don’t get to see. Alrosa, the partially state-owned mining company listed on the Moscow Exchange that operates here, wants to change that.

Alrosa and its peers in the diamond industry are grappling with the challenge of a new generation of consumer. Millennial shoppers want their diamonds to be trustworthy and free of any connection to conflict zones. At the same time traditional mined diamonds and their lab-grown equivalents face tough questions about their sustainability and environmental impact. Can new promises of traceability and greater transparency ensure the diamond industry’s future?

Alrosa is the world’s second largest diamond producer, with revenues of 300bn roubles (£3.8bn) last year. Last month it launched a trial service to provide 2,000 gems with an electronic passport. It will tell the buyer the gem’s age, the place and date of its extraction, as well as the time and place of its cutting and the craftsman’s name and background.

Around 98pc of Alrosa’s sales come from rough diamonds, many exported to India for cutting, and exported again through jewellers, making it hard to track the end product.

Alrosa is not alone in developing initiatives to track diamonds. The Gemological Institute of America (GIA), an independent non-profit working to create public trust in gems, is now adding a fifth component, country of origin, to its widely used 4Cs grading scheme. The 4Cs – colour, clarity, cut and carat weight – were created in the 1940s and today the GIA is a globally trusted authority in certifying diamonds.

The new Diamond Origin Report, launched in April, matches a polished diamond with the original rough version. The GIA collects data from the rough stones and assigns each one a unique identification number. When a polished diamond returns for grading it conducts the same tests and compares the data. If they match, the GIA confirms the origin and adds it to the certificate.

“Consumers want to know where the products they purchase come from,” says Susan Jacques, president and CEO of the GIA. “Whether it’s coffee, clothing, furniture, food, gold or diamonds, they want to know the social, economic and environmental impact of their purchase decisions. The GIA Diamond Origin Report service helps to meet that need.”

Research conducted by the organisation found that 69pc of American bridal consumers prefer to buy a diamond with an origin story.

The GIA Diamond Origin Service is believed to be the only one that can scientifically match a polished diamond to its original rough stone. Canadian mines created the CanadaMark in 2003 – similar to a hallmark, it is etched on to diamonds – however, it can be polished off, creating trust issues.

Jean-Marc Leiberherr, chief executive of the Diamond Producers’ Association (DPA), believes it will be some time before true traceability is possible: “The reality of the supply chain means it’s quite possible with large stones but with small stones that are sold in parcels and get mixed with other parcels, it’s very difficult. Until we can provide the chain of custody that consumers want, we need to work on a chain of confidence where every hand that touches a parcel of diamonds is a responsible hand.”

The GIA’s service is currently only available for natural, and not 
 lab-grown, diamonds, though the body does offer a separate lab-grown diamond certificate.

The introduction of lab-grown diamonds into the jewellery market in recent years has put pressure on both sectors to be more transparent. Lab-grown diamonds currently account for just 2pc of the market but authorities such as the GIA and America’s Federal Trade Commission have released guidelines on clearly identifying them to consumers to prevent them from overpaying. Though scientifically the same, and visually identical to the naked eye, lab-grown diamonds typically sell for around a third of the price of a mined stone of the same size and quality.

Lab diamonds are proving popular with millennial consumers attracted to their affordability and their perceived ethical credentials. Though schemes like the Kimberley Process, set up in 2000, now regulate 99pc of the trade in rough diamonds to eradicate blood diamonds, consumer perceptions have been slow to change. However, questions are also being asked about the ecological sustainability of lab-grown gems, given the large amount of energy needed to create them.

A report commissioned by the DPA – which represents the top seven biggest diamond miners – claimed its average miners produce far less carbon dioxide per mined carat than their lab-grown rivals. However, the report acknowledged there is a lack of qualitative data on emissions from diamond labs.

Lieberherr says: “[Lab-grown diamonds] is a new sector mostly run by small companies and entrepreneurs. There are not the same rules to comply with and as a result there is not much transparency. It’s taken [mines] years, and lots of scrutiny, to get to the level of transparency we are at now.”

Grouping all lab diamonds and all mined diamonds together is also an oversimplification. Lab-grown diamonds can be made using two different processes, high pressure high temperature, which is the least energy intensive, or – the more popular choice – chemical vapour deposition. The source of energy will also be a crucial factor in a lab’s sustainability.

At the Nakyn ore field where Alrosa operates, open pit mines stretch 1.9km wide and up to 360m deep. Giant trucks, with wheels bigger than the miners who drive them, traverse the winding paths around the outskirts to transport kimberlite ore to the processing plant 24 hours a day, 364 days of the year. Since extraction began at the biggest mine in 2000, 21.7m tonnes of ore have been processed. The mines are among the first to switch some trucks from gasoline to natural gas fuel. There are also unique environmental issues concerning water usage, and the Alrosa facilities have water treatment plants, recycling 98pc of the water.

Alrosa has also engaged with WWF Russia’s environmental responsibility rating for mining companies. Its report factors in environmental management, environmental impact and transparency. In 2018, Alrosa, the only diamond miner on the list, ranked 8th out of 34 companies.

Alexey Knizhnikov, of the WWF-Russia programme, expects the ranking will change significantly in the next few years as more companies begin to make information available. “It’s too early to say that the companies at the top are the best, many are there because of their transparency. We need a few more years, and more companies to be transparent, to see who is actually best.”