Navigating the New Supply Chain
The world's most precious metals and stones pass along a jewelry supply chain that has barely changed for centuries. While we’ve seen many parts of our industry change rapidly in the last decade, as digital channels have transformed the customer experience, getting the raw materials from mine to market has remained relatively static.
However, geopolitics, greater customer awareness, and the potential of new technology, such as blockchain and provenance tracing, mean that global diamond, gemstone, and jewelry value chains now face more pressure than ever to adapt and transform. All stakeholders, from miners to manufacturers, brokers to dealers, designers and retailers, are now facing this new reality.
The March 1, 2024, G7 sanctions banning the import of rough and polished Russian diamonds over one carat have dominated the headlines in recent weeks. Still, the conversation about the need for greater supply chain transparency has been happening for much longer, not just for diamonds but also for gemstones, gold and other precious metals. In 2018, Human Rights Watch published its landmark report, ‘The Hidden Cost of Jewelry, ’ highlighting the lack of transparency in many jewelry supply chains. While hotly debated, it was a major talking point for the industry.
Since then, there has been welcome progress, with some of the most prominent brands prioritizing sustainability, traceability, and ethical considerations. We’ve also seen the establishment of ‘The Watch and Jewellery Initiative 2030’ by Kerig and Cartier, with these objectives at its heart. We all agree, there is much more we can do as an industry to focus on continuous progress, not perfection.
No matter the size of your business, we all depend upon the future sustainability of the diamond, gemstone and jewelry industry, and we all should play a part. That's what our latest article is all about.
Customers now expect to know the provenance of the fine jewelry they're buying; that's why telling a compelling story about your products' ethical and responsible sourcing has never been more critical. If you’re a B2B business, then you’ll already be finding that the largest retailers - and many medium and small ones - are now demanding compliance with their internal ESG policies in order to consider a new vendor — traceability in the supply chain being a key part of that. The Russian sanctions can be the catalyst to change how you think about your supply chain. They are an opportunity to take a strong stance against the Ukrainian war, get ahead of future regulations, and increase your revenue with retailers who demand greater transparency.
The G7 diamond sanctions
There is still real uncertainty about the G7 sanctions and their meaning for the diamond trade and the broader jewelry industry. Important unanswered questions remain:
On that last point, Stanley Zale, our diamond industry expert, highlighted that as the key issue for businesses and policymakers in the regulations that have been announced:
“The biggest problem with the current “as-is” is that there is not yet a mechanism for dealing with goods previously imported into the US and G7 countries. What happens when those goods are shipped out of country, and then returned? What will be acceptable documentation for those? Stay tuned!”
Uncertainty is never welcome, particularly on such a significant issue. Part of the confusion is the differences in how the G7 countries are currently implementing the sanctions. All nations are aligned on what’s being sanctioned (loose Russian-mined diamonds 1 carat and up, even if they were cut and polished elsewhere), but there’s less agreement on how those checks should be carried out.
From March 1 until August 31, we’re in a ‘sunrise’ period during which diamond importers of more than 1 carat to the U.S., UK, and EU will either have to:
Canada and Japan have said they’re committed to the sanctions but are yet to publish additional information to support their implementation.
What happens after September 1?
We expect to learn more about the second phase of sanctions in the coming weeks and months. What we do know is that from September 1, the sanctions across the G7 will cover diamonds of 0.5 carats and larger. It’s also anticipated that the required documentation will become more stringent by September and that the G7 tracing mechanism will be live.
The G7 is working with NGOs and technology companies to develop a framework allowing all participants to verify compliance. The expectation is that the solution will eventually be based on the blockchain, and the DeBeers-owned Tracr, for example, is one company that has announced its readiness to provide support. The first pilot scheme of that certification process is now live with select manufacturers and miners. We strongly support all efforts to improve traceability across jewelry supply chains and believe that this is a pivotal moment which could become a blueprint for transparency at all levels, but it must be an inclusive process which allows smaller and artisanal miners and manufacturers to participate equitably.
Also, starting on September 1, the sanctions will expand to include jewelry and watches that contain diamonds of Russian origin, whether natural or lab-grown, of 0.5 carats and larger. The potential restrictions on jewelry would certainly add a greater level of unknown complexity. At this point, we will all have to ‘watch this space’ for further announcements.
What impact will the sanctions have on the world’s diamond supply?
At the time of writing, the impact of the sanctions on supply remains uncertain. By commonly agreed upon statistics, Russia accounts for roughly one-third of the world’s diamond supply, and the G7 countries account for nearly three-quarters of global jewelry demand. Other Western sanctions on Russia, predominantly on their oil and gas exports, appear to have had relatively little impact so far, with Russia diverting most of its energy resources towards the Indian and Asian markets.
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India, where 90% of the world’s diamonds are cut and polished, and China have shown no interest in joining the G7 sanctions, so Russian miners will look to those countries to buy more of their rough diamonds. This will mean significant pressure on Indian companies to keep comprehensive documentation to support their business with G7 countries.
It’s anticipated that rough from Botswana, South Africa, Namibia, Canada and elsewhere will be sufficient to meet the G7’s demand, although there may be some supply issues and price fluctuations over the short to medium term. We will hopefully see a reorientation of diamond supply chains away from Russia in the long-term, as investment turns towards developing new mines in these other countries. It could well be positive news for emerging economies, particularly in Africa, and those governments should be supported with their own improvements to ethical and sustainable mining.
How to navigate this new supply chain
We can hopefully all agree that full traceability of diamond, gemstone and jewelry supply chains is long overdue, but it must be a collaborative process between stakeholders, policymakers and the wider industry. Regulation and compliance can enable a new story for our industry about traceability and sustainability across all jewelry supply chains, from diamonds and gemstones to precious metals. This is one that we know consumers want to hear.
This could be a transformative moment for you to move beyond just talking about provenance with your customers to telling a more compelling story about traceability.
What else should you be thinking about?
Know your supplier
Everyone in the pipeline, from importers and brokers to retailers, now needs to know not only your customers but also your suppliers.
If you’re importing diamonds, then it's your responsibility to provide the attestation in the U.S. or documentary proof in the E.U., but we’d also recommend obtaining similar written warranties from the companies/individuals sending those goods to you. Every one of your suppliers should know you intend to comply with the sanctions and that you require them to as well. This is an opportunity to draw a line in the sand.
Prioritize your messaging
We welcome every step our industry takes to do better for the world—including showing opposition to the Russian invasion of Ukraine. Everyone should know we’re an ethical industry; your customers and suppliers should hear that in your communications. Let your own customers (whoever they may be) know that this is a real priority for you, and demonstrate how hard you are working to make sure you meet or exceed every requirement.
If you’re a B2B business with retailer customers, most will welcome this approach because of their own ESG commitments. We also know that many end-consumers - particularly in the fine jewelry market - are now much more concerned with the traceability of the jewelry they’re buying. What’s clear is that retailers are now demanding greater transparency across their supply chains to anticipate their customers’ changing priorities; therefore, if you can demonstrate your efforts now, retailers will reward you when making their buying decisions in the future.
Stay informed
Above all, it’s important you stay educated and informed as these sanctions and regulations develop. We already know that the greatest challenge will be the complexity of the tracking process, but there may be opportunities for early adoption of whatever blockchain or tracing technology is introduced. The earlier you embed those tools into your systems and processes, the better.
If you’re based in the U.S., you should be a Jewelers Vigilance Committee (JVC) member, or of a similar entity in your own country. The JVC and other similar global organizations are a valuable source of knowledge and support for keeping abreast of any changes. We will also feature the latest news and insights across our newsletter, website, and social media channels.
In summary
We support the G7's goal of strengthening sanctions, closing loopholes, and improving supply chain transparency, and we should keep that in mind as we implement these new regulations. Of course, there are significant details to work through, and we must all speak with one voice to ensure the sanctions don't unfairly impact non-Russian miners and manufacturers.
However, there is a real opportunity to create new momentum for changes across the jewelry supply chain. Fundamentally, it’s not just the G7 prioritizing greater traceability but many of the big players in our industry, from De Beers to the largest retailers and, finally, the end consumers who increasingly want to understand the provenance of the jewelry they’re buying.
The direction of travel was set before the Ukrainian conflict, but Russian sanctions are now pressing our industry to focus on building new and transparent supply chains. Governments and retailers are demanding changes, and jewelry customers are making their preferences clear. Everyone wants to hear a powerful story about the ethical heart of the jewelry industry. Now it’s up to us to tell it.
If you're ready to learn more about how we can help your business to navigate the changing landscape and strategically position you for success, or if you're interested in collaborating with our industry experts, get in touch with us at inquiry@hillandco.co