Who wants to wear diamond jewellery on their hand, realising that it may be stained with blood? This question strikes at the heart of a pressing issue in the diamond industry – the link between diamond production and environmental damage and human rights violations. In this blog post, I will explore the dark side of the diamond trade and the feasibility of adopting blockchain technology to enhance transparency in the industry. I conclude with my reflections on why embracing sustainability in the diamond business is not just a moral imperative but also a smart business move for a company to pursue.
Dark Side of Diamond: Environmental damage and human rights violation
Diamonds have long been admired for their beauty and symbolism, but their journey from the depths of the earth to your finger is not always a sparkling one. The extraction of diamonds can damage natural landscapes, cause erosion, and disrupt ecosystems. Mining companies generate massive amounts of waste rock, often leading to the leaching of toxins and mining chemicals into groundwater and rivers. As a recent report illustrates, mining significantly impacts water, air, soil, wildlife, and the climate through pollution, deforestation, and carbon emissions, resulting in irreversible environmental harm. But that's not all. An article also suggests that throughout their value chain, from mining to final sale, diamonds are responsible for significant greenhouse gas emissions.
Moreover, diamond production and trade fuel human suffering. Human Rights Watch reports that in some regions, diamond mining is associated with forced labour, child labour, and exploitative working conditions. Diamonds mined under these circumstances are often referred to as ‘blood diamonds’, and they have financed armed conflict and human rights abuses in several countries.
Blockchain Technology for Transparency and Traceability
So, how can a jewellery company ensure that their diamonds are ethically sourced and environmentally responsible? One solution lies in the innovative use of blockchain technology. Blockchain technology is a digitalized and secure system for storing data that is changing the way we trace the origins of products. As an article explains, blockchain stores data as encrypted blocks in a chronological ledger, creating an unbroken chain of information. It has potential to identify the origin of any product and trace its journey to your hands.
Photo Source: https://energycapitalpower.com/biggest-mines-in-angola-by-production/
Ensuring Ethical Sourcing through adoption of blockchain technology
Blockchain isn't just about authenticity; it's about ensuring that your diamond comes from a trustworthy and ethical source. For businesses that care about sustainability, this aspect of blockchain is very appealing to them. By adopting the technology, jewellery companies now should be able to implement a comprehensive Corporate Sustainability Due Diligence process and impact assessment throughout the entire value chain, starting from diamond mining, efficiently. If a company detects human rights abuses at a particular mining site, it should use its leverage to discourage such practices or even sever ties with offending parties. This transparency could also help to fulfil corporate sustainability due diligence assessments and concurrent reporting requirements in aligning with soft laws such as the OECD Guidelines, specifically OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Affected and High-Risk Areas and UN Principles on Business and Human Rights (UNGPs).
Embedding Sustainability into Corporate Governance through adoption of blockchain technology
Sustainable value creation should be at the core of corporate governance. Instead of shareholder value maximization, boards should integrate sustainability into their governance. This shift not only mitigates growing risks of unsustainability, such as the risk of lawsuits, but also promotes value creation within an evolving social landscape such as the global phenomenon of political consumerism.
To achieve this, companies must oversee the entire diamond value chain, from mining to manufacturing to retailing. The integration of blockchain technology can enhance due diligence processes and sustainability reporting by providing accuracy of data collection and analysis efficiency, thereby improving the corporate governance. Blockchain's transparent and immutable ledger enhances companies' due diligence efforts. For instance, sustainability data, covering aspects such as energy consumption, waste generation, and ethical labour practices in the upstream of the supply chain can be continually monitored, updated and shared among all other participant in the supply chain. This not only promotes transparency but also fosters better tracking and accountability throughout the due diligence process.
Reporting also benefits from blockchain's ability to securely store and validate sustainability certifications and standards. This ensures the authenticity of claims made by suppliers, reducing the risk of false information. Auditing processes are also streamlined as blockchain provides a tamper-proof history of transactions and activities, enabling more efficient compliance assessments.
Overall, the technology can facilitate the due diligence and reporting practice of sustainability initiatives, ultimately enhancing corporate governance in alignment with evolving regulations and standards, e.g., EU’s Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) (political agreement achieved 14 December 2023).
Escalating Legal Risks Fuel the Necessity for Integrating Sustainability
The shift towards sustainability and due diligence becomes more significant due to the escalating legal risks faced by companies that fail to prioritize sustainability. The international regulatory landscape is complex, evolving, and increasingly focused on due diligence. While no binding global laws mandate due diligence and sustainability yet, discussions at the United Nations suggest the possibility of future enforceable treaties.
Furthermore, in addition to soft laws like UNGPs and OECD guidelines, regional regulations, such as the EU's CSRD and the proposed CSDDD, require due diligence compliance and transparent reporting on human rights and sustainability practices. National laws on due diligence are also evolving, with several countries implementing legislation, such as Norway, France, Germany, and several others considering it, including Australia, Belgium, Finland, Luxembourg, and Denmark. Compliance with these regulations is crucial to avoid sanctions, liability and other legal risks.
A Brighter Future for Diamonds
Incorporating blockchain and sustainable practices goes beyond financial risk and international norms. It also supports value creation in a changing social landscape. The diamond, symbolizing love and happiness, often associated with marriage, should continue to bring joy to those who wear it. When customers realize that the diamonds they cherish are tainted with blood and environmental harm, that joy and happiness may dissipate.
To maintain happiness, the diamond industry must embrace transparency, sustainability, and ethics, paving the way for a transparent diamond era, untainted by exploitation and harm. In a world where sustainability and ethical consumption are gaining momentum, consumers hold the power to drive change. By supporting jewellery companies that adopt sustainable practices, consumers can ensure that diamonds shine not only in beauty but also in their ethical and environmental purity. Choosing a future where diamonds truly sparkle sustainably will bring joy and happiness, not just today but for future generations too.