Shopping for the Guilt-Free Diamond

In an industry fraught with human-rights abuses, one retailer is targeting socially conscious consumers with its "conflict-free" stones

Greg Orpen, a teacher in Boston, prides himself on being aware of the world's social issues. For that reason, when Orpen, 32, was shopping for a custom diamond engagement ring for his girlfriend, he wanted to avoid buying a stone from a country in Africa notorious for violence and human-rights abuses related to diamond mining. Eventually he found the Web site of Brilliant Earth, a retailer based in San Francisco that guaranteed the diamond they would use would be "conflict-free," or mined in a socially and environmentally responsible way.

Beth Gerstein, the co-founder of Brilliant Earth, had experienced the same challenge when her fiancée proposed in 2004. "When we started to research, we became horrified with the practices in the diamond industry. We didn't want to buy a ring with a diamond that was associated with these atrocities," she says, referring to the use of child labor, unfair wages, and civil wars that have been funded with money from diamonds.

Sensing that she wasn't the only one with these concerns, Gerstein, 30, began informally discussing her dilemma with co-workers at Cisco Systems (CSCO) in San Jose, Calif. It turned out that Eric Grossberg, 29, a fellow Stanford Business School alum, had done a feasibility study in school assessing the market potential for conflict-free diamonds. "We were really impressed by consumer interest," says Grossberg, also a former McKinsey consultant and venture capitalist.


If coffee can be certified fair trade, then why not diamonds and other precious stones, Gerstein and Grossberg reasoned. They incorporated Brilliant Earth in August, 2005, and its current Web site went live in July, bringing with it increased recognition and a boost in sales, which have doubled since it launched the new site. Along with just a handful of other retailers around the country sourcing only conflict-free diamonds, Brilliant Earth is helping to pioneer a new category in jewelry. They're playing in a big market. The diamond jewelry industry is estimated at about $80 billion worldwide, according to the Diamond Registry, a New York-based diamond wholesaler.

The "conflict-free" label for gemstones hasn't been codified yet but is similar to the widely accepted fair-trade certification for coffee, whereby growers are paid a fair price by the buyers and have access to credit upon request, workers are guaranteed fair wages and safe working conditions, and consumers can expect companies they buy from to operate with transparency, as well as be committed to environmental sustainability.

In the U.S. alone, fair trade coffee sales have grown from $50 million to $500 million between 2000 and 2005. "More and more, U.S. consumers are concerned with origin of their goods—this isn't just good for me, but this is good for others and the environment," says Nicole Chettero, spokeswoman for Transfair USA, the only U.S.-based independent third-party certifying body for fair-trade products.


But can the principles of fair trade be applied to diamonds, an industry long ruled by a monopoly? The world's largest diamond producer, De Beers, a private company based in Johannesburg, South Africa, controls an estimated 50% to 60% of the market, and had sales of more than $7 billion last year. That company has taken steps to eliminate conflict diamonds from its product line, but Brilliant Earth and others are calling for increased transparency in the industry at large.

Eventually, says Gerstein, conflict-free diamonds will have a certification like fair trade to guarantee the conditions under which they were produced. "Given the explosive growth in [fair trade] consumables, there's no reason to doubt that it will be the same for diamonds," says Chettero.

Some of the impetus for such a system could come from an unlikely source: Hollywood. Leonardo DiCaprio is starring in a new movie titled The Blood Diamond, slated for release in December. Some folks in the mainstream diamond industry are worried that the movie, which is set in the late 1990s when rebel militias seized control of Sierra Leone's diamond mines, selling diamonds to buy weapons they used to slaughter innocent people, will hurt diamond sales.


The World Diamond Council, a trade association of representatives from De Beers and other diamond sellers, has launched a marketing campaign—revolving around the Web site—aimed at combating concerns among consumers that the movie could raise. The site points to the overall decrease of conflict diamonds in the industry as a result of the Kimberly Process Certification Scheme, which is a voluntary initiative started in 2002 to eliminate the world's conflict-diamond trade.

For their part, Gerstein and Grossberg say they see the movie as a way to push the issue into the mainstream and start a potential boom for their business. They say the Kimberly Process Certification Scheme is a good start but is empty without some type of third-party verification system.

"When there's a source of conflict-free African diamonds, we will definitely source them," says Grossberg. Until then, Brilliant Earth is giving 5% of its profits to the Diamonds for Africa Fund, which raises money to benefit the San Bushmen in Botswana, improve health and education in villages in the Congo, and help children in Sierra Leone affected by conflict diamonds.


All of the diamonds sold by Brilliant Earth currently come from two mines in Canada—Diavik and Ekati, ventures set up in 2003 and 1998, respectively, by existing companies that capitalize on Canada's newfound mineral resources as well as growing consumer concern about the conditions in African diamond mines. Both mines are monitored by the government, and promote environmental sustainability and cooperation with local indigenous tribal groups.

For now, Canada remains the primary source of diamonds that are verifiably conflict-free, despite their premium price, between 3% to 10% more than traditional diamonds. "The challenge Brilliant Earth will face, as all other social enterprises face is: What are the additional constraints that they're putting on themselves for doing business in a positive way? From a pure business play, any time you create some constraints, you have some costs," says Rick Aubry, a professor of social entrepreneurship at Stanford.

The success of Brilliant Earth at least partially depends on the willingness of the consumer to pay the premium.

Before it's here, it's on the Bloomberg Terminal.