Gemfields: Consumer ethics drives value

In a Critical Resource interview, Ian Harebottle – CEO of Gemfields – discusses the implications of an ethically-minded consumer base, the challenges of formalizing the coloured gemstones sector, and the responsibilities that come with being the sector’s largest supplier.

About Gemfields

Gemfields is the world’s largest supplier of emeralds, rubies and amethyst, with assets in Africa, Colombia and Sri Lanka. It also owns luxury goods brand Fabergé. Gemfields manages the marketing and promotion of its products as well as the exploration and production of its stones. Ian Harebottle has been CEO since February 2009.

Ethics can be a major draw for consumers – that’s true for all extractives firms

Ian Harebottle, CEO, Gemfields

“Some of my early thoughts about how consumers worked were completely wrong. I often thought that only the consumers at the highest echelons of society could afford to be concerned about ethics and transparency. But I’ve found, pleasingly, that across all sectors of society people are very concerned. Because gems are luxury goods and have a strong emotional connotation people want to have confidence that they have been produced ethically.

The producer, manufacturer and retailers all have to be committed to ethical production for it to work. When you message that properly, it really resonates with the consumer. Not only does it make people aware that it’s the right thing to do but also that there are alternative choices. That goes for all extractives. If people were confident that the petrol from one pump was more sustainable than that from another, and especially so if both of these were being offered at very similar prices, I have no doubt that you’d see a much bigger swing to the sustainable option.

There’s never a guarantee of perfectly ethical and sustainable practices, partly because of the fact that expectations are constantly evolving, and also because of the nature and complexity of the value chain. Consumer behaviour is driven by the level of confidence that consumers have that a company is doing its best to be ethical and sustainable and always striving to do better.

For many years CEOs saw ethics and sustainability as cost centres. In the worst case, I believe, they are neutral because one also has to consider the hidden costs of non-compliance. Increasingly companies are realizing that ethics and sustainability can in fact be turned into profit centres. For example, a paragraph of editorial coverage of the right story can be worth as much as ten pages of magazine advertising. Environmental sustainability can also help reduce liability coverage and insurance risk. You can also prevent potential social risks and other associated costs.”

Success places brands in the spotlight of public scrutiny

“Gemfields’ role in the gemstones market is often compared to De Beers’ role in the diamond market. That’s a bit simplistic but there are some similarities. For example, their Kimberley mine was the first to offer large volumes and continuous supply of diamonds. That allowed the downstream sector the ability to focus and specialize. The same level of scalability is also evident in iron, copper and most other minerals. Sadly, the coloured gemstones sector was left behind and got a little lost in the past.

De Beers also created an important shift in the value proposition for luxury goods. Before 1945 the key drivers of value were beauty, quality and rarity. Today those are nice to have but not essential. The key driver is now the position a product has in the mind of the consumer. Most coloured gemstones are significantly rarer than diamonds but we’re hamstrung by their relative value and market positioning on account of their lack of supply. Gemfields is trying to ensure that these stones are achieving real value by stepping up supply, marketing, promotion, distribution and transparency.

We knew that Gemfields would come into the spotlight of public scrutiny as it continued to formalize the gemstones sector and we’ve accepted the responsibility that comes with being a sector leader. Some people argue that mining has an inherently negative impact on society and that it’s perhaps more ethical and sustainable to produce a synthesized product in a factory. But that’s not necessarily the case. You have to realise that these resources – be it copper, oil, gold or gems – are generally found in communities where people’s livelihoods depend on extractives. If we stop mining copper in Zambia or rubies in Mozambique you could never argue that those communities would be better off.”

Investing in new jurisdictions – don’t rush in like a bull in a china shop

“As a company, investing in a new jurisdiction can be difficult. You don’t quite understand how things work, you don’t know the people, and there are new laws, languages and legislations. Often you’re told that it’s really important to understand the culture and treat people accordingly but I’ve found that that’s not really the case. Human values are basically the same. If you treat people with dignity and respect you will generally be welcomed into their communities and can feel comfortable doing things your way. Don’t rush in like a bull in a china shop. Take your time to understand local stakeholder perspectives. Different laws, histories and geological characteristics can be challenging, but cultural differences are often overstated.”

Formal miners can effectively avoid conflict with small-scale miners

“It is important to distinguish between legitimate small-scale miners and wilful perpetrators of illegality.  Perhaps counter-intuitively, tensions with legitimate small-scale miners decline as the sector becomes more established. Much of the initial problem often stems from the lack of knowledge and understanding within the sector. Many people in the informal sector are fearful of change. It’s important that companies clearly demonstrate the benefits they bring to everyone by formalizing the sector. For example, improved overall knowledge and understanding, which can and should be shared, job creation, tax revenue and even increased demand for the product. It’s also important that large-scale companies support artisanal and small-scale miners to develop skills, access to loans and understand the benefits of formalization. On the other hand, however, illegal mining is a separate issue, which can be a threat to both large-scale and small-scale operations and indeed the sector as a whole – that said, it should still be dealt with in a responsible way.”