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Sustainability Story: Challenging the Stereotypes of the Impact of Diamond Mining

Post Series: Investment Committee Commentary Q3 2019

The global diamond industry has been heavily scrutinized for decades over a wide range of social and environmental concerns, including environmental degradation, health and safety standards, the exploitation of local communities, and the funding of civil wars. However, the exact nature of these issues, as well as the role of multi-national mining firms, has been largely unknown due to a lack of transparency. This is now beginning to change, as the Diamond Producers Association (DPA), a global alliance of the seven largest diamond mining companies representing 75% of the world’s diamond production[1], published a report on its members’ impact on local communities, employees, and environment[2].

“The Socioeconomic and Environmental Impact of Large-Scale Diamond Mining” was authored by Trucost, a subsidiary of S&P Global focused on ESG research and analysis. The analysis followed the ‘Trucost Total Value’ methodology, which seeks to quantify and capture the full value of all social, environmental, and economic benefits and impacts. Trucost considered a broad set of indicators, including workplace health and safety, human resources, procurement, taxation, fuel and energy use, water use, waste management, and financial performance. The report presented a somewhat surprising picture of how the DPA members operate[3]:

Economic Factors

  • The DPA members paid out wages and benefits worth $3.9 billion to more than 77,000 employees.
  • The average DPA employee or contractor received compensation that was more than 65% above the national average wage and almost 5 times the respective country living wage benchmark.’
  • DPA members purchased $4 billion in goods and services from local suppliers, which translates into $6.8 billion direct and indirect benefits for local communities.

Social Factors

  • The analysis did not detect any child labor or forced labor among the DPA members.
  • Although the DPA members reported nine workplace fatalities in 2016, the group’s long-term average fatality frequency is significantly lower than many other industrialized sectors operating in the same countries, such as construction and transportation.
  • The DPA members invest extensively in the local communities in which they operate, including healthcare and health promotion programs, training and education programs, and support for growing small and medium-sized enterprises.

Environmental Factors

  • The most significant negative impact of the DPA members’ operations includes greenhouse gas emissions, which averaged 160kg CO2e[4] per polished carat – the equivalent of driving 391 miles in an average passenger vehicle (EPA).
  • The DPA members conserve and protect roughly three times the amount of land they use for mining operations.

Positive benefits and negative impacts can be tricky to compare since the respective stakeholder groups may be different. For example, many of the economic benefits tended to benefit local contractors, service providers, and workers. Meanwhile, the majority of the negative environmental impacts, primarily in the form of greenhouse gas emissions, have global consequences as they exacerbate global climate change. Nevertheless, the analysis provides a sense of the scale of the trade-offs between the positive benefits and negative impacts.

It’s important to note that the report covers only multi-national mining companies, which accounts for about 75% of the world’s diamond production by value and volume. It did not consider artisanal mining in West African countries such as Sierra Leone and Liberia, where revenues from local diamond mining have been known to fund armed conflicts and civil wars – which is the basis for the concept of ‘conflict diamonds’ or ‘blood diamonds’.

Another caveat to this study is the obvious conflict where the mining companies, via DPA, paid for the report and supplied the majority of the underlying data. Although this is standard practice in many aspects of business and finance – credit ratings, for example, are paid for by the issuer – such potential conflicts could be avoided if the report was supplemented by an independently funded third-party assessment and if the underlying data were standardized. Independent funding would ensure the findings are unbiased and standardizing the data would avoid the temptation to cherry pick data points that would generate a specific outcome.

However, it appears the major mining corporations have assumed responsibility for the full impact of their operations by paying their local workers’ fair wages, offsetting their environmental impacts, and by contributing to the local communities in which they operate. This report brings transparency and accountability to the diamond mining industry and establishes a baseline against which the industry can measure and track future progress. Hopefully, the leadership and transparency of large corporations will generate pressure on smaller, artisanal miners to clean up their acts as well.

[1] DPA membership includes ALROSA, De Beers Group, Dominion Diamond, Lucara Diamond, Murowa Diamonds, Petra Diamonds, and Rio Tinto.


[3] Data referring to 2016

[4] Carbon Dioxide Equivalent

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