The Clarity Project wants you to know for sure that the gemstones you purchase are conflict-free.
The new endeavor, when it launches in the spring, will use the novel approach of allowing rich patrons to travel to Sierra Leone and visit community mines to handpick their diamond purchases.
But it stands apart from the standard diamond business in many more ways than that. By using a new human rights checkpoint system and leveraging the purchases of diamonds and precious metals to fund education and sustainable communities in Africa, the Clarity Project is shining a bright light on an industry historically hampered by human rights violations and environmental degradation, to say nothing of political conflict.
The diamond industry is not the most transparent industry in the world. In fact, the mining businesses that comprise the entree into what eventually leads to fine gemstones historically—and famously—have been shrouded in secrecy.
The Kimberley Process, established in 2003, was designed to change the way diamonds were mined to ensure proceeds were not engendering violence by rebels nor slave labor. Business protocols were set up to imbue human rights adherence throughout the diamond supply chain to thwart the sale of what have become known as “blood” or “conflict” diamonds.
Still, the Kimberley Process is not perfect. In 2011, the human rights group Global Witness broke off its involvement with the Kimberley Process, saying the measures do not ensure conflict diamonds are being responsibly mined.
Enter the Clarity Project.
Begun as a project by three young, Northern Californian social entrepreneurs in 2009 to redefine the underlying value of a diamond and to give people added comfort in purchasing gemstones, the organization has grown into a sophisticated business model that is attracting the attention of some of the biggest names in the diamond and jewelry industry, Tiffany’s reportedly among them.
G. Ryan Ansin, who joined Clarity in 2013 as a co-founder, has a lot to do with the ramp-up. Ansin, an experienced nonprofit organizer who founded the Every Person Has a Story (EPHAS) organization, which is dedicated to telling the stories of community development projects around the world, teamed with founders Shane Rogers, Rachel Lichte and Jesse Finfrock to expand the focus of Clarity and augment its activities. This includes creating a sustainable mining company in Sierra Leone, taking on investors, targeting high-net-worth individuals as clients and tying it in with a bespoke travel and tourism experience.
“Wealthy individuals can visit Sierra Leone to mine diamonds with their own hands and bring their dream jewelry to life,” Ansin says.
Here is how Ansin says Clarity is carrying out its ambitious mission: Clarity will license the right to mine through agreements with local tribes. It will redeploy soil and wastewater as it extracts diamonds—environmental safeguards not typically used by larger commercial mines. Locals will be hired and paid fair wages, Ansin says, and a portion of the diamond sales will go toward health and education programs and creating a more sustainable community. Organizations that work with people affected by the atrocities of conflict mining will also be funded.
An enhanced certification program has been developed—labeled Development Diamonds—that includes a 10-point inspection process. An affiliation with a well-known jewelry designer will bring the stones to life—and market. Traditional retailers and sales outlets will bring in the customers.
It’s a provocative and disruptive mission that makes a lot of sense. And it’s one that makes you wonder why such a local development and fair-trade effort has not been embraced before. In any event, there’s more.
By targeting high-net-worth individuals, Clarity hopes to bring about a radical shopping experience. This is perhaps the most intriguing part of Clarity’s mission because it not only serves as a do-good boutique service, but also provides the opportunity for word-of-mouth marketing and testimonials.
Participants will also spend a few days learning about various ground-level initiatives, large and small, and impact opportunities, according to Ansin.
“Everyone that comes is required to make a significant contribution back to the fund we are creating, which on the back end becomes a donor advisory fund,” he says. “After having seen each initiative, patrons can choose exactly how the philanthropic capital is allocated—to which group, when and why.
They can choose just between straight philanthropy or impact capital. Or they can give us the ability to choose for them.”
The exact size of the contribution is still to be determined, but Ansin says the cost will be about $50,000 per traveler.
To be sure, this may seem like a lot of money to the average diamond consumer who spends a little more than $5,000 on an engagement ring. But for the ultra-high-net-worth individual who spends $250,000 on a diamond ring, the cost of such concierge service seems reasonably affordable.
“The simplest comparison is to luxury safaris,” Ansin says. “We have contracted a safari company to build pop-up, five-star accommodations on our land. Patrons will fly to Dakar, Senegal, first class. We will then take a private jet to Sierra Leone, where the Ministry of Mineral Resources and the Ministry of Tourism will greet us.
“By helicopter, we will cruise into our land. The first interaction with the community is a vocabulary lesson in Krio and a tour from the paramount chief and various community members of the territory. We will spend two days mining and creating your jewelry, two days of impact and philanthropic exploration, expanding minds and creating more sophisticated donors.”
The trip wraps up on Bonthe Island, where travelers can go scuba diving or snorkeling and dine with the president and the country’s business leaders, he says.
John Morris, a veteran luxury travel expert who runs Alpharetta, Ga.-based True Latitudes, says, “There clearly is a market for the unique travel experience that The Clarity Project is offering.” However, he is quick to point out that such a venture does not come without challenges.
In this case, the hurdle is creating a luxury experience in a place without a luxury travel infrastructure.
The Clarity Project’s wealthy travelers will expect high-end accommodations, meals, travel and activities, as well as a measure of privacy “even [if] they find themselves traveling with a group of strangers,” Morris notes.
Indeed, Ansin says travelers will have to be “made to feel like a philanthropic Indiana Jones staying at the Ritz.”
Clarity’s goal, obviously, is for people to buy more than a diamond; it is for people to buy into the concept of sustainability and better understand the connections to the material things they acquire. Behind every diamond is a story. Those who acquire stones from Clarity can make those stories personal. Importantly, they can pass them along.
According to Ansin, buyers will come away with three things:
• A gemstone or piece of jewelry. Ansin notes that finding a diamond is not all that difficult in productive soil.
• A personal Web site that keeps participants updated on the communities they visited—a tool that acts as a “living picture frame,” Ansin says. “We will teach photography programs in each of our mining communities as well as in the organizations to which we allocate funds,” he says. “This way, we can see reality through the eyes of the Sierra Leoneans—far more important than how we, the strangers, perceive change. Those photos of growth and development will be uploaded to our patron’s ‘living picture frames’ so they can see how their contribution continues to positively affect the community without being bothered by hundreds of e-mails.”
• Lastly, people will leave with the assurance their purchase positively affects a community.
Jim Sintros, a Boston-based international business consultant who has worked extensively in West Africa, says, “There is a need for something like [Clarity]. How you get it done is another story.”
Not only are traditional business challenges in the region great—operations, labor, management, etc.—but there are real dangers, Sintros says. “It’s a great model for Sierra Leone to pursue nationally, but it’s tough,” he says.
Among the dangers are threats from other mining companies. They will, he says, view Clarity as a threat because success would mean they, too, would have to offer fair wages and safe work environments—a costly transition. People at Clarity will have their lives threatened if they disrupt the usual way things are done and business is conducted in Sierra Leone, Sintros reckons. Graft, corruption and hostile work environments are par for the course in the West African business world, he adds.
Ansin, however, says he and his colleagues are up for the challenge, and have thought through every angle of the business, including security and the political landscape. The bottom line, he says, will be when people begin to see the positive impact Clarity has on the community.
While Clarity’s aim may be true, it is for-profit, or as Ansin calls it, a “for purpose” corporation. Associated funds and investments the corporation makes will be charitable, he says. That means Clarity itself is a straight-up capital investment for investors—an impact investment.
While there are impact investment programs that target the extractives, or mining industry, and many companies that offer sustainable diamonds and jewelry (Ivanka Trump even has a line), Clarity looks like it has a leg up because of its multitiered mission and partnerships.
The impact investing industry is estimated to have in the range of $50 billion of assets under management and growing. The mining industries in Africa are often targets of these programs because of the need and opportunity to effect change across a wide swath of issues: environmental, social, labor and corporate governance.
To date, impact investments have targeted wealthy individuals and accredited investors who can afford private equity programs. Now they can have the chance to have an emblem: a ring on their finger that means they did the right thing.
A Not-So-Precious Investment
By Raymond Fazzi
Diamonds often mesmerize investors as they do jewelry buyers, but after the glimmer wears off, precious stones amount to mere baubles in the realm of serious investing.
Indeed, the reason diamonds have repeatedly flopped in investment markets is the same reason they sustain a $60 billion luxury retail market: Gemstones are each unique and valuing them monolithically has proved difficult.
Unlike gold, you can’t just weigh diamonds to affix a unit price. The price is also heavily influenced by how the diamond looks, which is determined by what happens to the stone between the time it is mined in its raw form to when it’s cut by a professional gem cutter. In the diamond industry, the primary factors that go into measuring the worth of a diamond are called the “four C’s”: clarity, color, cut and carat weight.
These special qualities make the stones romantically endearing when mounted on an engagement ring. But for investment purposes, they make diamond prices complicated and hard to predict.
The lack of uniformity in diamond pricing means that in high-net-worth investing circles, diamonds and other gemstones remain steadfastly on the periphery, as “fun” investments that do double-duty as ornaments and, hopefully somewhere down the road, something that will bring a handsome profit when sold.
“What people currently do is buy a $2 million necklace or a precious stone and put it in a vault in their house,” says Richard Keary, founder and principal of Global ETF Advisors LLC. “Every once in a while, they show it to friends or get it appraised. Maybe they sell it.”
But as long as diamonds and other gems have high value, and continue to rise in value as they have in recent years, investors will remain tantalized about the possibilities. Thus, the efforts to securitize the diamond market continue.
Keary, for example, is one of the figures behind GemShares LLC, which has submitted an application to the U.S. Securities and Exchange Commission to create an ETF that would be backed by physical diamonds. IndexIQ is another entity that has filed with the SEC for a diamond-backed ETF.
GemShares feels it has licked the pricing problem by creating a patented, systematic way to evaluate, categorize and price white diamonds of various qualities for an index that would be used as a security benchmark.
The GemShares Global Investment Grade Standard (GIGS) would basically do what high-net-worth investors are doing now, but at an institutional level, according to Keary, one of the consultants on the project.
“We want to take that concept and put it into a security,” he says.
History Of Failure
If you go by recent history, GemShares and IndexIQ face some long odds in their attempt to securitize the diamond trade. In January, for example, Factor Advisors LLC closed two diamond-related funds: the PureFunds ISE Diamond/Gemstone ETF, which invested in the exploration, production and sales ends of the diamond industry, and the PureFunds ISE Mining Service ETF.
A little over a year earlier, Diamond Circle Capital plc, a closed-end diamond investment fund, liquidated its assets after sustaining losses every year following its launch in 2007.
In a 2011 report, Bain & Company described the diamond investment market as a minute portion of the overall diamond industry, far behind the sales generated by the jewelry and industrial sectors.
“Even though diamonds may seem like an attractive investment, much like gold or silver, the difficulties with valuation, the absence of a spot market and the lack of liquidity make them largely unsuitable as a financial investment at this time,” the report stated. “Going forward, there is no reason to anticipate that investment demand will become a significant part of the diamond demand pool in the near future.”
Yet, as the Bain report noted, the efforts to securitize the diamond market continue, without success.
Part of the reason, observers say, is that diamonds represent a steady, non-correlated asset, with the IDEX Online Polished Diamond Index having risen 35% since 2004. Gold, by comparison, has risen more than 230% during that time.
Another reason diamonds are such a tempting investment play is that, as is the case with gold, the stones have the power to seduce. This is what’s behind a consensus among analysts that the simple rules of supply and demand suggest that diamonds are headed for a further rise in value. Analysts note that new supplies of rough diamonds have failed to keep up with global demand, which is on the rise mainly due to the rising number of consumers—encompassing both the middle-class and multimillionaires—in China and India who crave the stones.
Underscoring the growth potential of diamonds and other gems are the occasional reports of fantastic, record-shattering prices paid for rare stones. In November, for example, a 59.60-carat pink diamond was sold at auction for $83 million—a world record for any gem sold at auction. The buyer of the stone, New York-based diamond cutter Isaac Wolf, spiced the story up further by naming the diamond the “Pink Dream.”
Bain predicted that demand for diamonds would grow about 6.6% per year between 2011 and 2020, while supply would grow about 3% per year during the same period, resulting in long-term price increases.
“An expanding middle class in China and India, together with the recovery of private consumption levels in developed countries, should generate robust demand,” the report stated.
Diamonds By The Basket
Those who continue to strive for a diamond security cite another trend working in their favor: the breakup of the industry’s pricing monopoly. Analysts note that, over the past 10 years, world diamond production has expanded beyond southern Africa to countries such as Russia, Canada and Australia.
In the process, De Beers has surrendered some supply control, allowing for more market-oriented pricing, analysts say.
“Today, that control is very much spread out,” Keary says. “The industry is changing dramatically.”
GemShares is hoping that this competitive marketplace, along with its diamond index, will reshape the diamond investment market.
GemShares, in partnership with the Nasdaq OMX Group, plans to create its diamond index by essentially creating 10 “baskets” of white diamonds that represent assorted levels of value. The diamonds in each basket will be assessed by standards that include color, cut, clarity, weight and other gem characteristics.
To keep things standardized, the ETF will deal strictly with white diamonds that meet its patented criteria, and will completely stay away from rarities such as the “Pink Dream.”
By bringing standardization and transparency to the process, Keary says, GemShares feels it will allow investors to feel more comfortable about putting their money into diamonds for the long term.
“We’re hearing more and more from the financial community that they would like to have this as an alternative to offer their clients,” Keary says. “For the first time, investors can actually be short diamonds.”
