Interview at Rubel & Ménasché website
ALROSA, the biggest diamond producer in the world, has pulled out all the stops in recent years to achieve a leading position in the diamond industry and to make a greater commitment to responsible sourcing approaches. Peter Karakchiev, Head of International Relations Department at ALROSA, has agreed to answer our questions and to enlighten us about the company’s increasing involvement in the industry and international organizations (WDC, RJC, KP or DPA), as well as its commitment to CSR in general, and its positioning in terms of the needs of end consumers…
1. Peter Karakchiev, what is your role in the Company?
I joined ALROSA in 2013 with the task to streamline its industry relations and formulate a comprehensive approach of the Company towards regulation and responsible sourcing of diamonds. Since then ALROSA officially joined WDC and RJC, strengthened its voice on the KP matters and participated in the creation of DPA.
2. Why was it important to join the WDC and the RJC and what do you expect from your membership of these international organizations, as a diamond producer on the one hand and as an important member of the industry on the other?
Participation in industry organizations is important for the Company in two ways, as you correctly put it. On the one hand, ALROSA is committed to responsible business conduct practices and has voluntary decided to follow the best in class international rules that are based on the KP as a cornerstone of any successful regulation in the diamond industry. On the other hand, being the world leader in diamond production we have a strong commitment not only to follow industry self-regulation, but to actively participate in its evolution by introducing practices that are instrumental in addressing current challenges the diamond industry is facing and that, if unanswered, may lead to negative impacts on the core of the diamond business – consumer confidence. That is why today ALROSA is a Board member of the three mentioned international diamond organizations, champions change and development to bring this unique and wonderful industry to the responsible business realities of the 21st century. This involves a lot of interaction on the future of the SoW and support for the development of KPCS trough WDC, reform of the CoP in RJC together with our industry partners from all segments of the diamond pipeline. With most of them we enjoy close bilateral relations but this does not imply that the discussions on industry regulation are easy. Nevertheless, in the end of the day we all have different interests and agendas but common goals and commitments that eventually lead us to finding consensus on almost any matter.
3. What role did ALROSA play in the creation of the DPA in May 2015? Why do you think this is the right time for the main diamond producers to work together in a structure whose role is to stimulate customer demand and the desire for diamonds? How do you work on a day-to-day basis with the other diamond producers ?
ALROSA was instrumental in creating and laying down the governance basics of the first ever industry body of diamond miners – the DPA. The idea was there for many years and long overdue. The creation of DPA came at a critical moment for the whole industry in its mission to secure the future confidence of consumers in our product and its integrity. To take the project off the ground, naturally, took some time. But founding members of DPA shared common goals. Timing is critical and we all in the DPA hope to see return on investments in generic marketing of diamonds in the near future. Today the work of DPA is fully structured and ALROSA as key partner in funding the association is satisfied with the progress made by DPA management on the key US consumer market and in launching supporting industry projects. We look forward to 2018 and DPA expanding its generic marketing activities in India and China, but also addressing together with other industry participants the issues of undisclosed synthetics, responsible sourcing and introducing best business practices.
4. In 2013, Igor Sobolev, First VP and Executive Director at ALROSA, announced to Edahn Golan that the aim was to “dominate the market by 2018”. Where are you up to?
The company’s strategic priority is leadership not only in terms of mining and resource base, but also financial and operational efficiency. ALROSA aims at creating long-term competitive advantages, giving the company opportunities to answer all the industry and economical challenges, thrive in any environment of the fast-changing modern world.
ALROSA will also seek to develop its presence in the market. The company has several new projects, including trade of colored stones, cutting and sales of unique polished diamonds under ALROSA brand.
5. To return to the subjects that are preoccupying the diamond industry at the moment, what is ALROSA’s position on sustainable development and building of responsible supply chain? In December, ALROSA announced it was in the top 3 Russian mining and smelting companies in terms of environmental responsibility…
Being the biggest public company in diamond mining, ALROSA carries huge responsibility towards its shareholders, employees and communities. The Company, having started its history in the middle of endless forests with harsh climate conditions and permafrost, today employs about 38 thousand people. The earnings of our workers are 2 times more than the average wage in the region of Yakutia and 3 times than the average salary in Russia in general. The majority of workers are also members of the specialized Trade Union, which protects their interests.
ALROSA is already the global leader in diamond mining. In 2017, ALROSA produced more than 39 million carats of diamonds, at least 5% more than year before. Today ALROSA accounts for about 28% of global rough diamond supply, being the largest diamond mining company in the world.
Moreover, ALROSA has the largest diamond resources. According to the JORC code, ALROSA deposits contain more than 1 billion carats of diamond resources. This means that if the company will keep the production at the same level, this reserves are enough for at least 25 years of work. But of course, we are not resting on our laurels, constantly pursuing exploration and searching for new deposits, are considering new projects – such as the “Luaxe” project in Angola, which is not accounted in this resources volume.
Moreover, we develop large-scale social programs. The Company provides for additional pensions, healthcare, assistance with mortgages and housing, cultural and sporting events. In 2016 alone ALROSA allocated for social investments more than 180 million USD, or about 3% of its revenue. About 100 million USD were spent on environmental projects. Furthermore, ALROSA annually pays more than 1 billion USD of taxes and dividends to Yakutia, accounting for almost 40% of the regional budget.
These facts obviously showcase our dominance in promoting the good that diamond mining can bring to the economy of the regions of operations, underlines Company’s leadership on global markets in terms of not simply volumes and sales, but also with regards to CSR, securing sustainability and transparency of our supply chain.
For example, you mentioned the WWF rating, in which ALROSA for the second year holds the 3d position among the Russian companies. This year we are even more amplified in this direction. ALROSA creates a united environmental center, which will oversee the entire environmental strategy, implement new tools for environmental monitoring and analytical database. We set ourselves ambitious goals – to reduce consumption of water and energy, CO2 emissions.
In the same way we are developing social projects. It is not enough just to spend a lot of money – you need to make sure that it really benefited people. For example, at the end of last year ALROSA began a massive program of free health screenings for workers. We invited the best doctors to let every worker pass a medical screening, get early diagnosis and timely care of their health.
As for responsible sourcing, you know that ALROSA has joined RJC in mid 2016 and already by the end of 2017 was certified against the organization’s Code of Practices following the independent audit. This is a strong signal to the entire industry and a confirmation of our adherence to best principles of business conduct and responsible sourcing that can be used by our clients-members of the ALROSA ALLIANCE in proving and promoting the source of diamonds that come from Russia. For us it’s an easier story if compared with other industry peers. ALROSA mines diamonds in Russia and sells only diamonds of its own production with 100% guarantee of the single origin of stones.
6. On the same subject, how does the Company see the development of industry-wide initiatives on responsible sourcing? Where does ALROSA stand on the industry agenda to build consumer confidence in diamonds? In your opinion, what concrete actions can the industry as a whole take to become more transparent and what difficulties have been faced?
Issues of responsible practices and sourcing are relevant at any stage of a diamond’s journey from mine to finger. Our diamond pipeline is challenged by the issues of conflict, human and labour rights, mixing of synthetics, transparency and others. All these risks can ultimately hit the most fundamental part of our business – consumer’s confidence.
In mitigating them the industry has how come at a crossroads and needs a clear vision on how to move forward with elevating the global diamond trade into the modern world. The shift in CSR matters demands from our industry to find a common approach towards many mentioned longstanding issues. They provoke a possible risk of legislative regulation and obligatory audit, as it has happened in other industries.
In the end of the day guarantee of origin and demonstration of adherence to responsible business practices becomes key for diamond jewelry marketing and industry promotion.
In this sense we push for the creation of a universal and transparent supply chain through our membership in all 3 already mentioned industry organizations: WDC, representing the industry in the Kimberley Process, RJC and DPA. Each organization plays its own crucial role in securing the integrity of our product and consumer’s confidence in it.
On KP matters, ALROSA promotes WDC’s position on strengthening the governance within the KP and creating a permanent secretariat, developing the KPCS minimum standards and elevating the peer review mechanism.
WDC itself has its own important role to play in its support of the KP and recommendations on industry self-regulation. We are looking forward to the work ahead on the started revision of the WDC’s System of Warranties (SoW) with the aim to integrate it with current practices of responsible and sustainable business.
Furthermore, over the past years other major commodity consuming markets have gone along the way of creating comprehensive due diligence mechanisms to ensure that the producers of consumer products are not faced with an issue of conflict minerals. This is a global trend and the diamond industry must become part of it, creating a system that is applicable to our product. Today the industry should decide on what viable and easy to use due diligence system can be put in place. We see the review of RJC’s Code of Practices as an opportunity to find consensus among many actors of the diamond pipeline on this matter. ALROSA is convinced that such due diligence system can only be robust and sustainable for diamonds if it is based on KPCS compliance and WDC SoW.
We already touched a bit on the aims of DPA in our common goal to re-establish generic marketing with the aim of boosting demand for the product in major consumer markets, bringing to life all the sectors of the pipeline. Here I should add that successful generic marketing can only be based on a solid foundation of industry self-regulation, responsibility and sustainability that are so important for the new generation of consumers.
These are the main industry-wide issues that we plan to concentrate on in 2018.
7. What new initiatives does ALROSA have that can be of particular interest to the French market? I saw that you considered taking part in the second conference at the French Haute École de Joaillerie, formerly the BJOP, about diamonds and synthetic diamonds, on February 14 in Paris…
For ALROSA it is important to create full awareness about the Company and its policies in responsible sourcing and sustainable development on the French market, among major jewelry brands. They are the ones who talk to our consumers and need to relay the diamond story to the customers upholding the confidence in our product.
Moreover, we feel the need to forge closer ties and talk more with jewelry industry organizations on the issues of KP and WDC, where the journey of the final product starts. Jewelry sector has to be more exposed to the developments on the rough diamonds side, and hopefully make its concerns also heard by the stakeholders in the KP, as this is not the case now. The need for extra exposure also comes in the opposite way. It is crucial for the rough diamond sector to understand the jewelry agenda and consumers sentiment. We want to see more collaboration with the jewelry sector on these issues and hope that it can be of benefit for the whole pipeline.
8. Also, in November 2017, the DPA, the Haute École de Joaillerie and the LFG signed a memorandum of understanding for diamond promotion. As a member of the DPA, what do you have to say about this project?
This is an important first step in an effort of DPA to find tailor-made solutions on establishing robust generic marketing tools on regional markets in Europe and beyond. ALROSA fully supports it. Such approach will help replicate generic marketing campaigns that are launched by the DPA globally and create a dedicated platform to support diamond jewelry sales in any country. Therefore, France will be a pioneer in this project.
9. Is there anything you would like to add?
To sum up, we really look forward to 2018 and further progress of the industry on all aspects of sustainable development and responsible sourcing in the diamond industry. A lot of the tasks that lie ahead are challenging and imply multi stakeholder engagement, but at the same time open so many opportunities and positive future returns if tacked properly. So everything is in the hands of the industry itself and its stakeholders, whether it is a leading diamond miner like ALROSA or a small family owned jewelry shop on the streets of Paris. We all have to do our bit in delivering the diamond promise to millions of people around the globe.