Corporate Responsibility And Consumer Confidence

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Corporate Responsibility and Consumer Confidence: The Retail Jewelers’ Perspective

Remarks by Matthew A. RunciPresident & CEO

Jewelers of America

CIBJO CongressHong Kong

March 4, 2005

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Protecting the Reputation of Our Products and Our Businesses:

Managing Social, Ethical and Environmental Risk

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Consumer Awareness

As consumers we all are asking more questions today about the products we buy

Sharpened value assessments

Heightened product safety concerns

More detailed content disclosure

Social, ethical and environmental issues

Third party verification

Brand awareness

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NGO Campaigns, Media Coverage and their Effects

• Nike – Labor Standards• Exxon Mobil – Environmental

devastation• Kathy Lee Gifford – Child Labor issues • Philip Morris – Product Liability• Shell Oil – Human Rights• Addidas and other athletic brands –

2004 Olympics

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Positive CSR Positioning

Corporate Initiatives

• Timberland• Patagonia, Inc.• Body Shops • Starbucks Coffee• Wal-Mart• Home Depot• Kraft Foods

Striking a balance Starbucks fourth annual Corporate Social Responsibility Report describes our social, environmental and economic impacts on the communities in which we do business…

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Positive CSR PositioningIndustry Initiatives

• Tea Sourcing Partnership

• Marine Stewardship Council

• Forestry Stewardship Council

• Round Table on Sustainable Palm Oil

• World Cocoa Foundation

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Collaborative spectrum

Information Sharing Partial Collaboration Full Collaboration

Typical features

Different standards; Different implementation

programmes Agreement to share

information in a structured manner.

Common standards Different implementation

programmes Some collaborative

research and / or implementation efforts

Mutual recognition

Common standards Joint implementation programmes Multi-stakeholder approach

Advantages no agreement necessary on standards or implementation framework

may help reduce duplication of effort and cost

Improved awareness of risk

business partners have a clear understanding of what is expected

options to collaborate in an ad-hoc manner giving collaborators maximum flexibility and creativity

business partners have a clear understanding of what is expected

maximise resources and potential impact

avoids duplication of effort maximises leverage and influence

over business partners in order to effect change

Dis-advantages

Different requirements will remain

Quality and consistency of information being shared varies greatly

Due to inconsistencies in codes or implementation standards and lack of reliability of data, duplication may persist

influence over business partners maybe limited where small volumes are traded

duplication is likely resources are not pooled

collaborators will need to invest time at the outset in order to agree the common standard and joint implementation approach. Compromises may be needed.

May be difficult politically for collaborators to disengage from process

Slower process Protection of competitive advantage

and commercial information.

Examples SEDEX Ethical Trading Initiative International Cocoa

Initiative Elimination of Child

Labour in Tobacco Growing Foundation

Ethical Tea Partnership Forest Stewardship Council

Level of collaboration

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Examples and outputs of industry-wide collaborationsCollaborative scheme / initiative

Industry / product Key Features Objective Output to date

Ethical Trading Initiative

Companies, NGOs and trade union organisations. Companies are primarily from the food and apparel industry but looking to expand to other industries

Multi-stakeholder approach Corporate members must

meet criteria for entry and must report performance annually to ETI

To promote and improve the implementation of ethical supply chain corporate codes of practice

Shared standard and supporting principles of implementation

Library of relevant resources

Research projects Capacity building and

training Multi-stakeholder

“roundtables”

Forest Stewardships Council

International association of members including environmental and social groups, companies in the timber and forestry industry, community forestry groups and certification organisations

Includes community, labour and environmental issues.

FSC trademark may be used on timber products that have been FSC certified.

To promote environmentally appropriate, socially beneficial and economically viable management of the world’s forests

Common standards and policies

Certification and accreditation scheme

Widely recognised trademark

Elimination of Child Labour in Tobacco Growing Foundation

International trade unions, tobacco growers association and corporations dealing in tobacco

Focus on one key issue, i.e. child labour

To contribute to the elimination of child labour in tobacco growing

Statement of principles Support of research and

local community projects

Biotechnology Advisory Council

Independent advisory body established by Monsanto comprising of individual biotechnology policy, business and opinion leaders.

Panel of experts providing stakeholder input into an individual company.

Provide input into company policies, products and biotechnology-related issues.

Stakeholder engagement

Ethical Tea Partnership

UK tea companies Site visits are conducted on behalf of ETP and results shared between all members

To understand how tea is sourced and to assess conditions on tea estates and factories by monitoring

Joint monitoring of tea estates and factories

Common monitoring methodologies

World Cocoa Foundation

Global cocoa companies, trade unions and NGOs

Covers a wide range of sustainability farming issues as well as a focus on child labour.

Focus on training.

A program to promote cocoa farming in a sustainable, environmentally responsible manner through training.

Awareness raising Support of local cocoa

growing and responsible labour and environmental initiatives

Global e-Sustainability Initiative (GeSI)

Global ICT companies, trade union, UNEP

Looks at a number of sustainability issues of the industry, including responsible sourcing.

To improve the sustainability of the ICT industry

Best practice framework for managing CSR risks in supply chain.

SEDEX Food and apparel companies Provides a portal for sharing information

Aim is to ease burden on suppliers as well as companies

To make it easier for suppliers to provide information on labour standards and to reduce duplication.

Database of information pertaining to labour conditions and practices at supplier sites

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Positive Brand Positioning Corporate Initiatives

– Tiffany & Co.

– Signet PLC

– Cartier International

– Zale Corporation

– Wal-Mart

– Rio Tinto

– BHP Billiton

– Diamond Trading Company

– Newmont Mining

– Other Gold Mining Companies

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Positive principles and practices Some examples of positive institutional initiatives

World Diamond Council (WDC) System of Warranties

Resolutions of World Federation of Diamond Bourses (WFDB) and International Diamond Manufacturers Association (IDMA)

American Gem Trade Association Code of Ethics (AGTA)

Jewelers of America SEE Principles and Supplier Code of Conduct (JA)

International Council on Mining and Metals Sustainable Development Framework (ICMM)

National Mining Association Sustainable Development Principles

CIBJO Code of Ethics: Best Practice Principles (Ethics Commission)

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“The Tzisa is dead.” Bransislav Blazic, Environment Minister of Serbia, after the cyanide spilled from a Romanian gold mine, polluting the Tsiza and then the Danube River which empties into the Black Sea. The spill has been called the worst environmental disaster since Chernobyl.

THE WASHINGTON POSTFebruary 15, 2000

Headlines – past and presentThe gem seekers of Madagascar are digging their way through one of the globe's richest natural environments

Individuals are seeking riches by exploiting a land of unparalleled bio-diversity. Driven by the arrival of dozens of precious-stone dealers from overseas, the sapphire seekers are digging their way through one of the globes richest and most unusual natural environments.

Financial Times, February 3rd 2001

Mining Giant Warned on Pollution in Indonesia

An internal company report warned top executives at the world’s largest gold producer in 2001 that the company was putting tons of toxic mercury vapors into the air in Indonesia. Some thirty-three tons of mercury that Indonesian officials say should have been collected and sent to a legal dump were instead sent into the air and sixteen more tons were released into the bay, the report says.

The New York Times December 22, 2004

“All conflicts in sub-Saharan Africa are due to conflict diamonds.”

Representative from the United Nations High Commission for Refugees

Jewelry industry looses its sparkle, as children continue to cut and polish!Leading British and US based NGOs lead the charge against the jewelry industry. They claim that not enough is being done to curb the use of child labour in diamond and gemstone cutting and polishing, citing that in India, the world’s biggest diamond and gemstone cutting centre polishes 70% of world’s diamond yield. NGOs estimate that children account for 10% of diamond polishers.

Financial Times, June 2002

“Much-Smuggled Gem Called Tanzanite Helps Bin

Laden Supporters”“…’snakes’, the term for boys who sift piles of grit in the surface and sometimes wriggle

into the crevices too small for adults.”

Wall Street JournalNovember 16th 2001

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NGOs: Media Communications

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NGOs: Campaign images

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NGOs: Public Demonstrations

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Grassroots Public Advocacy

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A Partial List of NGOs Active on the Conflict Diamond and No Dirty Gold issues

Some NGOs engaged jewelry industry issues that you may already be aware of:

– Global Witness– Partnership Africa-Canada– Physicians for Human Rights– Amnesty International– Oxfam– World Vision– Action Aid– One Sky– World Wildlife Foundation– Rainforest Action Network– Greenpeace

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And some whose involvement you may not be aware of:

– Save the Children– United Church of Christ– United Methodist Committee on Relief– United Methodist Church– Commission on Social Action of Reform Judaism– Canaan Christian Fellowship Fund– Catholic Relief Services– Society of St. Ursula– American Friends Service Committee– Evangelical Lutheran Church in America– Lutheran World Relief– Mennonite Central Committee– Maryknoll Office of Global Concerns– National Council of Churches– UNICEF– UN Children's Fund– Christian Children's Fund

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Why do SEE issues matter?

PRODUCT IMAGE:

We Represent Our Industry’s Products As:

• Signs of achievement, milestones, class and security• Symbols of love, happiness and wealth• Luxury goods that all may aspire to own

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Jewelry Supply Chain Risk Assessment

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SEE principles cover

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Hig

hM

ed

ium

Lo

w

Level

of

Impact

Likelihood of it becoming an issue

SEE Risk AssessmentThe issue criticality matrix

• Training & Development

• Employment•Tax evasion

• Procurement transparency

• Human Rights e.g. Conflict diamonds• Labor rights e.g. child labor

• Distribution of economic benefits• Environmental issues• Business Integrity e.g. Money Laundering

HighMediumLow

Risk assessment carried out by Jewelers of America and PricewaterhouseCoopers

• Security issues• Health & Safety• Wages & Benefits• Product integrity• Dislocation of peoples

• Diversity & equal opportunities• Employee satisfaction• Profitability• Anti-trust

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Jewelry Value Chain Actors – A risk map

• Strong HSE policy &control mechanisms

• Emerging social community and human rights controls

• No controls in place

• Serious Health, Safety and Environment

KEY = Risk see non compliance

RED = HIGH RISK

ORANGE = MEDIUM RISK

GREEN = LOW RISK

Trading

Cutting & Polishing Large Workshops

(500-3000 workers)

Manufacturers

Agents/ Distributions

Retailers

Smaller Workshop

Smaller Workshop

Smaller Workshop

Smaller Workshop

Mining Large Scale Mining Small Scale

• Labor practices poor

• Transparency low

• No controls in place

• 20-40 people

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SEE risks - by issues in the value chain

Mining

Trading

Cutting and

Polishing

Manufacturing

Retail

Ensuring Human Rights:

Funds gained from mining fuelling conflict (e.g. Conflict diamonds)

Rights of indigenous land owners abused

Fair compensation for traditional land owners that are displaced

Gemstones sourced from oppressive regimes (e.g. Burma)

Military suppression security personnel involved

in human rights abuses

Conflict diamonds

Ensuring Labor Rights:

Safety conditions in mines (asbestos, instability – especially in small-scale mines)

Child labour (mining of metals and gems; deep sea diving for pearls)

Slave labour Labor abuses – blatant

violations of laws

Child Labour cutting and polishing diamonds and gemstones (e.g. India)

Health and Safety (equipment, hazardous chemicals, wages/hours)

Health and safety of workers

Wages/Hours Child labour (for

non US production)

Health and safety in repair shops (poor air ventilation, improper gear or clothing worn)

--------------------------------------------- Freedom of association ---------------------------------------------

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SEE risks - by issues in the value chain

Protecting the Environment:

Use of mercury in mining process (Brazil, Cambodia)

Degradation of biodiversity (Madagascar)

Cyanide use in mining gold (pH of water, pollution of rivers, acid mine drainage)

Abuse of natural resources Hazardous chemicals used Small-scale mining Mining in ecologically

sensitive sites

Improper disposal of chemicals

Improper disposal of chemicals

Improper disposal of chemicals used in shops

Ensuring Business Integrity:

Bribing of govt officials Corrupt governments

misusing mining tax revenues

Tax evasion

Money Laundering Smuggling (gem

stones, Burma etc) Funding terrorist

networks (diamonds) Lack of transparency Fuelling corruption

Tax evasion Synthetic gemstones

Tax evasion

Money Laundering Improper disclosure

of enhancing treatments of gemstones

Under-carating of gold

Diamond switching

Fair distribution of economic benefits:

Tax payments to government

Distribution of benefit to communities

Distribution of economic benefits to communities

Pressure for cutting and polishing to be done in Africa to increase share in economic benefit

Mining Trading Cutting andPolishing

Manufacturing Retail

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SEE risk assessment - by product

Product type Matters to consider Level of Risk (% of sales by value)

Diamond jewelry (30%) Diamonds constitute up 46% of sales revenue Very HighLoose diamonds (16%) Currently high level of NGO activity

Gold: (11%) Luxurious good, similar exposure to NGO action as diamonds High

Colored gemstone (9%) Diverse range of products, more difficult to control risks High jewelryRepair/ custom work: (10%) Retail section focus of ‘code of ethics’ Medium

Most NGOs focusing on developing world issues

Watches (4%) Reputation risk carried primarily by brands Low

Platinum: (3%) Minor product as a percentage of both value and quantity LowDevelop solutions where overlap exists with gold.

Silver (2%) Higher percentage of sales by quantity (as opposed to value) LowActive consumers in regard of reputation issues

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Defining Social, Environmental and Ethical (SEE) Issues for the Jewelry Industry

Human and Labor Rights• Conflict Diamonds• Child Labor• Working conditions• Slave Labor• Safety conditions in mines

Environmental• Use of hazardous materials in mining

operations• Mining in ecologically sensitive areas• Degradation of biodiversity

Ethical/Legal• Money laundering • Terrorist financing• Gem smuggling• Misuse of revenues by government officials• Bribing of public officials• Tax evasion• Underkarating of gold• Improper / ineffective disclosure of diamond and colored

gemstone treatments and synthetic gemstones

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The “ New Integrity Equation ”

Your existing reputation in business is based on the things you did yesterday. Maintaining that reputation in the future depends on what you choose to do today and tomorrow.

Consumers today are holding retailers (brands) accountable not only for those situations that are within their immediate universe of control, but also for situations within a much broader sphere of influence. It’s not just about the jeweler’s practices in their shops, but rather about the full life cycle of the product they bring to the market. Accountability for what happens at each level of the supply chain is now spread throughout all levels of the supply chain. The retail jeweler is the face of the industry to the consumer and is therefore face of accountability for the entire industry to the public.

Consumers trust in the jeweler alone is not likely to offset fully a strong negative image associated with the integrity of the product itself. A positive image of the product is the starting point for the jeweler’s value added confidence-building. The jeweler can add confidence to the equation but he is challenged if he bears responsibility alone to offset a negative product image that poses a risk to continued consumer confidence. Preserving consumer confidence in the product is the foundation for a jeweler’s ability to establish and maintain consumer confidence in his business.

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Conflict diamonds: Impacting on consumer choices?

• Source: Taylor Nelson Sofres face-to-face omnibus poll: 2,053 representative sample of British adults; interviews carried out for ActionAid between 17-21 January 2003.

• Because of a new international agreement, (KPCS) jewelers should now be able to guarantee that their diamonds are ‘conflict free’.

• Would you buy diamond jewelry if the jeweler could not guarantee this?

• Yes 30%

• No 70%

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Conflict Diamonds: Registering in Consumers’ Awareness?

JCOC Survey Results

– A survey conducted in July 2003 by the Jewelry Consumer Opinion Council (JCOC) found that 26% of diamond jewelry consumers in the United States were aware of the term “conflict diamonds,” compared with 16% in December 2002, 9% in May 2001 and 7% in October 2000.

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2004 Cone Corporate Citizenship Study (US) An overwhelming 90% of Americans responding to a

recent study say they would consider switching to another company’s products or services if they felt the company had behaved illegally or unethically.

A full 81% say they would speak out against the “offending” company among family and friends, while 73% say they would boycott that company’s products or services.

Will the jewelry industry gain benefits, beyond not losing customers, from corporate social responsibility efforts? According the Cone study, the answer is yes. Consumers will reward companies that play a more active role in meeting society’s needs. The study shows that 86% would switch from one brand to another, if the latter brand was associated with a cause. A full 85% say they assess a company’s commitment to social issues when choosing it, while 74% say they use such information in deciding whether to recommend a company to other people.

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Cone Study 2004 (continued)

The study also shows that companies need to do a better job in publicizing their corporate responsibility efforts. . . . A clear majority of Americans want companies to talk about their efforts, but only 4 in 10 say companies are doing that well. For senior executives these facts are a mandate for action on social issues. For marketing executives they are license to communicate the company’s commitment and efforts.

The Gen Y generation (aged 18-25) are significantly more likely than older people to consider a company’s citizenship practices when making purchase decisions.

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Worldwide Trends

Consumers worldwide are becoming more and more active in directing their spending towards goods that meet their

ethical expectations and boycotting companies and brands that are seen as exploiting suppliers.

o Environics International’s latest Annual CSR Monitor reported

that 27% of consumers across 25 countries have punished companies for being socially irresponsible and another

21% have considered doing so.

o A recent survey by the Co-Operative Bank (UK)found that 30%

of consumers believed that they could best influence the corporate responsibility of business through ‘boycotting companies that I feel are unethical’.

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JA – supporting members to manage social, ethical and environmental risk

Taking an industry wide approach to these issues

• SEE issues are often complex and impact the reputation of the products we sell as opposed to specific individual retailers. As such, as an industry we have a collective interest to manage social, ethical and environmental risks that may impact on the reputation of our products.

• JA has been playing an important leadership role in this arena by establishing a non-commercial umbrella initiative for the entire US industry and through collaboration with leading corporate entities and international trade associations, e.g., CIBJO, for significant portion of the industry worldwide.

To date JA has:

• Proactively addressed SEE issues relating to the jewelry industry

• Adopted JA Social, Ethical and Environmental Principles for retail jeweler member companies

• Established an Ethical Initiatives Committee as a standing committee of the board of directors

• Established two subcommittees focusing on human rights and the environment

• Begun stakeholder engagement with key NGOs that focus on these issues

• Adopted the JA Supplier Code of Conduct for companies that supply JA member retail jewelers

• Work continues on strengthening the credibility of JA’s commitment to SEE issues through

• Capacity building among members

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JEWELERS OF AMERICARETAIL JEWELERS SEE PRINCIPLES

Respecting Human Rights

Respecting Labor Rights

Protecting the Environment

Promoting Business Integrity

Promoting Equitable Equitable Economic

Development

Supporting Communities

National Security(AML Compliance)

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JEWELERS OF AMERICASUPPLIER CODE OF CONDUCT

JA Members’ Commitment to

Suppliers

Working Hours Freedom of Association

Legal Compliance Discrimination Environment

Health & Safety Harassment and Abuse Ethics & Integrity

Remuneration Forced Labor Conflict Diamonds

Monitoring Communication

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CIBJO Code of Ethics (2004)

Best Practice Principles

These principles are designed to ensure that best practice is observed in the jewelry industry:

1. Consumer Confidence – We are committed to operating our businesses with a view to ensuring that consumers

buying jewelry are able to rely with confidence on the professional and ethical standards and technical skills of the jewelry industry, taking account of the following:

• (a) gemstones are objects of prestige, generally acquired for sentimental reasons and are regarded as an item of value by the consumer;

• (b) the consumer has limited expertise about gemstones and consequently, in order to make an informed choice, the consumer is reliant on (i) the standards and integrity of the jewelry industry, and (ii) information from the jewelry industry as to cut, color, clarity and carat weight and other attributes, including the application of any treatment as described in the CIBJO Blue Book;

• (c) the highest professional and ethical standards and technical skills are necessary to ensure that consumer trust is not misplaced and that the reputation of the jewelry industry is maintained and enhanced;

• (d) the non-disclosure of treatments, and the passing off of partly or wholly synthetic stones and simulants as natural stones, is contrary to the interests of consumers;

• (e) the injury and hardship suffered by local populations (and the potential for it) when conflicts arise in gemstone producing areas are unacceptable, as is seeking to profit from such conflicts.

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CIBJO Code of Ethics 2. Business Practices

– We are committed to operating our businesses in such a way that we neither engage in, nor encourage in any manner, the following practices which are regarded as unacceptable and against the public interest and that of the jewelry industry:

• (a) buying and trading rough gemstones from areas where this would encourage or support conflict and human suffering;

• (b) the use of child labor; • (c) practices which intentionally or recklessly endanger or harm the health or

welfare of individuals; • (d) conduct which conflicts with the principles set out in (1) above, thereby bringing

the jewelry industry into serious disrepute. 3. Commitment

– We are committed to the highest industry ethics including the following: • (a) action to address concerns arising out of the misuse of rough gemstones in

support of conflict and regular discussions on other issues relevant to the jewelry industry to enable appropriate and timely industry responses;

• (b) the provision of proper working conditions (including the health, safety and well-being of workers);

• (c) the dignity of individuals and best practices to ensure the fair treatment of individuals;

• (d) full compliance with international best practice and the related regulatory framework with respect to the environment;

• (e) full disclosure at all levels of the jewelry distribution chain and, most importantly, to consumers, of all treatments to natural gemstones and of wholly or partly synthetic stones and of simulants and compliance with the rules, regulations and guidelines published from time to time by CIBJO.

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CIBJO Code of Ethics

The World Jewellery Confederation (CIBJO) is introducing best practice principles to ensure the jewelry industry is run in an ethical and professional way.

CIBJO is committed to abiding by these principles and is making it a condition of membership to comply with them. Moreover the principles are formulated to ensure that CIBJO members encourage adherence to them at all levels of the supply chain down to the consumer. CIBJO will also encourage other industry organizations to adopt these principles.

The implementation and monitoring of these Best Practice Principles will ensure consumers buying jewelry will be able to rely with confidence on the ethical standards of the jewelry industry.

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ComparativeBenchmarking:CIBJO and Other Organizations

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Comparative Benchmarking(continued)

excel sheet page 2.jpg

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Vision - Where do we want to be in 2-3 years time?

The reputation of our products, our businesses and our brands are protected

To be in a position to communicate confidently about the integrity of the products we sell to our customers

To have a well established and resourced foundation for the jewelry sector on corporate responsibility and consumer confidence

– that is global in nature; – with active participation from all segments of the jewelry supply chain; – membership to which would be voluntary in nature and be open to any

member of the jewelry supply chain – regardless of size, sector, brand and cultural grounding - that is committed to operating in a responsible manner

– that builds on the work already done by others (national and international industry bodies, jewelry retailers and diamond and gold producers)

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CIBJO Ethics Commission Meeting

– Sunday, March 6, 2005

– Harbour Room

– 2:00 - 5:00 pm

CIBJO’s Opportunity