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Green gold? (pg. 2)

By Marc Gunther, senior writer
September 3, 2008: 10:24 AM EDT

But when Tiffany began asking questions about the origins of its gold and silver, the company hit a wall. Gold is mined in more than 60 countries, and the industry that supplies the metal to retailers is highly fragmented, with dozens of refineries buying gold from mines across the globe and often melting it together before shipping it off to banks or manufacturers. The refiners and banks that sold Tiffany its precious metal could not tell the company which mine, or even which country, produced its gold. "There are many impermeable membranes in the supply chain for gold jewelry," explains Assheton Carter, an industry expert at Conservation International who advises Wal-Mart. "You don't know if your gold comes from a responsible company like Rio Tinto or Newmont, or from a child laborer in Sierra Leone."

That's why traceability is vital. Without it, retailers and their customers can't use their buying power to reward mining companies that act responsibly and avoid those that don't. This approach is by no means unique to mining; on the contrary, it has been developed and refined over time in such industries as fishing, forestry, and agriculture, where activist groups have pressured brand-name retailers to set standards that protect natural resources. So, for example, Whole Foods now promotes salmon certified by the Marine Stewardship Council, wood sold at Home Depot is adorned with the logo of the Forest Stewardship Council, and Starbucks sells Fair Trade coffee. Instead of selling pure commodities, these retailers are selling fish, wood, coffee - and now gold - with a backstory.

Tiffany solved its traceability problem by opting to buy its gold exclusively from Bingham Canyon. But Kowalski wasn't finished. He put in a call to Steve D'Esposito, the president of Earthworks, to see what else the company might do. Since then Kowalski has convened meetings of jewelers and NGOs, financed studies of mining practices, and publicly opposed new mines in environmentally sensitive areas. "Putting our Tiffany house in order is nice," Kowalski says, "but it doesn't address the issue of responsible sourcing in the jewelry industry."

That's harder because all the jewelers in the U.S. - Wal-Mart, Tiffany, Cartier, and the mom-and-pop shops organized as the Jewelers of America - account for only about 10% of the world market for gold jewelry. India, China, and the Middle East each buy more. So if mining companies don't want to meet the standards set here, they have plenty of other buyers for their gold.

Just getting jewelers and mining companies into the same room has been a challenge. "The jewelers had never talked to a mining company," D'Esposito says. Gradually, two organizations have emerged: The London-based Council for Responsible Jewelry Practices (CJRP) includes jewelers, refiners, mining companies, banks, and trade associations but no environmental groups, while the Initiative for Responsible Mining Assurance (IRMA) has all those parties plus the NGOs. Both have begun the painstaking process of developing mining standards, but progress has been slow. "IRMA's been going round and round in circles for two years," says Carter of Conservation International. "Wal-Mart cut through the b.s."

****

When Wal-Mart launched its big sustainability push in 2005, the people who design the stores and manage its fleet came away with clear marching orders to save energy and cut waste. But as a jewelry buyer, Pam Mortensen wasn't sure where she fit in. "What can we do in our little world?" she wondered.

First Wal-Mart brought in Assheton Carter to give Mortensen and the other jewelry buyers a crash course in mining. He argued that their business would benefit by building closer ties to suppliers. (He's the good cop, remember.) Then bad cop Earthworks and its "No Dirty Gold" campaign weighed in with newspaper advertisements on Valentine's Day 2006, naming Wal-Mart a "laggard" while praising Tiffany and Cartier. In the argot of the NGOs, this is known as a "rank 'em and spank 'em" campaign.

Mortensen wasn't sure how to respond. "I really felt like it was an impossible task," she said. "We had no relationships with any mines. How do we even tackle this?" Wal-Mart looked into buying recycled gold - which is the "greenest" kind of gold, since it requires no new mining - but the supply is limited. Besides, the "Love, Earth" line would not be quite as romantic if customers traced their gold back to a discarded cellphone, a pawned wedding ring, or someone's old dental work - all of which are used to feed the recycling stream.

Mortensen then turned to Kennecott and to Newmont Mining Corp. (NEM, Fortune 500), which agreed to supply gold and silver to Wal-Mart from its mines in Nevada. But because Wal-Mart, unlike Tiffany, does not make its own jewelry, Mortensen needed a way to track the gold through its supply chain.

It is here that Warren Buffett makes a cameo appearance in our story. The Richline Group, a unit of Buffett's Berkshire Hathaway, manufactures gold jewelry for Wal-Mart and other retailers. After consulting with Buffett, Dave Meleski, the president of a Richline division called Aurafin, tried to figure out how to track Wal-Mart's gold from the mines and refineries to Richline's factories in Providence, the Dominican Republic, and Bolivia, and from there to a Florida distribution center and Wal-Mart and Sam's Club stores. "My first reaction, like most everybody in the jewelry industry, was that the hurdles were bigger than we can deal with," Meleski says. "Who the heck knows how the jewelry can be traced?" He found the answer in a small startup company called Historic Futures in Gloucestershire, England, that specializes in supply-chain traceability. Historic Futures built a web-based system to track serial numbers etched on bullion that enables buyers of "Love, Earth" jewelry to track the history of their gold bracelet or necklace (at loveearthinfo.com) to its origins.

While Wal-Mart says it eventually wants all of its gold, silver, and diamonds to be sourced from mines that meet its standards, it has set a modest target of buying just 10% from responsible sources by 2010. By then both Mortensen and Tiffany CEO Kowalski are hoping to have persuaded more big mining companies and banks to join IRMA, the responsible mining initiative.

But Mortensen is not sitting still in the meantime. After months of conference calls with miners and NGOs, Mortensen and Gail Campbell, who oversees jewelry buying for Sam's Club, recently produced a report for Wal-Mart called "Vision and Principles for Sustainable Sourcing of Jewelry." It's essentially a code of mining-industry practices, like the ones that the other jewelry and mining groups are still arguing about. "We just kept pounding away at the issues," says Mortensen. But they left some big questions unresolved. What, for instance, does it mean for a mining company to achieve "the widest possible acceptance and support of communities" before a new mine can be dug? That issue is not likely to get settled anytime soon.

"We realize that it's not a perfect world," says Mortensen at the end of her full-day VIP tour of the Bingham Canyon mine. "But if we don't start somewhere, we won't get anywhere."  To top of page

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