The true cost of your engagement ring
The true cost of your engagement ring
Retailers know that consumers are prepared for a significant expense when buying fine jewelry. But how many shoppers still would buy if they knew the price tag included the natural capital costs of their purchase, or if they were aware of how these externalized costs were damaging local economies?
Jewelry is an emotional and financial investment, and it makes sense that retailers want to assure customers they are making an ethically sound decision.
Movie buffs who have seen “Blood Diamond” and sustainability professionals familiar with the Kimberly process know about conflict diamonds and ethical gemstone sourcing, but historically most people have paid little attention to the impacts of precious metals. This dynamic is changing: customers, investors and other stakeholders increasingly are starting to hold retailers and businesses accountable for the footprint of the products they sell. In this context, the socialization of natural capital costs is becoming increasingly unacceptable.
Amid a rash of summer weddings, Trucost decided to investigate: How large are the natural capital costs in a gold or platinum engagement band?
What we found is that natural capital costs can be significant (methodology at the end of the story). The natural capital cost of the platinum ring is $39, representing only a small fraction of the typical retail price. For the gold ring, the natural capital cost is $60, almost 40 percent of the retail price. If these natural capital costs were passed through the supply chain, a significant portion of the retailer’s product margin on a gold engagement band is at risk. If retailers passed all these costs through to the customer, the cost of a gold band would rise by 40 percent.
We looked deeper to find out why these costs differ, because the natural capital cost of producing a gold engagement band is about 55 percent higher than that of the platinum engagement band. According to available records, we found that gold’s largest impact is land use, accounting for over three quarters of the total environmental impact. In general, gold production generates a much larger quantity of tailings, the term for mining waste, per unit than platinum production.
What’s also interesting is that platinum production is relatively more at risk than gold from carbon tax and cap and trade programs, because greenhouse gas emissions account for 41 percent of platinum’s total natural capital cost but only 17 percent of gold’s costs. Natural capital risks also can be tagged to different business activities: platinum metal extraction and energy use accounts for 90 percent of the total impact, while the most material impacts for gold are associated with the disposal of tailings (56 percent), metal extraction (22 percent) and energy use (19 percent).
Geography also matters. Some differences between the natural capital costs of the two metals may be explained by the processes and regulations in different regions. For example, in one of the platinum mining regions air quality legislation is much more strictly enforced than in the other region. To see just how important this variation is, Trucost analyzed the environmental cost across the major production locations for platinum and gold. In fact, it’s very important: there’s a 15 percent difference in the true cost of a platinum ring from the best to worst sourcing locations, and a 38 percent difference for gold.
For retailers, jewelers and mining companies, the natural capital valuation lens highlights opportunities to uncover opportunities to minimize the environmental impacts of products and manage risks. For example, retail buyers and category managers concerned about pass-through environmental regulatory costs or commodity disruptions from fluctuating natural resource availability can evaluate suppliers’ natural capital risks by production location. It may not always be practical to switch suppliers, but companies with greater awareness of their natural capital risk will be better able to manage supply chain exposure, now and in the future.
Mining companies with efficient production technologies also have an opportunity to incorporate natural capital costs into their traditional financial metrics, and show buyers or investors how they are taking these risks off the table. If the mining industry measured its average natural capital costs, individual companies could benchmark their performance against the average, and the industry as a whole could communicate improved environmental performance in business and financial terms.
Companies – whether retailers, jewelers or mining companies – that account for their natural capital exposure will be well-placed to build a more optimized and resilient business model, helping to gain a competitive advantage in an increasingly resource-constrained world.
To measure the natural capital cost of platinum and gold engagement rings, Trucost analyzed the life cycle-based greenhouse gas emissions, air pollutants, water use and land use of precious metal production, from mining through to refining, including the impact of the infrastructure required to complete the precious metal processing. Land use impacts associated with tailing disposal also were included. Trucost then calculated the natural capital cost of each impact, applying the global social carbon cost to greenhouse gas emissions, country-specific damage costs to air pollutants and water use, and ecosystem-specific costs to land use. Countries and ecosystems were selected based on locations of gold and platinum primary production.
Engagement ring image by creativepro/Shutterstock