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Alrosa: Diamond in the Rough

By William D Alessandro on September 15, 2014 at 3:36pm.

Context:
De Beers is the most famous diamond producer in the world.  Surprise!  It isn’t the largest.  The unheralded Russian conglomerate Alrosa wears that crown. The state-owned company expects to produce 36 million carats in 2014.

Russian businesses are transforming to be globally competitive.  In the third quarter of 2013, Alrosa sold about 16% of its shares in an initial public offering.  Investors include two renowned asset managers Oppenheimer and Lazard.

Neither the Alrosa Group nor any of their 37 subsidiaries and affiliates has had formal relationships with international initiatives that proclaim the principles of sustainable development.  That situation is changing, too.   In 2013, the company started to draft documents to integrate sustainable development into the corporate management system.

What is going on? 

“Today, we are setting for ourselves new goals to secure industry leadership position for our company — a strong player in the global diamond market with an impeccable corporate reputation and high ethical standards,” explains the company’s President Fyodor Andreev in his introduction to the new, 2013 corporate responsibility report.

Content:
More than 40% of the report (32 pages) profiles the company and their operations.  Normally this would be too much.  In many reports such content is promotional and pretentious.

Not here. 

Readers who don’t know the company and those who want to put the environmental and social responsibility initiatives in perspective will be interested and enlightened.  Alrosa tells us more about itself in this report than is available elsewhere on the web or in news articles.

Alrosa declares an A+ level of data disclosures against the Global Reporting Initiative (GRI) standard.  The report contains information for each core indicator of the G3.1 guidelines and of GRI’s mining and metals sector supplement.  A 14-page table lists all the indicators with page references or explanations for variations. 

The company has been building up its risk management system since 2011.  A table lists those risks with a direct impact, their possible implications, and the tools the company has assembled to deal with each.

One section of the report is devoted to social responsibility.  Alrosa says its guidelines and policies in this area take into account the principles in the ISO 26000 guidance standard on social responsibility.  Complementing the narrative are four pages of metrics.

Routine occupational health and safety performance figures are provided (Alrosa follows the OHAS 18001 international standard.)  Other social indicators cover perquisites and benefits, healthcare measures, lifestyle supports for employees and communities, and training.  The data is broken out for each of the past five years.

Another section of the report discusses the group’s environmental affairs with an emphasis on expenditures.  An annex contains seven pages of environmental metrics. 

CO2 does not appear on the list of harmful pollutants in Russia.  The emissions are not regulated.  Consequently, Alrosa does not account separately for greenhouse gases. However, the report says the company intends to measure direct and indirect emissions from mobile and stationary sources. Following an independent assessment of the proposed Russian methodology, software is planned for periodical measurement of carbon emissions starting in 2015.

Communication:
Alrosa’s 2013 report is presented as a landscape PDF, i.e., showing two pages on the screen at the same time.  On first blush, the choice seems inflexible and cumbersome.  But intelligence is at work.  Nothing is arbitrary about the layout.

On one or the other page, a (editorially sensible) photograph, or a table, or graphs appear perfectly in tune with the accompanying text.  Of course, versions of this approach have appeared in other non-financial reports.  None, however, takes better advantage of the wide-screen format.  At the risk of overstating the case, the presentation is inspired. 

No credits are given naming any consultant for helping Alrosa produce the report.  Surely someone must have done so.  The report is written (or translated) too fluidly, concisely, and in compliance with the GRI reporting standard not to benefit from experienced hands in composing sustainability reports.

Credibility:
Alrosa hits all the right buttons. 

• The corporate environmental management system is certified to the ISO 14001 environmental management system standard.

• The company signed a new collective bargaining agreement in December 2013 with the Profalmaz trade union.  The provisions are described.

• In May 2014, the executive committee approved guidelines on responsible business practices.  Clients who buy raw materials under long-term contracts must share the goals of the Kimberley Process to prevent trade in conflict diamonds.

• The company abides by the AA1000 stakeholder engagement standard.
The process follows the principles of inclusivity, materiality, and responsiveness.

• PricewaterhouseCoopers provides an independent assessment of the quantitative indicators in the report.

Yet suspicions linger.

Certification to ISO 14001 does not demonstrate any quantitative performance levels but only the nature of the management system.

Discontent with the Kimberley process in the diamond trade is strong enough to leave doubts about its effectiveness.
 
Profalmaz is a company-approved union.  It descends from a national organisation that used to be a limb of the government.  Plus, the relationships between the state-owned company and agencies like the security police leave much to one’s imagination. 

The independent audit by PricewaterhouseCoopers is of the minimalist variety (“nothing comes to our attention”).   PwC does not offer comments or recommendations.

Though unmentioned in the sustainability report, the state of affairs in the Ukraine poses a significant if unlikely threat. The EU is eyeing tougher financial sanctions on Russia.  Most of Alrosa’s export market is in Belgium.  Any full export ban including diamonds could be devastating.

Alrosa is not to blame for all the doubts.  Still, the company has to address them.  They are not going away by themselves.

Recommendations:
1. Deepen the level of assurance and have the auditor provide a positive statement about the findings. 

2. Set quantitative and qualitative goals, and report progress towards them.

3. Invite international NGOs to review the report.  Publish their comments.

William D’Alessandro is president of Victor House News Co., an independent agency reporting on law and the environment for trade publications and executive newsletters.  He also edits Crosslands Bulletin http://www.crosslandsbulletin.com covering strategic corporate environmental management and sustainability issues.