Jewelry makers' new challenge: Can lab-grown diamonds still be a girl’s best friend

In 2011, Jason Payne and Lindsay Reinsmith went shopping for an engagement ring, but ran into what some might call a First World problem.

Given the problem of conflict diamonds — also known as blood diamonds, jewels mined from war zones or brutal insurgencies that ultimately fund those conflicts — "we were not comfortable using mined diamonds. We wanted something that was sustainable, ethical, vegan," Reinsmith told CNBC in a recent interview.

Then, a burst of inspiration hit the couple: Why not grow a stone in a laboratory, free from bloody wars and ethical conflicts that taint the $79 billion diamond industry?

From those early questions, Ada Diamonds — a start-up that provides lab-grown diamonds made through a special process using high pressure and temperature to make stones identical to those extracted from nature — was born. The husband and wife team raised a seed round from 8VC as well as Winklevoss Capital and Autonomous.

Ada Diamonds is part of a growing trend of diamond producers using environmentally sustainable, and ethical, means to produce jewels that don't have ties to insurgencies or politically unstable countries. Using a proprietary process, the company makes bespoke fine jewelry, with a focus on high fashion and bridal jewelry. Customers can custom order diamonds that contain mementos or mark special occasions, yet the entire process is ethically sourced.

"Ada is focused on educating consumers on the ethics of our diamonds. Ada is also vegan, which people may not realize," Reinsmith said.

"We don't demonize mined stones for what they are. The vast majority of our customers own natural diamonds, [but] this is an amazing alternative to mined diamonds," she added. "They are meaningful and can be grown through your own donor carbon. It's an opportunity to expand jewelry market in a unique and special way."

The majority of the world's diamonds are mined in areas like Canada and Botswana, where there are no human rights concerns, Ian Smillie, the Chair of the Diamond Development Initiative, told CNBC in an email. However, the remaining 20 percent are obtained through artisanal mining, a practice that occurs in 18 countries across Africa and South America and poses a number of environmental, health and human rights issues.

More than a decade ago, stemming the flow of conflict diamonds from parts of Africa was a cause celebre and a source of global concern. Recent United Nations data show that the share of blood diamonds in the global supply has been cut dramatically, to less than 1 percent.

Still, retailers have taken pains to accommodate the wishes of discerning consumers who demand jewels untainted by armed conflict. In that vein, smaller jewelers like Ada and Brilliant Earth are using a unique business proposition to meet the market's demand for conflict-free diamonds.

Founded in 2005 by Beth Gerstein, an electrical engineer with a Stanford MBA, Brilliant Earth creates and sells environmentally friendly and ethically sourced jewelry free from human rights abuses or civil wars. The company uses both lab-grown and natural diamonds, but ensures that the latter are mined from "pure ethical sources."

In an interview, Gerstein said there was a bright future for lab-grown diamonds. "The reason that there's a lot of popularity about lab-grown diamonds is that they are responsible, affordable and really speak to the millennial audience," she told CNBC, adding that her entrepreneurial start also began as a pre-wedding dilemma about an engagement ring.

"When I was getting engaged, it was really important that I buy a diamond that was consistent with my values, and it was very difficult to trace the origin of a diamond," she said. "If you think about a diamond, it's such an emotionally resonant item. So it was really inconsistent that there wasn't anything that was available [with a] history that was as pure and as beautiful as the emotions."

Tracking jewels through the supply chain is an arduous and complicated task, but one that retailers are increasingly accommodating as more consumers insist on conflict-free diamonds.

Alice Harle, an expert at Global Witness — a nonprofit organization that advocates for ending the exploitation of natural resources — told CNBC that transparency was key to altering the dynamic surrounding conflict diamonds.

"Concerned consumers will struggle to find out where their diamonds came from and what they may have been associated with," she said in an email, adding that "Companies involved in the global diamond trade … have a responsibility to [address] human rights and other harms," and mitigate associated risks, she said.

One of those is De Beers, the global diamond behemoth that recently undertook new efforts to bolster its use of diamonds that are "beautiful, rare and responsibly sourced," Lynette Gould, a De Beers spokesperson told CNBC. She said the company is already one of the world's biggest producers of synthetic diamonds.

Ada Diamonds' Payne argued that consumers increasingly want a "bespoke experience. … Lab-grown diamonds are already superior. They have less defects, less discolorations and are objectively stronger than natural diamonds."

Yet Jean-Marc Lieberherr, CEO of the Diamond Producers Association — which recently unveiled a new slogan: "Real is rare. Real is a diamond" — was skeptical that the trend of sustainable diamonds had staying power.

"Consumers tell us that when it comes to celebrating the most important moments of love and life, [they] want diamonds, not synthetics that have been created in a lab," he said via email to CNBC. "There is simply no comparison between a synthetic that was created in a lab over several weeks and a diamond, a true miracle of nature that was created over billions of years."

So which will carry the day: real or synthetic?

"A majority of people still prefer natural diamonds that come from the earth, but there is definitely is an audience for lab-grown diamonds," Brilliant Earth's Gerstein added.