All too often, behind the glitter of gold are ugly environmental and social costs: Unregulated mines creating toxic wastes, child laborers working under grim conditions, rivers and bays polluted with waste. Sales of diamonds, meanwhile, have been used to finance wars in Africa. Under pressure, the jewelry industry has responded with programs to monitor the supply chains of precious metals and gems from the mine to the retailer. (Last year, in a FORTUNE story headlined Green Gold, I wrote about Wal-Mart and Tiffany’s pioneering efforts to find “sustainable gold.”) But cleaning up the mining industry is an enormous challenge, and so there are bound to be setbacks as well as gains.

Artisanal miner at Eurocantera

One big setback this week: A government and industry initiative set up to stop the flow of so-called conflict diamonds, known as the Kimberly Process, failed to suspend Zimbabwe even after its own investigators had found that the Zimbabwean military had organized smuggling of diamonds and assaulted other miners. According to The New York Times:

Human rights campaigners and nongovernmental organizations immediately denounced the decision, saying that the Kimberley Process had shown it was incapable of stopping gross abuses and the flouting of international standards.

Kimberly Process officials said they want to give the government a chance to come into compliance. We’ll see, but know that, for now, diamonds certified as conflict-free may be helping to finance human rights abuses in Zimbabwe.

On a more encouraging note, luxury jeweler and watch-maker Cartier is the latest retailer to look for more responsible ways to source its gold. The French-based firm recently signed an agreement to buy gold from an innovative Italian gold-mining venture based in Honduras. Globalization is a fact of life in the gold biz.

The Honduran mining venture, called Eurocantera, combines a modern alluvial gold mine (meaning that the gold is found in water, close to the surface, requiring no blasting into rock) with small-scale miners who use traditional methods of panning gold. This venture is noteworthy because it supports artisanal miners in a poor country, not only by providing them with decent wages, but by offering education in finance and technology, a free health clinic and road building that is needed to move gold to market but will provide other benefits as well to isolated villages. Put simply, it’s a well-rounded approach. (more…)