Letter From the CEO
NIKE, Inc.’s commitment to a more transparent and sustainable future is stronger than ever.
In the next decade the competition for new revenues, new markets, new products and new services will continue to intensify. To fulfill our potential we know we need to operate in completely new ways, making sustainability integral to our innovation and performance.
Sustainability at Nike means being laser-focused on evolving our business model to deliver profitable growth while leveraging the efficiencies of lean manufacturing, minimizing our environmental impact and using the tools available to us to bring about positive change across our entire supply chain. We’ve made significant progress in these areas. But as we all know at Nike, there is no finish line.
Our long-term goals are ambitious and present challenges that are substantial, complex and systemic. Put simply, they will demand disruptive innovation from business, civil society and government. We know that achieving our long-term vision requires us to hold ourselves accountable for real and meaningful short-term progress. This report is an overview of the gains and challenges of the past two years as well as a look into the short, mid- and long-term strategy we have for the future.
The Challenges We Face
Over the past 15 years, we have moved from an approach of simply reacting to criticisms to pursuing sustainability as an integral driver of our long-term growth.
It is clear to us that our long-term potential, and the long-term potential of virtually every other major company in the world, will be severely pressured by multiple external factors:
- Traditional models of manufacturing and distribution need to evolve to offset rising energy costs and environmental concerns
- Many more natural resources will become increasingly scarce, driving up competition and cost
- Ongoing globalization, access to information and transparency will intensify the demand for equal access to economic opportunity
That’s why we continue to invest substantial resources and management attention on innovating to get ahead of these challenges.
The Lessons We Are Learning
Nike succeeds because we’re obsessed with innovation. We are relentlessly curious about our world and how we can make it better. We apply that curiosity to our sustainability efforts, and we continue to learn what is required for real, meaningful progress.
Three specific lessons stand out:
- Collaboration is essential. Nike is a large company by most standards, but our ability to influence meaningful change at the systemic level has limitations. It is absolutely crucial that we work with other players to prompt real, sustainable system change. We embrace partnerships and open-source collaboration. We have proactively shared our sustainable design tools to help create an industry standard and continue to look for ways to scale innovations at Nike and across our industry. And we work with global players including the United Nations Global Compact initiative to support its principles and to report our carbon data to the Carbon Disclosure Project.
- Transparency is a strategic advantage. Understanding and acknowledging the facts enables us to set relevant targets. Only then can we take real action to achieve those targets. It also enables us to work far more productively with governments, NGOs and other companies. We’re proud that Nike was first in our industry to disclose its contract-factory base and that our culture of transparency enables us to lead industry sustainability efforts.
- Sharing innovation does not require sacrificing competitive advantages. When we share innovative breakthroughs in materials business practices and processes with other companies – like our formula for environmentally preferred rubber or our water assessment tool – the impact of those innovations on the environment becomes much more significant, with little or no negative impact on our ability to compete in our industry.
These three lessons have been central to our progress. But the most important insight we have gained is this: Sustainability is not merely an addendum to our core operation. Sustainability can positively impact and improve our business and our growth potential.
Sustainability will be at the nexus of transformations in business, economies and markets, and we will continue to evolve our business to ensure we are able to grow profitably, and to lead.
Sustainability As a Driver of Growth
Looking through the creative lens of innovation, we aim to create breakthroughs that improve our world and are also better for our athletes and our investors. This is a fundamental re-writing of the old belief system in which sustainability was so often cast as a cost to business, or a drag on performance. The evidence tells us this simply does not need to be the case, and indeed, the combining of sustainability and innovation can trigger advances in both.
A great example is our Nike Flyknit technology. It’s a new way to knit a shoe upper out of what is essentially a single thread. It’s great for the athlete because it is lighter and offers a more custom fit. It’s good for the planet because it drastically reduces waste from the upper production process. And shareholders benefit from the reduced cost of production and increased margins. It’s a nascent technology that holds tremendous opportunity to be scaled over time.
You will see many specific targets and commitments in this report, but I want to call your attention to the three that best express the boldness of our long-term aspirations.
First, we have set our vision to ultimately decouple our profitable growth from constrained resources.
Second, we’ve committed to ensuring that our product innovation will meet the rigorous sustainability standards we established as part of our “Considered Design” ethos, which is detailed in this report.
Third, we know it is important for us to play a strong role in helping to accelerate improvement of responsible labor practices where we do business. To this end, we’ve set ambitious targets to improve the lives of workers at the factories we contract with, aiming to source exclusively from those that demonstrate commitment to workers and sustainability with a minimum Bronze-level achievement on our Sourcing and Manufacturing Sustainability Index by the end of FY20.
The complexity of culture and commerce suggest there are no easy solutions to addressing the challenges ahead. We will continue to push for improvement – to inspire progress, to take accountability for things we do control and to use our considerable influence to encourage others to do the same.
We cannot achieve our bold goals for sustainability simply by delivering incremental improvements. We will frequently need to deliver innovations that change the way things are done at Nike, and share our findings with others in our industry and throughout the business world to affect positive change in the form of newly developed materials, high-efficiency and low-waste manufacturing methods, and partnerships that inspire long-term growth, profitability and sustainability.
As innovators, we thrive on the challenge to redefine performance and unleash innovation. And we are gaining momentum. Here are three key examples:
- Waterless dyeing. Driving innovation into our product creation process demands that we also invest in innovative technology. This past year we formed a partnership with a company that created a way to dye apparel using CO2 instead of water. This partnership was facilitated by our new Sustainable Business & Innovation Lab, a team at Nike created specifically to identify external opportunities for collaboration to promote sustainable growth.
- Manufacturing Index. We are changing the way we measure factory performance, adding environmental and labor sustainability metrics to the traditional supply chain measures of quality, cost and delivery. We are building incentives into our relationships with suppliers. Those that prioritize and focus on workers and sustainability in their planning and operations will benefit. Those that don’t will feel the financial impact.
- Target setting. We continue to push ourselves with aggressive aims, targets and commitments, and equally distribute the accountability for these across the business. That said, a goal is never a destination. It’s a checkpoint where we reassess and recommit to new challenges and opportunities.
As I mentioned at the top of my note, this report outlines our progress against our goals – where we’ve met them, exceeded them and sometimes struggled with them.
As a young designer, I remember Bill Bowerman frequently asking the question: “Is that the best we can do?” That question, and the restless spirit behind it, drives us more than ever.
The age of abundance is over. The definition of business performance is expanding. Innovation is being redefined. Expectations are being redefined. At Nike, we believe the world must innovate faster for growth that is good for all.
It is in this spirit that we share our results. I am proud of the progresswe have made. But I know we can and must do better, and we will.
President & Chief Executive Officer