I. Strategy

Our Sustainability Strategy

Introduction

The game has changed, forever. 

Sustainability used to be the exclusive domain of experts, activists and idealists. Then, it moved into a silo at the outskirts of the corporate landscape. Today, it is seen as an important, well-integrated part of any forward-thinking company – as one of the key drivers of success.

At NIKE, Inc., we are exploring new sustainable business models to prepare us for a fundamentally different operating environment. To do this, we must deftly navigate a quickly changing landscape. We see a future in which:

  • Competition for scarce natural resources affects the cost and availability of the inputs needed to make our products, and in turn, the price and availability of the products themselves
  • Rising energy costs and greenhouse gas emissions lead to increasing pressure on traditional models of product manufacturing and transportation
  • Persistent global disparity in access to financial and other opportunities influence workers throughout our supply chain
  • Continued urbanization and the growing middle classes create new demands for products and services, and new opportunities to meet them
  • Emerging regulations related to materials use, labor practices and other issues continue to shape our business environment
Our vision is to build a sustainable business and create value for Nike and our stakeholders by decoupling profitable growth from constrained resources.

This is not just key to our sustainability strategy. It’s part of our business strategy – and it guides us as we move forward. This report covers our performance during FY10/11, the time during which we developed and refined this vision. Much of our progress and what we learned during this period laid the foundation for how we’re moving ahead to make the vision a reality.

This vision has been built on years of assessing trends and materiality for Nike and the changes that are impacting our business, our value chain, our consumers and the world. In 2007, we undertook an assessment (along with SustainAbility, a consulting firm) of some meta trends that have only become more relevant as we’ve shaped and defined our strategy (see findings on the next page). These meta trends highlight the areas of our value chain and our business that have the most potential for innovation. We use these filters in our work, our assessment of opportunity and the way we approach reporting.

Sustainable Innovation

Sustainability is the world’s greatest innovation challenge. Although incremental improvements play an important role, on their own they will fall far short of achieving the progress that’s needed. Retrofitting and fine-tuning the approaches of the past will simply not solve the problems we face. The world needs new systems, new business models, new relationships and new ways of thinking. Sustainability requires transformation, and innovation lies at the heart of that process.

We are maintaining a relentless focus on sustainable innovation, from evolutionary enhancements to disruptive shifts that can transform the industry.

As we continue to successfully innovate across our entire value chain, sustainability will be an engine for growth. For example, we created jerseys for the 2010 World Cup that were made from recycled plastic bottles, and we have built tools such as the Nike Materials Sustainability Index (Nike MSI) to make it easy for designers to create products with lower environmental impacts. Through other initiatives, we hope to go much further, helping our supply chain become leaner, greener, more equitable and empowered. One example is employing fundamentally different processes to make products, like Nike Flyknit’s innovative manufacturing process, which reduces waste in knitting together the upper of the shoe. Another is exploring new materials and manufacturing processes through our Sustainable Business & Innovation Lab.

We launched our Lab as a business development and strategic partnership team within Nike that helps us drive innovation and collaboration, particularly as it relates to sustainability. The Lab is an expression of our culture and commitment to collaboration and innovation; we believe leveraging innovation in sustainability can be a vehicle for growth and will help us accelerate our vision for superior performance and minimum impact products. Recommendations that come from the Lab, as with any other area of the Nike business, are reviewed by management for alignment with our strategic and financial goals.

Opportunities for innovation are countless, so we prioritize our initiatives and investments. We consider potential environmental and social impacts; possible revenue; savings and risk reductions; our ability to bring the innovation to scale; and other factors. We then manage projects throughout our innovation pipeline from the kernel of an idea to its mass adoption (see graphic).

In 2011, we launched an executive-level Committee for Sustainable Innovation. This group is chaired by our CEO and oversees our innovation pipeline and portfolio. It helps to fully capitalize on opportunities by accelerating adoption and bringing these activities to scale.

Our Sustainability Pillars

We drive sustainable innovation throughout our company across four strategic pillars (see above). These pillars do not stand alone – they are interconnected. The work we do today to optimize and deliver positive impacts also drives insights into disruptive innovations that will create our future.

  • Creating a portfolio of sustainable materials – the first pillar – addresses one area of our greatest potential impacts. The choice of materials for our products has a cascading effect across our entire value chain. From farms and factories to trucks and ships to stores and homes where our products are used and laundered, materials drive our footprint. For the past decade, we have worked to improve the environmental attributes of the materials we use while maintaining the highest standards of product performance. We further propelled these efforts forward in 2011. Specifically, we upgraded our materials rating tool, the Nike Materials Sustainability Index (Nike MSI). The Nike MSI is embedded in the indexes that our designers and developers use to assess potential products, and it plays a pivotal role in product design. Materials are a substantial cost, so identifying long-term access to affordable materials that meet our environmental standards is key to our ongoing success and our ability to decouple materials from scarce resources. See How We Do Business for more information about our materials programs and progress.
  • The second pillar – prototyping and scaling sustainable sourcing and manufacturing models – directly affects the activities at the heart of our value chain. We are culminating more than a decade of work in this area with an initiative to transform our relationships with contract factories. Our vision is to create a sustainable supply chain across all of our brands that is lean, green, equitable and empowered. We expect this transformation to benefit our business as well as hundreds of thousands of workers worldwide. Our new Manufacturing Index, launching in 2012, will place a factory’s performance and sustainable manufacturing practices on equal footing and performance with the traditional measures of quality, delivery and cost, for sourcing evaluation. See info-graphic for more detail. 
  • Igniting and driving market transformation – the third pillar – is about creating the conditions for sustainable consumption to thrive. This requires mobilizing key constituents (such as civil society, employees, government and industry) to partner in driving solutions to scale. It depends on sharing knowledge and expertise across companies and entire industries to broaden the adoption of sustainable principles and practices (see info-graphic for examples). Above all, we must engage consumers in sustainability. Nike begins and ends with the consumer. We need to both inform and meet consumers’ growing expectations in this area, such as through Nike Better World, which is our brand commitment to serve the needs of athletes and the planet at the same time. 
  • Creating digital services revenue – the final pillar of our sustainability strategy – describes our vision to extend our leadership in athletic footwear, apparel and equipment into the digital realm of fitness, coaching and training services. We see the potential to help every athlete get better and do more, as well as the potential for us to develop deeper relationships and insights with athletes. This will help grow our business while diversifying our company away from the natural resources we depend on today. 

This sustainability framework informs the structure of this report. We include in-depth sections on materials and manufacturing, reflecting the proportionate impact of those first two pillars, and we also discuss our performance in the “impact areas” identified in the Impacts Overview chapter.

Collaboration to Increase Scale

The sustainability challenges we face, such as bringing to scale the use of innovative new materials and changing deep-rooted supplier behaviors, are much broader than Nike alone can address. We are seeking scale across our industry. We will play a role in changing the underlying systems and transforming the way that industry, government and citizens share data and responsibility, working together to enhance transparency and accountability. Unprecedented levels of collaboration are crucial to promoting system transformation and developing effective and lasting solutions, and are core to our strategy.

We focus much of our efforts on our suppliers, due to the scale of the opportunities in our supply chain. For example:

  • The H2O*Insight Water Tool, which we developed for the Nike Water Program and have recently made available through subscription to other companies, enables our vendors and other brands worldwide to more effectively track water quantity, quality and efficiency indicators (see the Water chapter).
  • In 2011, we worked with other footwear and apparel companies to create a roadmap for achieving the goal of zero discharge of hazardous chemicals* by our material vendors and contract manufacturers by 2020 (see the Chemistry chapter).
  • Also in 2011, we joined with other leading apparel and footwear brands, retailers, manufacturers, nongovernmental organizations (NGOs), academics and the U.S. Environmental Protection Agency to launch the Sustainable Apparel Coalition. We have shared our tools with them to help create an industry-wide index for measuring and evaluating product sustainability (see Product Design & Materials chapter).
  • We are working with other leading brands and the Fair Labor Association (FLA) to create key performance indicators linked to the FLA’s principles of fair labor and responsible sourcing. Common standards will increase consistency in measuring and reporting supplier performance and improve collaboration among brands. 

We also work across industries. GreenXchange, a web-based marketplace we founded with several other companies in 2009, is one example. GreenXchange was our first foray into open innovation with other businesses, set up to allow organizations to collaborate and share intellectual property. We have gained significant insights from this collaboration which continue to inform our strategy to bring sustainability innovations to scale.

Sustainability Governance and Management

Even the best strategy comes to nothing without the commitment, people and processes to make it happen. Continuing to integrate sustainability into our business, rather than layering it on top of how NIKE, Inc. and our brands currently operate, will increase and accelerate progress, drive scale and the proliferation of sustainable innovation, and enable broad employee engagement.

At Nike, dedication to and accountability for sustainability begins at the top. In 2001, we formed a Corporate Responsibility (CR) Committee as part of our Board of Directors committee structure. The CR Committee has oversight of environmental impact and sustainability issues, labor practices and corporate responsibility issues in major business decisions.

In FY06, we created a management framework to ensure executive accountability for corporate responsibility across the company. The Vice President for Sustainable Business & Innovation reports directly to President and CEO Mark Parker, and co-manages dedicated teams with business and functional executives to develop and review policies with Board oversight, approve investments and evaluate and refine our approach and direction.

The SB&I team acts as a catalyst for sustainability companywide. Made up of about 130 people, the team leads sustainability strategy development; provides content expertise and consulting to teams companywide; collaborates with sustainability specialists in other parts of the organization; drives sustainability integration; leads engagement with stakeholders; works to mitigate risk and facilitate compliance; and reports on our progress to scale the impact of sustainable innovation beyond Nike.

Our new executive-level Committee for Sustainable Innovation, described previously, also steers our efforts specific to innovation.


Resources
Notes

*Hazardous chemicals are those that show intrinsically hazardous properties (persistent, bio-accumulative and toxic; very persistent and very bio-accumulative; carcinogenic, mutagenic and toxic for reproduction; endocrine disruptors; or equivalent concern), not just those that have been regulated or restricted in other regions.

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