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The NIKE Model: Garbage In, Sneakers Out

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After a crippling onslaught of bad press regarding poor working conditions within its factories and negative environmental impacts in the late 1990s, NIKE, one of the world’s largest suppliers of athletic shoes and apparel, dramatically shifted course. While NIKE is now widely considered a global leader in sustainable innovation, is its sustainability model incorporating all of the relevant inputs?

Climate Change and NIKE

NIKE relies on a stable climate to ensure consistent production of crops for the raw materials used in its products. With 666 factories in 43 countries and 1,000 retail locations across continents, NIKE’s widespread operations and supply chains require significant amounts of water and energy to produce, package, and ship its merchandise to points of sale across the globe. [i] Without accounting for transport-associated energy expenditure, the energy use associated with the production of a single T-shirt is roughly equal to the carbon footprint of driving a passenger car for 10 miles and it takes several dozen gallons of water — more than 400 pounds — to process just one pound of textiles. [ii] As changing climate patterns give rise to more frequent destructive weather events and increased water scarcity, NIKE, with many of its factories and sources of raw materials located in the world’s most vulnerable regions, may find itself unable to “deliver the right product at the right time”. [iii] As a result, NIKE loses not only business but also its ability to secure its resources (materials, energy, water) at a reasonable and stable price point due to crop devastation, drought, and looming carbon restrictions. [iv]

cotton-pic leather-pic polyester-pic rubber-pic

What is NIKE Doing?

Short-Term

In the short-term, NIKE has sought out ways to accommodate the effects of climate change by building redundancy and developing contingency strategies for critical business operations. [v]  In addition, NIKE utilizes a global property protection program that reduces and minimizes the impact of weather-related events on physical assets through appropriate site selection (e.g. outside of flood plains) and by designing and building key facilities to a very high level of property protection.[vi] It also utilizes property and business interruption insurance to mitigate the financial impact of weather-related losses. [vii]

Long-Term

NIKE has also taken steps to establish sustainable innovation as a core tenet of its operations and has challenged itself to double its business while simultaneously halving its environmental footprint. In order to achieve this long-term goal, NIKE has implemented a sequential and iterative corporate blueprint for institutionalizing, executing, tracking, and scaling sustainable practices in order to spur innovation that decouples its revenue growth from its environmental impact:

  • Institutionalize sustainability as a corporate priority, embedding it as an ethos “from the boardroom to the copy room”[viii] [ix]
    • Formalize board oversight for environmental improvement by establishing a Sustainability Committee comprised of NIKE’s Board of Directors and by placing the VP of Sustainability on the Strategic Leadership Team, chaired by CEO[x]
    • Establish Sustainability Team which works with sustainability-focused teams within product creation, sourcing, manufacturing, facilities, logistics, and retail to encourage sustainable innovation at each stage[xi]
    • Integrate sustainability into strategies through long-term targets (see Table 1)picture1
  • Harness sustainability as a catalyst for innovation; track and reduce environmental impacts across value chain by developing breakthrough technologies and product designs (see Table 2)picture2
  • Provide regular public disclosures on sustainability strategy and performance in order to encourage accountability
    • Release biannual reports alongside real-time digital reports to track performance and disclose sustainability targets
  • Participate in multi-sector efforts to drive market transformation through stakeholder engagement
    • Recognize that “there are pre-competitive spaces,where the entire industry can benefit from transparency, sharing innovation and the strategic open-sourcing of tools, data, and insights” [xii]
    • Collaborate with competitors, governments, academia, NGOs and initiate direct joint-development partnerships in order to enable shared information, advance results, and create conditions that enable climate solutions to scale[xiii]

What else should NIKE be doing?

While this sustainability framework has certainly helped NIKE meet its most recent FY15 targets (see Table 1), it has failed to fully integrate sustainability at the extremes of its value chain:

  • Executive Compensation
    • While progress in sustainability is monitored by NIKE’s board and the general public, it is not tied to executive compensation. Doing so would demonstrate and achieve a heightened commitment to realizing measurable results. Given the material impact of sustainability factors on company prosperity over the long-term, it is only logical that compensation reflect progress in meeting sustainability goals.
  • Consumer Engagement
    • While NIKE does much to collaborate with institutional stakeholders, it has done little to increase awareness and promote behavioral change amongst its consumers. NIKE has been hesitant to explicitly market its products as eco-friendly for fear of creating a subtext of a corresponding compromise in product quality or price.[xiv] While companies like Levi’s have encouraged consumers to adopt laundry methods that use less energy and water, NIKE has largely ignored this downstream portion of its value chain where it can achieve great incremental impact.[xv]

While these are certainly not the only additional tools at NIKE’s disposal, by fully engaging and incentivizing these internal and external agents, NIKE could arguably significantly expand the rigor and scope of its efforts.

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[i] Nike, Inc., “Manufacturing Map,” http://manufacturingmap.NIKEinc.com/#, accessed October 2016.

[ii] Green Biz, “Two Steps Forward: Why Nike and MIT see textiles as material to climate change”, https://www.greenbiz.com/article/why-nike-and-mit-see-textiles-material-climate-change, accessed October 2016.

[iii] Oxfam America, “Physical Risks from Climate Change: A guide for companies and investors on disclosure and management of climate impacts,” https://www.oxfamamerica.org/static/media/files/physical-risks-from-climate-change.pdf, accessed October 2016.

[iv] Coral Davenport, “Industry Awakens to Threat of Climate Change,” New York Times, January 23, 2014, http://www.nytimes.com/2014/01/24/science/earth/threat-to-bottom-line-spurs-action-on-climate.html?_r=0, accessed October 2016.

[v] Joyce Wong and Ryan Schuchard. “Adapting to Climate Change: A Guide for the Consumer Products Industry,” BSR Adaptation (May 2011), BSR, https://www.bsr.org, accessed October 2016.

[vi] Ibidem.

[vii] Ibidem.

[viii] Ceres, “Gaining Ground: Corporate Progress on the Ceres Roadmap for Sustainability,” https://www.ceres.org/resources/reports/gaining-ground-corporate-progress-on-the-ceres-roadmap-for-sustainability/view, accessed October 2016.

[ix]Glenn Carroll, Debra Schrifin, and David Brady. “Nike Sustainability and Labor Practices 2008-2013,” No. IB106 (Palo Alto: Stanford Graduate School of Business Publishing, 2013), https://www.gsb.stanford.edu/faculty-research/case-studies/NIKE-sustainability-labor-practices-2008-2013, accessed October 2016.

[x] Ceres, “Sector Performance: Footwear and Apparel,” https://www.ceres.org/roadmap-assessment/sector-analyses/footwear-apparel, accessed October 2016.

[xi] Nike, Inc., FY 14/15 Nike, Inc. Sustainable Business Report, (Beaverton: Nike, Inc., 2015).

[xii] Green Biz, “Two Steps Forward: Why Nike and MIT see textiles as material to climate change,” https://www.greenbiz.com/article/why-nike-and-mit-see-textiles-material-climate-change, accessed October 2016.

[xiii] Nike, Inc., FY 14/15 Nike, Inc. Sustainable Business Report, (Beaverton: Nike, Inc., 2015).

[xiv] Elie Ofek and Ryan Johnson, “Nike Football: World Cup 2010 South Africa,” HBS No. 9-511-060 (Boston: Harvard Business School Publishing, 2013), p. 12.

[xv] While NIKE does offer a “Reuse-a-Shoe” program that encourages consumers to recycle their shoes at NIKE retail outlets, the program is little known and largely inaccessible. Source: PricewaterhouseCoopers, “Building value by addressing the impact of climate change,” https://www.pwc.com/us/en/retail-consumer/publications/assets/rc-insights-climate-change.pdf, accessed October 2016.

Exhibits

Initial four photos are sourced from: MIT, “Sustainable Apparel Materials,”  http://msl.mit.edu/publications/SustainableApparelMaterials.pdf, accessed October 2016.

Remaining exhibits are self-constructed using information from Nike’s FY 14/15 Sustainability Report.

4 thoughts on “The NIKE Model: Garbage In, Sneakers Out

  1. I really enjoyed reading your article about Nike and especially your last point on taking the consumer along their sustainability journey! I fully agree! If Nike is actually serious about sustainability, they should use their position and especially their brand equity to make consumers care about it, too. In my opinion, the strategy they are currently following is a great start but more focused on protecting themselves from negative media by NGOs etc. than actually making the planet more sustainable by actively changing consumer behavior.

  2. Very interesting article!

    It would be interesting to do an analysis of the impact this sustainable campaign has had on Nike’s sales and bottom line. It would be amazing if the results show that it actually helped Nike improve their market share or lower their costs. If this would be true, this paper could be used to encourage other companies to take similar procedures in their business and have a larger impact on sustainability.

    With millennials and newer generations being more interested in taking care of the environment it would be very interesting for a large company such as Nike to be successful at increasing sales through sustainable promotion of their products rather than improving the style or functionality of their products.

  3. I like the idea of Nike following Levi’s message of sustainability and being eco-friendly. What do you think if Nike offered “credits” or “points” to your Nike account for returning old Nike clothes that you don’t use anymore to be recycled. The points could be used for discounts or bragging rights which would encourage customers to think about recycling and sustainability. On the flip-side, if Nike made their products more durable and timeless then customers wouldn’t need to shop as often.
    http://earth911.com/recycling-guide/how-to-recycle-clothing-accessories/

  4. What an interesting post. On the topic of consumer engagement, my cursory look at the market literature is that countless studies have been done on whether consumers actually purchase on sentiments for sustainability and there is an (almost) unqualified ‘no’ that for the most part, there is a significant attitude-action gap between purchasing and showing support for a company’s sustainable ethos.

    That being said, as the market leader, one might support (as you propose) that there is a civic responsibility for Nike to educate their captive audience without an immediate economic benefit. I like DM’s suggestion above around credits for recycled Nike clothing almost like Apple’s trade-in programs.

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