Nike Issues FY04 Corporate Responsibility Report Highlighting Multi-Stakeholder Engagement and New Levels of Transparency

Published 04-13-05

Submitted by Nike Inc.

BEAVERTON, OR - Nike, Inc. today issued its second corporate responsibility (CR) report highlighting the Nike brand's CR priorities, programs, progress and challenges relating to workers in contract factories; employees and diversity; the environment; and community investment. In addition, the company became the first in its industry to voluntarily disclose the names and locations of the more than 700 active contract factories that currently make Nike-branded products worldwide. This information, along with its report, is posted on Nike, Inc.'s website at www.nikeresponsibility.com/reports.

The 108-page report, Nike's first public corporate responsibility report since it made the decision to stop reporting in October 2002 when it petitioned the U.S. Supreme Court to hear the Kasky v. Nike First Amendment case, was released in conjunction with the annual Ceres conference in Boston, MA. Ceres is a coalition of investment funds, environmental organizations and public interest groups

"We've been fairly quiet for the past three years in corporate responsibility because of the Kasky lawsuit. So we're using this report to play a little catch-up and draw a more complete picture," said Philip H. Knight, Nike founder and chairman, in his opening letter in the report. "It makes for a long report, but I urge you to read it from cover to cover. And then some; because probably the most significant piece of disclosure linked to this report is actually on our website. It's a listing of all factories that produce Nike-branded products, worldwide."

Factory Disclosure and Transparency

Nike said it believes full disclosure of its contract factory base producing Nike-branded product ultimately will provide greater visibility into shared suppliers and more efficient monitoring. It also supports the company's long-term strategy of building shared ownership of compliance directly with contract factories. Since 1999, Nike has disclosed its contract factory base producing Nike-branded products to the Fair Labor Association. In 2000, Nike became the first company to disclose publicly online the names of its suppliers making college and university licensed products.

"While we cannot say with certainty what greater levels of factory disclosure will unleash, we know the current system of addressing factory compliance has to be fundamentally transformed to create sustainable change," said Hannah Jones, Nike's vice president of corporate responsibility. "We believe disclosure of supply chains is a step toward greater efficiencies in monitoring and remediation and shared knowledge in capacity building that will elevate overall conditions in the industry. No one company can solve these issues that are endemic to our industry. We know the future demands more collaboration among stakeholders, not less."

Report Review Committee

For advice in preparing the report, Nike invited experts from the trade union, NGO, academic, investor and business communities, acting in their capacities as individuals, to participate in a Report Review Committee. Members included:

Neil Kearney, general secretary, International Textile Garment & Leather Workers Federation;

Maggie Burns, a freelance labor rights consultant;

Vidette Bullock-Mixon, director of corporate relations and social concerns, General Board of Pension and Health Benefits of the United Methodist Church;

Andrew Brengle and Liz Umlas, senior research analysts, KLD Research & Analytics;

Liz Cook, director, Sustainable Enterprise Program, World Resources Institute;

Thomas Gladwin, Max McGraw professor of enterprise, The University of Michigan; and

Chris Tuppen, head of sustainable development and corporate accountability, BT.

Chaired by Deb Hall, director of accountability programs at Ceres, the committee provided feedback that helped establish the scope, coverage and focus for the company's report. The committee's unedited comments on the content of the report and the reporting process are included in the report.

The Committee's statement says in part, "We recognize Nike for this candid and comprehensive report...The report's candor on the significant challenges of addressing labor standards within its global supply chain is welcome, and may facilitate discussion on how to tackle these challenges. While noting that monitoring is not a sufficient or long-term solution to raising labor standards, the report presents Nike's extensive and evolving efforts to manage monitoring, integrate compliance into its business strategy through the Balanced Scorecard, and pursue multi-stakeholder initiatives that could lead to more systemic industry-wide improvements."

"Working with an external CR report review committee accelerated our learning process, and we are deeply appreciative of their time and contributions to this report," Jones said. "While we've been quiet, we've been busy since our last report, and the breadth and depth of this report reflects that. Reporting is an essential element in driving continuous improvement. We now need common reporting standards so stakeholders can compare companies across industries."

The Review Committee also provided some recommendations for further improvements in reporting. The committee encouraged Nike to report its progress of integrating corporate responsibility into the business, expand coverage of the report to include subsidiaries performance and improve data collection and information management systems.

Report Highlights

The report relies heavily on the guidelines issued by the Global Reporting Initiative (GRI) and covers primarily Nike's 2004 fiscal year (FY04), which began June 1, 2003 and ended May 31, 2004. The report highlights include the following:

In the 569 in-depth M-Audits conducted by Nike and the 50 independent Fair Labor Association audits conducted in Nike-branded contract factories in FY03 and FY04, four noncompliance issues were identified as ongoing challenges, both in Nike's contract factory base and across the footwear, apparel and equipment industries: hours of work, freedom of association, wages and harassment. In the future, Nike will focus resources against both internal integration and multi-stakeholder collaborations to address these challenges. Regarding hours of work, Nike has created an internal taskforce to examine the entire business cycle to identify opportunities to improve compliance with its Code of Conduct.

According to Nike's internal contract factory audits, violation of minimum age standards - defined by Nike as age 18 for footwear and age 16 for apparel - is rarely found. This finding is consistent with the results of the audits conducted by independent monitors under the auspices of the Fair Labor Association.

Working with suppliers, contract factories and some competitors, Nike has dramatically reduced the amount of volatile organic compounds (VOCs) - solvents used in such manufacturing inputs as adhesives, primers and cleaning fluid, used in making footwear - from an average of 340 grams per pair of shoes in 1995 to the current level of 16 grams.

Nike strives to be an "employer of choice" and make diversity a competitive advantage. In FY04, the company reported it formed an Office of Global Diversity, a Global Diversity Executive Council and a Women's Leadership Council, and more than 2,000 Nike managers attended diversity workshops. For the third consecutive year, Nike achieved a 100 percent rating on the Human Rights Campaign's Corporate Equality Index, which recognizes companies for their policies and practices affecting gay, lesbian, bisexual and transgender employees.

The company will continue to demonstrate its support for the objective of the Kyoto Treaty: reducing human-created emissions that contribute to climate change. This strategy was articulated in a 2001 voluntary agreement defining Nike's participation in the World Wildlife Fund's Climate Savers program. Through Climate Savers, Nike committed to reduce combined CO2 emissions from owned facilities and business travel by 13 percent by 2005 from a 1998 baseline. Despite growth in owned operations facilities and an increase in emissions from business travel, the company is on track to achieve its goal through continued energy conservation, green power and offset purchases.

Since the release of its FY01 CR report, Nike has greatly expanded its involvement in multi-stakeholder engagements, working with numerous organizations - including the Organic Exchange, the Global Alliance for Workers and Communities, the Fair Labor Association and through the company's first Global Stakeholder Forum held in February of 2004. For example, as a result of its involvement in the Organic Exchange, 47 percent of Nike-branded cotton garments in FY04 contained a minimum of 5 percent organic cotton, more than double the quantity containing organic cotton five years ago.

For the fourth consecutive year, Nike met its target of investing 3 percent of the preceding fiscal year's pre-tax profits to community organizations worldwide. In FY04, Nike contributed $37.3 million in cash, product and in-kind services to nonprofit community organizations globally, representing 3.3 percent of the company's FY03 pre-tax profits. The company has two primary priorities for its community investment programs worldwide: increasing the participation of young people in physical activity, with a focus on the lifelong benefits it brings through a program called NikeGO; and investing in innovative solutions that address the challenges of globalization, with a particular emphasis on women and girls through the company's investment in the Nike Foundation.

The Future

The report also outlines the company's three strategic corporate responsibility priorities going forward:

1. To effect positive, systemic changes in working conditions within the footwear, apparel and equipment industries;

2. To create innovative and sustainable products; and

3. To use sport as a tool for positive social change and to campaign to turn sport and physical activity into a fundamental right for every young person.

In FY05 and FY06, Nike plans to establish key performance indicators and timelines to gauge progress and measure performance and impact for each of its CR goals. To that end, the company intends to strengthen its data collection and information management systems as well as identifying appropriate metrics to track progress. Nike continues to work toward common reporting standards through its support of the GRI and participation in the reporting sector supplement for the apparel and footwear industries. In addition, Nike plans to develop a timetable for addressing CR in all of its brands and subsidiaries.

"Going deeply into a company's business to integrate corporate responsibility practices to effect positive change is the key challenge," Jones added. "We've learned we need to focus less on activity and more on strategic impact that will bring about company and industry innovations that reap long-term value for our business, and ultimately on communities and the environment."

Nike is soliciting direct feedback on its report at www.nikeresponsibility.com. Anyone interested in future updates on Nike's CR programs and challenges is invited to register on the site for a free electronic newsletter.

About Nike

NIKE, Inc., based in Beaverton, Oregon is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly owned Nike subsidiaries include Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Bauer NIKE Hockey Inc., a leading designer and distributor of hockey equipment; Cole Haan, a leading designer and marketer of luxury shoes, handbags, accessories and coats; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories and Exeter Brands Group LLC, which designs and markets athletic footwear and apparel for the value retail channel.

About Ceres

Ceres is a coalition of investment funds, environmental organizations and public interest groups. Ceres' mission is to move businesses, capital and markets to advance lasting prosperity by valuing the health of the planet and its people. Its Building Equity, Reducing Risk conference, currently is underway at The Boston Park Plaza Hotel & Towers in Boston, Massachusetts. Nike is participating in a panel discussion on its FY04 report at the conference.

Nike Inc.

NIKE, Inc. based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned NIKE subsidiaries include Converse Inc., which designs, markets and distributes athletic lifestyle footwear, apparel and accessories and Hurley International LLC, which designs, markets and distributes surf and youth lifestyle footwear, apparel and accessories. For more information, visit www.nikeinc.com.

Nike Issues FY04 Corporate Responsibility Report Highlighting Multi-Stakeholder Engagement and New Levels of Transparency

Nike Issues FY04 Corporate Responsibility Report Highlighting Multi-Stakeholder Engagement and New Levels of Transparency

Nike Inc.

Nike Inc.

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