We established a new norm by disclosing our factory base back in 2005, and we still believe transparency is essential for industry change. We also continue to work with global influencers, including the United Nations Global Compact, in support of global principles in the areas of human rights, labor, the environment and anti-corruption. - See more at: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo#sthash.UKDXojbx.dpuf

We established a new norm by disclosing our factory base back in 2005, and we still believe transparency is essential for industry change. We also continue to work with global influencers, including the United Nations Global Compact, in support of global principles in the areas of human rights, labor, the environment and anti-corruption. - See more at: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo#sthash.UKDXojbx.dpuf

Manufacturing is another major part of the equation. We estimate that more than 2.5 million people work at various stages throughout our supply chain, including more than 1 million in the factories we contract with directly. This makes manufacturing our biggest area of impact on people. That’s not a new insight, and we have been working for years to help raise the bar for working conditions, not only in our own supply base but across our industry. We have done this by developing and communicating our Code of Conduct and Code Leadership Standards, and by assessing suppliers’ compliance with our requirements and legal standards. We have also worked with our suppliers to help them develop their human resources management capacity so they can proactively manage and engage their workforce.

These efforts led to an insight that has been critical in our work with factories: that lean manufacturing benefits factory owners and workers, increases productivity, reduces environmental impacts, enhances our brand, and that workers are key to the successful implementation of lean.

Factories are rated using our Sourcing & Manufacturing Sustainability Index (SMSI), a component of our Manufacturing Index, which puts sustainability considerations on equal footing with quality, cost and on-time delivery, and is one tool we use to select factories with which we do business. This approach serves as a way to identify factories to engage with more collaboratively and to which we direct more attention, resources and business. The SMSI incorporates results of other scoring tools that measure progress in worker health and safety; labor compliance; human resources management; lean implementation; energy and
carbon management and other environmental sustainability issues.

Please see NIKE"s FY12/13 Sustainable Business Performance Summary: http://www.nikeresponsibility.com/report/uploads/files/FY12-13_NIKE_Inc_CR_Report.pdf

As we look ahead to a new era of manufacturing, we also see opportunities to create a
more sustainable, stable supplier base. To implement the changes we’re anticipating,
the workers employed by our suppliers will need to learn and use multiple skills. During
2013, we conducted two pilot studies in Indonesia that tested both the technology and
human aspects of lean manufacturing implementation. The pilots measured changes
to productivity, cost and worker engagement, and found significant improvements in a
number of areas when lean manufacturing lines were compared to control lines. We are
collaborating with other organizations and contract factories to encourage them to look
at additional opportunities to improve the lives of workers outside the factories. See the
“Manufacturing” section for details on how we are working to meet our commitments
and define a new future for our supply chain.

For years, we have been sourcing from factories that seek to meet our minimum standards for good labor performance. In FY11, we converted our contract factory evaluation and scoring system from a letter-based system to a new medal-based one in line with our Sourcing & Manufacturing Sustainability Index (SMSI). The SMSI is one component of the overall Manufacturing Index, which also assesses contract factory performance on quality, on-time delivery and costing in equal measure. At the end of FY11, 49% of contract factories scored bronze on the SMSI. By the end of FY13, 68% had reached that score.

Our transition to the SMSI is part of a strategic shift away from a compliance-based “auditing and checking” relationship with our contract manufacturers and toward cooperation around lean manufacturing as a means to achieve greater efficiency, built on a stable, agile, engaged and motivated workforce. Because an engaged workforce is an empowered workforce. We’re spending more time with, and have processes in place to direct more business to high-performing factories (i.e., bronze or better). At the same time, we are requiring lower-performing factories to pay for their own audits and to remediate any issues found. Factories that fail to achieve bronze level performance within a defined timeframe are reviewed by senior leadership and are assessed penalties, such as a reduction in orders and are even considered for removal from our contract factory base.

Factories are rated using our Sourcing & Manufacturing Sustainability Index (SMSI), a component of our Manufacturing Index, which puts sustainability considerations on equal footing with quality, cost and on-time delivery, and is one tool we use to select factories with which we do business. This approach serves as a way to identify factories to engage with more collaboratively and to which we direct more attention, resources and business. The SMSI incorporates results of other scoring tools that measure progress in worker health and safety; labor compliance; human resources management; lean implementation; energy and
carbon management and other environmental sustainability issues.

By collaborating with governments and other stakeholders, we promote public policies that reward innovation as well as sustainable business models. We seek to create a legislative and regulatory playing field that accelerates NIKE’s ability to decouple growth from constrained resources.

NIKE is actively engaged in national and regional sustainability-related policy initiatives around the globe. The key policy areas we focus on pertain to sustainable materials, products and supply chains; climate change; resource efficiency; and post-consumer waste.

As with many societal and environmental issues, no one organization can solve these challenges alone – solutions require input and collaboration between government, business, consumers and civil society. To that end, we work with other businesses through trade associations and coalitions to help drive and shape forward-looking sustainability policies.

For example, NIKE is a founding member of the Sustainable Apparel Coalition (SAC), an industry-wide group of more than 100 leading apparel and footwear brands, retailers, suppliers, academics and NGOs working to reduce the environmental impacts of apparel and footwear products. We have worked with SAC since 2009 to create an industry approach to the environmental footprinting of footwear and apparel products. We are also working with SAC to pilot test the European Union’s Product Environmental Footprint methodology.

In the US, we helped create Business for Innovative Climate and Energy Policy (BICEP), an advocacy coalition of businesses committed to working with policy makers to pass meaningful energy and climate legislation. In 2013, NIKE, together with other leading brands, signed on to BICEP’s Climate Declaration, urging policy makers to undertake a coordinated effort to combat climate change.

Please see NIKE"s FY12/13 Sustainable Business Performance Summary: http://www.nikeresponsibility.com/report/uploads/files/FY12-13_NIKE_Inc_CR_Report.pdf

By the end of FY13, 13 companies had joined the Zero Discharge of Hazardous Chemicals (ZDHC) coalition that we helped launch. A full list of signatory members is available at roadmaptozero.com. We also remain involved in the Outdoor Industry Association’s Chemicals Management Working Group, the Green Chemistry and Commerce Council, the American Chemical Society’s Green Chemistry Institute and the AFIRM Group

Please see NIKE"s FY12/13 Sustainable Business Performance Summary: http://www.nikeresponsibility.com/report/uploads/files/FY12-13_NIKE_Inc_CR_Report.pdf

Factories are rated using our Sourcing & Manufacturing Sustainability Index (SMSI), a component of our Manufacturing Index, which puts sustainability considerations on equal footing with quality, cost and on-time delivery, and is one tool we use to select factories with which we do business. This approach serves as a way to identify factories to engage with more collaboratively and to which we direct more attention, resources and business. The SMSI incorporates results of other scoring tools that measure progress in worker health and safety; labor compliance; human resources management; lean implementation; energy and carbon management and other environmental sustainability issues.

In 2013, we furthered our study of our environmental footprint across our entire value chain – from raw materials production through consumer disposal of products after use. This is a complex analysis, due to the variation in the availability and quality of data, the need to make assumptions and extrapolations, and the dynamic nature of this system and its many participants. Our knowledge in this area continues to grow.

The analysis – which covers energy use, water consumption, waste generation and greenhouse gas (GHG) emissions – confirmed what we have long believed about the importance of the design process and materials, and how products are made. These issues are thus the main focus of our programs and this report. More detail on our methodology and approach is available online at nikeresponsibility.com.

In 2013, we furthered our study of our environmental footprint across our entire value chain – from raw materials production through consumer disposal of products after use. This is a complex analysis, due to the variation in the availability and quality of data, the need to make assumptions and extrapolations, and the dynamic nature of this system and its many participants. Our knowledge in this area continues to grow.

The analysis – which covers energy use, water consumption, waste generation and greenhouse gas (GHG) emissions – confirmed what we have long believed about the importance of the design process and materials, and how products are made. These issues are thus the main focus of our programs and this report. More detail on our methodology and approach is available online at nikeresponsibility.com.

We also made discoveries within these categories, such as the significant effect of cotton and leather on our overall
impacts. In the raw materials stage of the value chain, growing cotton represents 87% of water use, and it accounts for more than 63% of water use across our entire value chain. Leather production represents 56% of GHG emissions during the raw materials stage – mostly from methane as a result of cattle’s digestive processes – and more than 18% of our total greenhouse gas footprint. These types of insights are valuable as we develop and evolve our programs moving forward. They compel us to look well beyond the surface levels of the systems we touch and deep into our value chain. This perspective reinforces
that our span is much bigger and more complex than one might imagine, stretching even into the agricultural fields where the raw materials for our products are grown and raised, and where some of our biggest system impacts occur.

By nature, footprinting is backward-looking. Setting our sustainability strategy also requires looking forward, to navigate in the direction we believe the world is heading.

For many years we’ve focused on meta-trends – “strong signals” – pointing to the sustainability-related issues that pose the greatest business risks or opportunities. These meta-trends include issues such as water scarcity, materials cost inflation, climate change, rising labor costs as well as increased transparency and heightened levels of collaboration. (See page 12 of our FY10/11 Sustainable Business Performance Summary for more detail.)

We also listen closely to “emerging signals.” Some of the emerging signals we’ve identified – including micro-plastics in the environment and increasing and changing environmental policies – are broader than our company or industry. Issues such as these have the potential to become even more relevant to NIKE in the future.

Please see NIKE"s FY12/13 Sustainable Business Performance Summary: http://www.nikeresponsibility.com/report/uploads/files/FY12-13_NIKE_Inc_CR_Report.pdf

Please see NIKE's Code of Conduct and Code of Ethics:

Code of Conduct: http://www.nikeresponsibility.com/report/uploads/files/Nike_Code_of_Conduct.pdf

Code of Ethics: http://www.nikeresponsibility.com/report/uploads/files/NIKE_INC_Inside_the_Lines_Nov_2011.pdf

We established a new norm by disclosing our factory base back in 2005, and we still believe transparency is essential for industry change. We also continue to work with global influencers, including the United Nations Global Compact, in support of global principles in the areas of human rights, labor, the environment and anti-corruption. - See more at: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo#sthash.UKDXojbx.dpuf

Please see NIKE's Code of Conduct and Code of Ethics:

Code of Conduct: http://www.nikeresponsibility.com/report/uploads/files/Nike_Code_of_Conduct.pdf

Code of Ethics: http://www.nikeresponsibility.com/report/uploads/files/NIKE_INC_Inside_the_Lines_Nov_2011.pdf

We established a new norm by disclosing our factory base back in 2005, and we still believe transparency is essential for industry change. We also continue to work with global influencers, including the United Nations Global Compact, in support of global principles in the areas of human rights, labor, the environment and anti-corruption. - See more at: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo#sthash.UKDXojbx.dpuf

Please see NIKE's Code of Conduct and Code of Ethics:

Code of Conduct: http://www.nikeresponsibility.com/report/uploads/files/Nike_Code_of_Conduct.pdf

Code of Ethics: http://www.nikeresponsibility.com/report/uploads/files/NIKE_INC_Inside_the_Lines_Nov_2011.pdf

We established a new norm by disclosing our factory base back in 2005, and we still believe transparency is essential for industry change. We also continue to work with global influencers, including the United Nations Global Compact, in support of global principles in the areas of human rights, labor, the environment and anti-corruption. - See more at: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo#sthash.UKDXojbx.dpuf