Nike Investors Want Answers on Human Rights Risks

For the better part of a year, dozens of Nike investors have been pressing the sportswear giant to address alleged failings in its supply chain labour standards.

They’ve received no substantive response. Repeated emails following up on a letter sent last September, and signed by 70 shareholders with over $4 trillion in assets under management (though a small overall stake in the company), have gone unanswered, signatories said. According to investors, Nike has failed to address serious questions about its supply chain oversight, due diligence processes and adherence to its own policies.

“There have been many opportunities for them to respond to that letter and they haven’t,” said Martin Buttle, better work lead at UK-based ethical fund manager CCLA Investment Management. “It’s quite concerning.”

Now a coalition of smallholder international investors are taking a more confrontational approach, putting the issue of how the company is managing human rights risks in its supply chain on the agenda for the company’s AGM in September.

The shareholder proposal, co-filed by investors including CCLA and Dutch pension fund PGGM and Canada-based proxy voting consultancy the Shareholder Association for Research and Education (SHARE), requests that the company review its supply-chain labour standards in light of alleged failings, including unresolved claims of pandemic-era wage theft at two suppliers in Cambodia and Thailand that were the focus of last year’s letter.

In a proxy statement filed to the SEC on Thursday, Nike recommended shareholders vote against the proposal and said its responsiveness to feedback over the last year had been recognised and well received by investors. “The Proposal is unnecessary because the company’s policies and disclosures effectively articulate the company’s long-standing support for, and continued commitment to, human rights and responsible sourcing,” it said.

Nike was once considered an industry leader on responsible supply-chain practices — the consequence of an overhaul to its sourcing standards after a near-ruinous sweatshop scandal that buffeted the company in the 1990s — but labour groups have slammed its more recent track record.

In a rare move targeting a single brand, more than 60 advocacy groups issued a statement calling on the company to resolve the Cambodian and Thai cases last year. The Fair Labour Association, a network of universities, civil society organisations and companies that monitors and assesses and assesses corporate labour practices, is conducting its own investigation into the Thai case after receiving a complaint from a university in April.

Nike has previously said it had not sourced from the Cambodian factory since 2006 and it found no evidence workers in the Thai case were owed back pay.

Power Plays

How effectively companies manage human rights risks in the supply chain is rising up the agenda for some investors, as a toughening regulatory environment has increased the business risks associated with missteps.

Nike was among a group of apparel companies asked by US lawmakers to provide information on how it was complying with a ban on imports that could be linked to forced labour in China last year. Meanwhile in Europe, incoming due diligence regulations are set to make businesses more accountable for what happens at suppliers.

In an earnings call on Tuesday, luxury giant LVMH addressed investor queries about its labour practices in the wake of an Italian investigation that linked its Dior unit to suppliers operating under sweatshop conditions. The French conglomerate said it plans to bring more manufacturing in house and double down on efforts to audit and control suppliers going forward.

According to Nike’s investors, the industry’s reliance on factory audits is part of the problem. Though a big feature of Nike’s due diligence programme, they “have proven to be sub-optimal in high-risk countries at best, if not completely useless,” said Sarah Couturier-Tanoh, director of shareholder advocacy at SHARE.

Instead, the proposal filed by SHARE and others asks Nike to publish a report assessing how adopting a more worker-led approach and supporting agreements like the International Accord, a legally binding worker safety agreement whose signatories include Zara-owner Inditex, Gap Inc. and Calvin Klein-owner PVH, would impact the company’s ability to identify and address human rights issues in its supply chain.

“[Nike has] this architecture, but it doesn’t seem to be delivering results, so it seems like some innovation is required,” said Mary Beth Gallagher, director of engagement at Domini Impact Investments, another supporter of the shareholder resolution. “Tolerance for tick-box due diligence approaches is probably waning, at least among impact-oriented investors and I hope that a proposal like this helps other investors understand the issues.”

Such investor activism on environmental and social issues has become more common in recent years, as perspectives on the topics considered material to companies’ business operations have shifted. Nike has five separate proxy resolutions up for vote this season, covering topics from responsible sourcing to racial and gender pay gaps to climate targets. The company has recommended investors vote against all of them.

More often than not, these resolutions fail to garner the 50 percent of votes required to pass, and even then, they are not binding. Support in some cases has become more muted in the face of an ongoing backlash against “woke capitalism” in the US.

But even where they fail, these campaigns can still have an impact, raising the visibility of issues among a broader swathe of investors and making it hard for executives to ignore them. Supporters of this year’s resolution said they plan to register the necessary documents with the SEC to enable them to solicit other shareholders for support and provide more context on why they think Nike’s current approach falls short ahead of the company’s AGM.

“By not responding to our request, Nike believes shareholders do not expect better due diligence, and we’re betting on the contrary,” said SHARE’s Couturier-Tanoh. “The AGM in itself is not the end game.”

Under Pressure

For Nike, the shareholder activism adds to a litany of problems the company is struggling to address amid a historic downturn in the once-unassailable sporting giant’s fortunes. The company’s share price is down 30 percent from the start of the year, with much of those losses suffered just last month after executives laid out a dim forecast for the year ahead.

Nike is hoping a shift to recalibrate its distribution and merchandising, an aggressive Olympics marketing push and a $2 billion restructuring effort can help drive a turnaround. Related job losses have fallen disproportionately on the company’s sustainability teams, according to a recent investigation by ProPublica and The Oregonian/Oregon Live.

Nike’s new chief sustainability officer, Jaycee Pribulsky, told the publications that the company remains committed to sustainability and the changes in the team reflect a strategy to embed the work across the company, rather than assigning it to dedicated staff.

Investors looking for more engagement on Nike’s supply chain management see the topic as critical to the company’s long-term financial health. They’re hoping others will agree.

“Nike is a very high-profile company,” said Couturier-Tanoh. “If it fails to protect its supply chain, it exposes itself and its shareholder to reputational risk, which may damage the company and our investment.”

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholders’ documentation guaranteeing BoF’s complete editorial independence.