Nike: Leading the Path to Fighting Climate Change

Let’s take a look at the supply chain of a typical garment and footwear brand. 1) It starts with the farmers who harvest raw materials like cotton. 2) These farmers then then sell raw materials to factories that produce yarn or cloth, which in turn sell them to factories that dye, cut, and fit the cloth to the brands specifications. 3) Brands warehouse, ship, and retail these garments [1, 2].

Now, let’s think about how the environment interfaces with each of these steps and why Nike should care. 1) At higher temperatures, growing cotton becomes unsustainable as was seen in Texas in 2011 when 55% of cotton fields were abandoned [3]. No cotton, no cotton apparel. 2) Factories consume an immense amount of resources to produce apparel, especially water; a single mill can use 200 tonnes of water for each fabric it dyes [4]. This in turn results in massive amounts of wastewater discharge which both makes it expensive to treat and expensive to operate. 3) We observe that >60% of apparel factories are located in East and South Asia whereas >60% of apparel consumption is situated in Europe and North America [4]. Besides the immense warehousing and shipping costs associated with this setup, in low lying manufacturing areas, climate change-associated flooding can result in factory shut downs as was seen in four Nike factories in Thailand in 2008 [5].

Climate change is an issue that directly affects Nike’s commercial activities.

Consequently, Nike’s management has been taking steps to fight climate change.

To start off, they’ve set bold goals like “Zero waste from contract footwear manufacturing going to landfill or incineration without energy recovery by FY20” and “100% renewable energy in owned or operated facilities by the end of FY25” all while almost doubling sales [6]. This immediately aligns everyone in the organization to a common vision, one that is built on innovative growth while deeply embedding sustainability.

Nike management has also undertaken several initiatives to combat climate change both in the short term and long term.

  • Nike transformed 54 million pounds of factory scrap into premium materials used in their apparel and footwear in FY15 as part of its Closed Loop Ecosystem [7]
  • Nike has enforced its contract manufacturers to cut their energy usage in half over the course of the last 8 years [7]
  • Nike has reduced its dependence on weather-prone crops like cotton and is incorporating more recycled polyester into its apparel [8]
  • Nike has also been using a new technology in its factories that dyes polyester without the use of water and chemicals which both saves 60% of energy and improves speed by 40% [9].
  • Nike has been collaborating with MIT to “engage industries, designers and consumers in valuing, demanding and adopting low-impact fabrics and textiles” with support from their MAKING app which helps producers and designers to evaluate their material choices in the context of the environment [10]

That being done, it is crucial for Nike to start bottom up and make sure every factory they’ve contracted out to is well set up to handle both the impact of climate change on their processes in the context of their local region, and in turn incorporates sustainable practices deep in their culture. It is also important for Nike to start not just selling themselves as an environmentally friendly brand to their end users but engage their users to participate in their mission: either via volunteering or recycling programs.

My main concern for Nike is how they can be a change agent not just for themselves and the participants in their supply chain but for apparel companies and other business worldwide that have a significant carbon footprint.

Word Count: 597

[1] https://www.hrw.org/report/2017/04/20/follow-thread/need-supply-chain-transparency-garment-and-footwear-industry

[2] http://marketrealist.com/2014/12/overview-nikes-supply-chain-manufacturing-strategies/

[3] https://www.greenbiz.com/article/why-climate-change-material-cotton-industry

[4] http://msl.mit.edu/publications/SustainableApparelMaterials.pdf

[5] https://www.nytimes.com/2014/01/24/science/earth/threat-to-bottom-line-spurs-action-on-climate.html

[6] Nike Sustainable Business Report, FY14-15

[7] https://about.nike.com/pages/environmental-impact

[8] http://www.oregonlive.com/business/index.ssf/2016/05/nike_adopts_ambitious_environm.html

[9] https://www.greenbiz.com/blog/2013/12/17/nike-moves-water-free-chemical-free-dyeing

[10] https://news.nike.com/news/nike-inc-and-mit-climate-colab-materials-innovation-to-combat-climate-change

Previous:

How Supply Chain Improvements are Enabling Growth At Adidas

Next:

Isolationism: How to kill American solar

20 thoughts on “Nike: Leading the Path to Fighting Climate Change

  1. When I see that Nike has set “bold” goals like “zero waste from contract footwear manufacturing going to landfill” I can’t help but wonder if this is more of a marketing ploy than a mission to drive sustainability. Similarly, when Nike proclaims to use less “weather-prone crops like cotton” and instead incorporate more “recycled polyester” in it’s apparel, I wonder if this is simply because recycled polyester is more on trend and perhaps a better fabric to use? To me, I think that many sustainability efforts from companies such as Nike are more of a reaction to consumer awareness (and an opportunity to differentiate their products) than an initiative to do good in the world. In the end, however, I’m glad that–regardless of the rationale–companies are at least making an effort to develop sustainable operating models.

  2. This article mentions several interesting facts about Nike’s sustainable activity. Mainly, it’s interesting to read how the company uses various solutions along the value chain. I know that there is a word limit, but I would love to learn also about the competitors’ activities, and generally get a wider perspective of sustainability in this industry. For example, what do governments do to support sustainable activities? Is there a relevant regulation?

  3. Although I try to be optimistic about companies efforts with regards to social projects, but for so long the main focus and objective of companies has been to maximize shareholder’s value, which makes me wonder if it is at all possible to maximize shareholders value or be sustainable if the supply chain was not sustainable due to climate change. therefore, while I applaud their climate change effort, I do not think nike has done this to benefit the general public but a mere obligation to maximize shareholders value over the long term.

  4. It is certainly interesting to know that Nike is taking up such leadership role in terms of being the change agent in its supply chain to advocate for social responsibility and cleaner products. I believe in my experience and in the experience of other Nike users around me, the company social responsibility image is still somewhat impacted by the child labor allegations from the past.

    In terms of the potential of the Nike program, I believe this will really depend on the potential chain reactions of others in its ecosystem. For example, if consumers apricate Nike’s approach and are willing to pay a premium on eco-friendly products, then this might cause competitors of Nike to follow and therefore leading to more positive changes. In addition, if developed market governments can enforce top down requirements for eco-friendly products, then industry wide changes would become more likely.

  5. I am pleased to hear that Nike, like IKEA, prioritizes sustainability. At the moment, these initiatives are unique and thus newsworthy. I hope that Nike and IKEA set new industry standards so that their peers are compelled to adopt similar policies. Sustainability should not be a novelty. However, I share Snake’s concern that Nike, as a single actor, will be unable to substantially change an industry. I believe that companies will only alter their practices if they observe significant financial benefit to migrating to a more sustainable model (or inaction negatively impacts the bottom line). At the end of the day, these companies are motivated by profits. Sustainable supply chain management will only take root if companies appreciate the financial benefit to changing their current models. It is not enough for Nike to advocate for sustainability. Nike must demonstrate how sustainability leads to better business.

  6. I believe that by Nike being a change agent for themselves, since they are so large, it will increase the accountability of many other companies as well. If the customer comes to expect sustainability from the brands they engage with, at some point, those who do not have “Zero waste” type practices in place, hopefully the customer will self-select away from those brands until others focus on sustainability as well. When something becomes an industry standard it raises the bar for others as well.

  7. I want to build on the author’s comment towards the end that Nike should consider becoming a change agent for the whole apparel industry rather than limiting sustainability practices to its own supply chain. I think a potential way to achieve that is for Nike to organize an industry alliance with other major apparel brands where all members voluntarily agree to certain sustainability standards set by the alliance. This setup has several advantages. First, it effectively acts as a self-policing body to promote sustainability standards for the apparel industry. Second, it can facilitate exchange of best practices among industry players. Third, it promulgates a common set of standards so no single company within the alliance will risk losing cost competitiveness in the production process.

  8. I believe that the comments being made about Nike’s sustainability initiatives not being genuine and in response to consumer sentiments are very valid. However, regardless of motives, consumers are becoming more aware, and I agree with the comment made by S above that since they are so large, others will have to follow to some extent. Any progress is better than none. Also, regardless of angle, it’s important to note that sustainability efforts result in a “belt-tightening” that has positive economic benefits for a company. Most notably in the areas listed above of energy and waste reduction, Nike can see real economic returns, rather than just being forced to sell more expensive, eco-friendly products. Sustainability can increase the top line, but it’s important to remember that it can decrease the bottom line as well. I think the holistic approach will allow Nike to remain competitive and others will follow their lead.

  9. Great read about how climate change is driving sustainability at Nike. At the end of the day this initiative seems like it could reduce costs from Nike’s contract manufacturers and improve brand perception.

    Are there risks here though? The only thing I could think of would be interim price hikes as they migrate to renewable energy and transitioning to less wasteful processes. If they find a need to change or supplement existing suppliers, will this make things a bit difficult if folks aren’t up to Nike’s bar? Nike’s size allows them to demand almost anything they want or need from suppliers, but is there a point in which Nike may find a need to vertically integrate the supply chain due to these mandates?

  10. Reading through the comments, it seems like, surprise, we are all skeptical about Nike’s authenticity in regards to sustainability. I admit I am as well. There’s an article on the HBS website, linked below, about a case study called “Governance and Sustainability at Nike.” It gives a glimpse of Nike’s strategy and reason for pushing sustainable practices. Nike has been around for a long time and they’ve learned from their past, for example when labor practices in overseas factories came to the public light, that short-term planning can lead to large consequences in their bottom line. Because Nike is so established and therefore long-term planning is crucial for their continuous survival, I do believe they are truly trying to incorporate sustainable practices into their business as opposed to simply doing it for optics. By putting in the investments now, they’re setting themselves up for a future where consumers will care more and more about the brands they wear and government agencies may start regulating their industry.

    I used to believe corporations could never lead the way in things like sustainability that typically conflict with their bottom lines and that it was instead the government’s role to force them to. I now realize it’s the consumers themselves who will be the key driver because through democracy they will force the government to act and at the same time, through sales, force corporations to do the same.

    https://www.hbs.edu/news/articles/Pages/nike-sustainability-hbs.aspx

  11. While Nike’s changes seem to accede to trends in customer preferences towards sustainability, I wonder how much they are simply attempting to reduce costs while maintaining a positive brand image. I admire their innovation and willingness to enforce stringent sustainability standards, but so far the changes seem to be at minimal cost (and increase the overall margins of the business). The expanded use of recycled materials, reduction in energy use, and diversification away from cotton dependence are smart business decisions regardless of sustainability. However, the maker app is perhaps the most innovative. People respond to real time feedback, so shortening the feedback loop between design decisions and environmental impact is something that should be integrated across other companies, elevating the importance of sustainability on design.

  12. Great paper, as you discuss and present a very relative and important topic which is broad reaching through the business and political arenas. Nike is one of the top well known global brands that is changing the way it operates, as it is a massive manufacturing company that makes products worn by many throughout the world. Their very business model contributes to climate change, and it is great to see Nike taking a stance – though hopefully the actions that Nike takes is more than just a marketing scheme to make it appear as if they are doing something. Additionally, it will be interesting to see how global sales and revenues are impacted by the actions Nike is taking, and what the response will be from the market. Making improvements to reduce emissions will cost capital, and may wind up having an impact on share price due to reduced net income.

  13. Great summary of the various initiatives taken by Nike to reduce the carbon footprint of their products. What I liked the most about Nike’s actions is that all their steps make economical as well as environmental sense. The fact that the consumers don’t have to pay more for an environmentally friendly shoe will ensure that these initiatives will sustain. What I would be keen to see going forward is how Nike can change consumer behavior to encourage more and more people to recycle their shoes. The sustainability loop is not closed if a shoe ends up in a landfill at the end of life.

  14. Interesting read! It’s a very good sign that a global leader such as Nike has undertaken these initiatives, because I believe climate change awareness needs to start at the top. In regards to your question of how Nike can also help other apparel companies and industry participants work on climate change problems, I think a good way for them to do this is to try to establish industry “best practices” and benchmarks. If companies feel like all competitors are equally hampered by these initiatives, they’ll be more likely to do them.

    I also believe that many of the initiatives you mentioned will actually help Nike grow its business in the long-run. Having a closed loop ecosystem is something that reminds me of our IKEA discussion in TOM, as that Company was attempting a similar thing with wood as a raw material. Much is made about actual governments being responsible for solving climate change, but I think if more and more companies like Nike, IKEA, etc. step up and commit themselves to actual activities that help the cause (not just marketing ploys), the private sector will be immensely important in this endeavor.

  15. It was encouraging to see that Nike has placed a renewed focus on long term sustainability efforts in the wake of climate change. I like that they are using a diverse set of actions to combat the problem at hand – from new technology to waste reduction and product changes. I think this shows that they are committed to fundamentally changing their culture in response to global warming. Given that they have found suitable fabric alternatives to traditional cotton, I think it will definitely benefit and differentiate them in the market morning forward to switch to these materials. They can leverage their scale and industry influence to change competitor and supplier behavior as well.

    However I am a bit skeptical of Nike’s ability to execute all of its plans. For instance, goals such as “100% renewable energy in owned or operated facilities by the end of FY25” seem quite lofty to achieve in addition to other ongoing short term objectives. I think it is good to have goals to aspire too, but I challenge the feasibility. Also I think that this example illustrates how important it is to stress sustainability from day one as a company. For instance, as we learned in Marketing, Starbucks always emphasized sustainability throughout its supply chain. Had Nike taken this stance they wouldn’t have to police its suppliers in the same way they are being force to do so now.

  16. I think your main concern is valid in the fact that one company can only have a small impact on the overall impact of climate change, but I think Nike is taking the necessary first steps. Big industry has been looking only at the bottom line for too long and cost cutting measures and the lack of emphasis on pollution’s negative effects has led us to this climate change issue in the first place. As an influential brand in both the clothing and sports industries, I believe that Nike’s emphasis on sustainability has a much larger effect than just on their brand. They are also making sustainable practices “trendy” and by marketing themselves as an environmentally conscious company, they are encouraging other companies to do so as well.
    Because the effects of climate change are now threatening some company’s very existence (ie the comment about no cotton will lead to no cotton garments), this issue is more urgent than ever. You may enjoy researching another major retailer, Patagonia, who is facing similar issues. While the extinction of cotton is arguable far off, Patagonia is seeing the effects of global warming on their sales of outerwear. In areas that have historically cold winters, Patagonia is selling less of their high tech down jackets. They, like Nike are seeing it as essential to their core business to care about climate change because in a world that doesn’t need jackets also doesn’t need Patagonia. The sooner that more companies realize that sustainable practices are not only good for the world at large but they are also good for the company, the more aggressively we can combat the negative effects of climate change.

  17. Snake, thanks for your work on the Nike article. While, Nike moves away from volatile crops like cotton, one concern I have is how that affects brand management and perception. Clearly, Nike needs to leverage its marketing capabilities and key athlete partnerships to avoid the perception that Nike now makes a low quality product. One other thought, has the development of GMO or lab-produced crop seeds and plants had an impact on corporate strategy yet? Nike can leverage the changing climate in its area of raw material acquisition, with the help of these new species of plants, to mollify the volatile nature of their production as a result of changing climate conditions.

  18. Thanks for posting. While I agree that Nike does a lot of great things for sustainability in its products, I believe there is more to this story than meets the eye.

    This article overlooks a dirty secret in the retail industry, which is arguably one of the most polluting industries, which would paint a less positive picture for Nike. When retailers have overstock (i.e. items that they cannot sell) and do not want to sell them through outlet sites: they burn the extra items. This is a practice that has had much attention drawn to it in the past few years, but little has been done to stop it as most of the burning happens in developing countries. It has been reported that Nike burns excess scrap shoe that is not used in end production as well [1].

    While all of the other initiatives make the end product for Nike look particularly sustainable, I wonder if they are doing enough to offset some of the dirtier practices of the industry.

    [1] https://www.huffingtonpost.com/jim-keady/the-dumping-and-burning-o_b_643763.html?slideshow=true#gallery/8515/2

  19. I really enjoyed the article and think that it’s a good initiative to reduce its climactic footprint but I’m concerned that fear may be something hindering other apparel companies from making efforts to take actions such as the use of recycled materials. Although in the United States consumers are more accustomed to seeing items proudly displaying that they are made from recycled materials, I wonder if people would have a positive perception regarding recycled apparel! Furthermore, this concern may be aggravated internationally where many people are not as conscientious about the importance of sustainability. For this reason, I think that Nike needs to make a bold move if it’s going to be able to become a change agent for the industry, not by creating a few products from recycled materials, but by showcasing an entire product line that is produced from recycled materials, not just from factory scraps, but from other materials such as plastic as well. But to be successful, these products need to not only be sustainable, but technologically superior to past apparel products (e.g. faster-drying clothing).

  20. Snake, thanks very much for sharing these insights about Nike. To be completely honest, I had no idea that Nike was undertaking all of these initiatives to combat climate change, so my first recommendation would be for Nike to proactively promote this to the world more effectively. The cynic in me is thinking that switching to more sustainable methods could potentially negatively impact the quality of the end-product, and thus Nike has not been highlighting these adjustments to customers. Therefore, I would like to know more about how these sustainable methods are impacting product quality. I would also really like to see the financial impact that switching to these sustainable methods is having on production costs. If these methods are in fact cost-saving, I agree that Nike should be more proactive about being a change agent for the apparel industry and its customers. It seems like this would be a win-win situation.

Leave a comment