Nike Tackles Climate Change

Nike is leading the pack in addressing climate change by setting a new standard for sustainability in the apparel sector.

Over the past 20 years, a multitude of companies in the apparel industry have made a relentless push towards reducing the carbon footprint of their operations and products. Nike, a leading fitness apparel corporation, began to focus on issues surrounding climate change as early as 1995 after discovering the global warming potential of a gas contained in the air-sole cushioning units of their footwear. Today, Nike is leading the charge to reduce their carbon emission levels. Nike has partnered with universities such as University of Delaware and M.I.T. to measure and reduce its carbon footprint throughout its entire supply chain as well as transform customer behavior and design choices to embrace sustainability.

Figure 1: Nike total greenhouse gas emissions (tonnes CO2 equivalents) FY092

 

 

Emissions in the Apparel Industry

The global apparel industry uses nearly 1 billion kWh of electricity, making it “a significant contributor to global greenhouse emissions.”4 The footwear industry alone contributes “a significant portion of the apparel sector’s environment burden” with “most of the emissions [being] released during the shoes’ material processing (29%) and manufacturing phase (68%).”3 Insights such as these have led to apparel companies analyzing not only how their in-house operations contributes to emissions but also how their suppliers “source, design, manufacture, and deliver products.”1

Figure 2: Breakdown of total Global Warming Potential (GWP) impact of running shoes by product life cycle3

 

Sustainability at Nike

Nike, understanding its responsibility to reduce its footprint, has set three overarching goals2 to reduce its carbon footprint in the coming years:

  1. Travel – reducing carbon emissions from business travel and travel within Nike-owned and operated facilities
  2. Manufacturing – developing an emissions reduction strategy for major footwear and clothing manufacturing facilities
  3. Supply chain – developing a strategy to reduce greenhouse gas emissions from supply chain activities and logistics

Travel

Business travel accounted for a significant amount of carbon emissions generated by Nike. In 2000, Nike got ahead of the issue by purchasing carbon credits to offset almost half of its carbon emissions from business travel. Since then, Nike has found ways to substantially reduce its travel-related emissions. Today, Nike is able to sell carbon credits after reducing their carbon levels through initiatives such as Nike’s alternative transportation program for Oregon-based commuters. This cash flow from carbon credits has provided Nike with additional capital to further analyze ways to reduce their business travel carbon footprint.

Manufacturing

Manufacturing solutions employed by Nike involve analyzing its use of high greenhouse gas-producing materials, such as cotton, polyester, and leather. Changing its practices on materials used in its products will prove to be complex since “materials are not simply a bundle of physical properties; materials influence the manner in which a product is fashioned, the form of that product, and, ultimately, its performance while in use.”4 Altering the material properties of its products can be detrimental to Nike’s financial performance if the quality of its products suffer from implementing sustainable material practices, a concern that is top of mind for Nike.

Supply Chain

Along with its focus on substantial reductions in greenhouse gases from manufacturing operations, Nike is strategizing ways to measure its carbon footprint along the supply chain. Nike is working with the University of Delaware to develop a model to measure carbon emissions created during the movement of goods from distribution facilities to retail. Additionally, Nike has been “exploring [greenhouse gas reduction] strategies around packaging, fuel, economy and air freight.”2 These solutions “will require [Nike] to partner with the most progressive retailers and logistics suppliers”2 to reduce emissions while continuing to meet strict delivery requirements.

 

Future Considerations for Nike

As Nike continues to aggressively reduce its greenhouse gas footprint, several questions arise about how these efforts will affect the company’s future success. How much will these initiatives affect Nike’s accounting practices? Will Nike follow the lead of PUMA, another active wear company, in introducing an environmental profit and loss account to their financial reports? And how will shareholders react to increased spending on sustainability initiatives? Finally, will the pursuit of a lower carbon footprint result in a decrease in quality of Nike’s goods? Nike has to innovate beyond its products to reduce its footprint while enabling the company to grow and continue to be a dominant force in the apparel sector.

 

Sources:

1 PricewaterhouseCoopers, “Driving CO2 out of the supply chain and off retailers’ shelves”, 2012,  https://www.pwc.com/gx/en/retail-consumer/assets/pwc-driving-carbon-from-the-supply-chain.pdf, accessed November 2016.

2 Nike, FY 2007-2009 Corporate Responsibility Report, http://www.fibre2fashion.com/sustainability/pdf/nikesustainabilityreport.pdf, accessed November 2016

3 Lynette Cheah et al., “Manufacturing-focused emissions reductions in footwear production”, 2013, http://www.sciencedirect.com/science/article/pii/S0959652612006300, accessed November 2016.

4 Randolph Kirchain et al., “Sustainable Apparel Materials”, 2015, http://msl.mit.edu/publications/SustainableApparelMaterials.pdf, accessed November 2016.

 

(709 words)

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6 thoughts on “Nike Tackles Climate Change

  1. Great analysis of the main initiatives and challenges ahead for Nike, Naomi. As I read through the article, it was clear that the company had identified their main sources of their carbon footprint and were developing the means necessary to reduce them through R&D and company-wide programs. However, do you think that Nike can actually monetize some of these initiatives by commanding a premium for sustainability on their products? Should they market those advancements or would their customers grow wary of the quality vs sustainability tradeoff?

  2. Naomi raises a valid concern about quality, but I don’t think Nike needs to compromise in pursuit of a lower carbon footprint. If, in as early as 1995, Nike had identified areas in its manufacturing that may have contributed to global warming, then Nike has already been aware and has been making changes, and no one has been concerned about quality since then. Perhaps why Nike is a leader among apparel manufacturers, and corporations more broadly, when it comes to addressing climate change, is that with so many iconic product releases — from Air Max, to Shox, to Free — Nike has shown it is the industry leader in footwear innovation, and innovating on footwear in response to climate change is just another focus as the company’s product evolves.

    Nike is addressing the biggest issues. As Figure 1 indicates, reducing emissions from manufacturing and supply chain processes should be the top priority in order to reduce overall greenhouse gas output. But while Nike has improved its operations to mitigate its contributions to climate change, I wonder how much it will have to improve its operations in order to adapt to the effects of climate change. A lot of Nike’s manufacturing remains in Southeast Asia, a region susceptible to floods, typhoons, and other catastrophic weather events. The effects of climate change may translate to a premium that might be passed on to the customer, but not necessarily because Nike needs to monetize its investments in sustainability. I’m more concerned that if Nike has to de-risk its manufacturing and supply chain from the effects of climate change, it may have to move some of its production away from Southeast Area — and that might be costly.

  3. I thought this was a fantastic, methodical breakdown of what Nike is doing about climate change, in particicual in the three big areas of where the apparel industry is negatively impact emissions: travel, manufacturing & the supply chain. It is easier to conceptualize Nike shifting is manufacturing practices to limit its emissions (68% of their problem), however it is tougher to tell how this shift will affect Nike’s costs? If Nike went all in on limiting CO2 emissions, would it price itself out of the market? Would Under Armor, Adidas, or PUMA takeover?

  4. This is a great article laying out the details of how Nike was implementing their sustainability initiatives.
    It was interesting to see their practical approach on how to reduce carbon emissions.
    After reading this article, I became curious about how other companies operating in different industries can benchmark Nike’s strategy.
    It would be helpful to know if there is an underlying principle of Nike’s approach to sustainability that can be applied to other global companies around the world.

  5. Something else that Nike’s done from a manufacturing sustainability perspective is the introduction of its Flyknit shoes. With Flyknit, the Company went away from the leather, synthetic uppers, and breathable mesh that have been staples in the shoe industry, and instead opted to create the shoe uppers with a type of strong, lightweight spun yarn – yarn that now technically even consists of recycled polyester. The Company claims the Flyknit drastically reduces the shoe manufacturing waste compared to traditional cut-and-sew shoe manufacturing, and Nike has expanded Flyknit from running and racing to its other segments (e.g., basketball/Jordan brand). I’d be really interested in understanding whether Flyknit manufacturing results in a reduction in emissions (compared to the traditional cut-and-sew method) in addition to a reduction in raw material waste. Although Flyknit has been a financial and performance success from a running perspective thus far, as Nike moves the technology to other sports, I, like you, also wonder if changes to materials could negatively impact the quality of some products.

  6. Thanks for sharing Naomi. I delivered various projects in apparel supply chain and was lucky to see how sustainability efforts can improve whole ecosystem and direct all players to focus on more value added business models, efficiency and innovation. Nike’s efforts would not only create a change in the company itself but have a potential to create a positive snowball effect in the whole apparel ecosystem. On the other side, cost pressure challenges in emerging markets and legal infrastructure supplier countries will be obvious challenges in front of the path to sustainability.

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