In 1996, Life Magazine published a picture of a 12-year old boy in Pakistan stitching the Nike swoosh onto soccer balls. Later that year, Ernst & Young leaked videos of Nike sweatshops in Ho Chi Minh City, in which 77% of the workers suffered from respiratory problems after being repeatedly exposed to carcinogens 177 times the legal limit. A scandal emerged as inspection reports exposed the harsh reality of Nike’s billion-dollar supply chain. However, today, Nike is synonymous with sustainability leadership.
Nike’s old reputation management plan did not work. The apparel industry as a whole contributes 10% of global carbon emissions and is responsible for 25% of the world’s chemical usage. As one of the largest apparel brands in the world, Nike faced negative allegations from environmental groups as well as human rights activists. Facing scrutiny for environmental and social injustices, a defensive response resulted in the company’s stock losing more than 15% of its value in 1997.
Enter Hannah Jones. Jones started out as Director of Corporate Responsibility and became VP of Sustainable Business & Innovation in 2012. During this time, she spearheaded the Corporate Responsibility Board of Directors and eventually stepped into the freshly minted role of Chief Sustainability Officer in 2014. Jones’ career path evolved in tandem with the release of yearly Impact and Corporate Responsibility Reports, as well as the unprecedented release of Nike factory locations. Nike also started to include a Sustainability Accounting Standards Board Summary, or SASB, in the impact reports that delivers data on raw materials sourcing for apparel, accessories, and footwear. SASB is an independent entity that sets standards for disclosure of material sustainability information as a tool for investors.
Nike’s 2020 Impact Report boasts “a commitment to transparency, accountability, and impact” that “drives us—as reflected by our approach to sharing our priority issues and reporting our progress toward Nike’s 2020 targets.” The report details a three-pronged approach: unleash human potential, transform manufacturing, and minimize environmental footprint. These phrases are as vague as they are uplifting, but behind the words are target measures with real numbers.
This influx of reporting goes in tandem with the rise of ESG investing. ESG, which stands for Environmental, Social, and Governance, is a set of criteria for investors to determine if a potential investment is socially and environmentally conscious. Increased transparency and availability of data, along with the urgency of climate change, has contributed to the rise of responsible investing. This represents a shift from a shareholder to stakeholder ownership model, whereby companies are measured by more than shareholder economic value. Using ESG criteria, large investors transition from simply owning parts of a company to taking an interest in the company’s social impact beyond its financial performance.
Along with holding companies accountable for their environmental impact, ESG is a good business decision. Incorporating ESG criteria into managerial decision-making at the corporate level has proven financially beneficial as capital allocators are expanding their performance metrics. It often increases a company’s efficiency and reduces financial risks. This shift accelerates the need for Chief Sustainability Officers within companies that are willing and able to take these metrics into account. If companies want to increase investments and improve their public image, company executives must give sustainability a voice in the coveted “C-suite” alongside chief executive, operating, financial, and information officers.
During Jones’ tenure as Chief Sustainability Officer, Nike has transformed their supply chain and remained accountable and transparent through ESG reporting. It took nearly two decades, but in the wake of scandal, Nike has turned its image into one of sustainability leadership.
Today, new CSO Noel Kinder pledges to “continue to evolve, with zero compromise between performance, style and sustainability.” Nike boasts the No. 39 spot on CR Magazine’s 100 Best Corporate Citizens, with 73% of footwear made from 6.4 billion recycled plastic water bottles since 2010. Motley Fool Stock Advisor describes Nike as a “feel-good stock” since the company scores an 8/10 on the ESG checklist, ranking high in environmental stewardship. Nike’s lofty goal of 100% renewable energy by 2025 and data transparency continues to reap financial benefits and makes the role of CSO more important in an era of increased ESG reporting.
With the increased accountability of Environmental, Social, and Governance criteria, the number of Chief Sustainability Officers doubled between 1995 to 2003, and then again from 2003 to 2008 worldwide. In the early 2000s, Nike made the decision to invest in sustainability to reflect this shift towards increased ESG reporting and rise of responsible stakeholder investment. Hannah Jones added value to the company by questioning and challenging the conventional business strategy with a more long-term perspective in mind. Today, Noel Kinder continues to fight for sustainability in the boardroom as an ambassador for the environment.
From reputation management to innovation function, the role of the CSO at Nike is still evolving two decades after their supply chain scandal. Aiming towards sustainability is an inherently dynamic process, so the role of a CSO must constantly evolve to produce value for companies and the environment.
Sources:
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