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Innovate for a Better World Nike FY05-06 Corporate Responsibility Report Contents Letter from Mark Parker, CEO 3 Corporate Responsibility Strategy 6 Workers in Contract Factories 15 Considered Design & the Environment 51 Let Me Play 74 Nike Foundation 87 Diversity & Inclusion 91 Public Policy 108 Nike Business Overview 117 Governance, Accountability & Reporting 122 Letter from the Report Review Committee 134 Glossary 137 Guidelines and Principles Index 139 About this report: This document contains hyperlinks to outside groups and Nike tools. To access these, simply click on the highlighted links and they will open in your browser. 2 1 Letter from Mark Parker, CEO 3 1 Letter from Mark Parker, CEO This report covers a crucial period, and not just for Nike. Specifically, We see corporate we saw heightened attention worldwide on corporate responsibility and the key challenges of climate change, poverty and equity. responsibility as a Simultaneously, we began to transform our vision of Nike’s role in contributing to positive change in communities around the world. catalyst for growth The opportunity is greater than ever for corporate responsibility principles and practices to deliver business returns and become a driver of growth, to build deeper consumer and community connections, and innovation. and to create positive social and environmental impact in the world. We have made tremendous progress over the past two years in more deeply integrating corporate responsibility into our business model. We see corporate responsibility as a catalyst for growth and innovation, an integral part of how we can use the power of our brand, the energy and passion of our people, and the scale of our business to create meaningful change. This expanded mindset evolved from an intense review of how corporate responsibility operated at Nike — its leadership, teams, accountabilities and skill sets. We initiated this review immediately following the release of our last Corporate Responsibility Report in April 2005. Among the many things we learned were two significant truths. First, as a result of the organizational and strategic changes made in FY05-06, corporate responsibility at Nike has grown beyond its role as a tool to define, discover and address compliance issues, or to manage risk and reputation. Today, corporate responsibility no longer exists on the periphery as a check on our business, but is assuming its rightful role as a source of innovation within our business. Corporate responsibility is no longer a staff function at Nike. It’s a design function, a sourcing function, a consumer experience function, part of how we operate. Second, we know that incremental progress isn’t good enough. Nike is competitive. We don’t want to get better, we want to win. If real change is to occur in our supply chain and contract factories, in the communities in which we operate and in the broader world we influence, then small steps will always fall short of our potential. Big goals are needed to realize big achievements. So we’ve set a series of strategic business targets for ourselves that are aggressive but achievable by FY11. We continue to focus our efforts in three areas: 1 Improving working conditions in our contract factories through a holistic, integrated business approach to our supply chain. 2 Minimizing our global environmental footprint through sustainable product innovation and supply chain innovation — both in our direct operations and our contract factories. 3 Using the power of our brand to give excluded youth around the world greater access to the benefits of sport. 4 1 Letter from Mark Parker, CEO We have focused our efforts in each area: Our designers are focused on creating products that will exceed our Bringing about systemic change for footwear, apparel and equipment targets. As Nike innovation proves what’s possible in sustainable manufacturing workers remains our primary focus. Through integration product design, we’ll raise our standards. with our lean manufacturing business strategy, we believe we can We believe passionately in the power of sport to change a young achieve significant positive change for workers. person’s life. Nike invested more than $100 million in product and cash By FY11 we aim to: donations over the past two years in community-based sport initiatives. We’re targeting a minimum investment of and additional $315 million in Eliminate excessive overtime in contract factories – one of community programs through FY11. the most serious ongoing compliance issues factories face. This is the journey we’re on. Implement tailored human resources management systems in Our company is complex. We have multiple brands, categories and contract factories, which will include management training on product types. Our supply chain builds and delivers more than 50,000 workers’ rights, women’s rights ,and freedom of association different product types per year. Our footprint impacts millions of people and collective bargaining. directly and indirectly each year. Our operations touch thousands of smaller businesses within multiple industries, all part of an established Encourage other brands to join us in partnering. Our aim global trading system dependent on a host of other partners, and is that by FY11, 30 percent of our supply chain be monitored all governed by the framework of a publicly traded company. This in partnership with other brands and through multi- complexity will only increase as we grow toward our projected $23 stakeholder collaboration. billion in revenue by FY11. To meet these challenges, we will leverage our business model, our Transition 90 percent of our footwear lines to lean products, our natural strengths and our voice to be a vehicle for manufacturing processes. change. We believe that design and innovation can deliver the most valuable solutions. We believe that entrepreneurship is the best We are firmly committed to addressing environmental challenges in the source for sustainable solutions. We believe that now is the time to world today, both in how we manage our footprint and in the design of seek and create radical collaborations between global businesses, our products. Over the past two years, we exceeded our CO2 emissions social entrepreneurs and activists, governments, non-governmental reduction target through the World Wildlife Fund’s Climate Savers organizations, and civil society. Everybody has part of the answer. program. We eliminated F-gases across all Nike products following 14 I hope you’ll join us, through healthy debate, innovative collaborations years of research and development in our Nike Air cushioning system. and multi-stakeholder partnerships. And we defined our environmental footprint – for our direct operations and our contract factories. By FY11 we expect to: Make our Nike brand facilities climate neutral; all Nike, Inc. Thank you, facilities are targeted to be climate neutral by 2015. In our products, we continue to pursue waste reduction and sustainable design through Nike innovation. We have embedded our “Considered Design” ethos across our design organization and set aggressive Mark Parker targets for footwear. By FY11 we expect to: Meet targets for waste reduction in product design and packaging, use of volatile organic compounds, and the increased use of environmentally preferred materials in all Nike footwear. We are targeting all Nike footwear and apparel product to meet these standards by 2015. 5 2 Global Corporate Responsibility Strategy 6 2 Global Corporate Responsibility Strategy We learned a tremendous amount in FY05-06 and those lessons are Corporate the basis for our reporting and our future. Corporate responsibility must evolve from being seen as an unwanted cost to being recognized Responsibility as an intrinsic part of a healthy business model, an investment that creates competitive advantage and helps a company achieve profitable, must evolve: sustainable growth. For that to happen, we saw we needed to transition our corporate responsibility efforts beyond the standard risk and reputation management approach usually taken, beyond the work of an isolated We are challenging function within the business model. We realized that effective strategies are ones that embrace the whole enterprise. Responsibly competitive our assumptions, outcomes result from holistic approaches and business processes that extend from factory workers to consumers, from sources of evolving our raw materials to communities where we can influence social and environmental change, from our workplace to the world we all share. perspective, building Being half green, or somewhat responsible, is not good enough. An environmentally friendly product made under poor labor conditions a new approach. is a hollow success. A product made under good conditions but that is bad for our planet is a missed opportunity. We don’t believe in tradeoffs. We do believe — passionately so — in innovating to create new and better solutions. We know a better shoe sacrifices nothing, except what didn’t belong there to begin with. The same can be said for corporate responsibility. It shouldn’t be about business tradeoffs, managing problems and mitigating risks. It should be about harnessing innovation to create something new and better. This is what we’ve been up to at Nike: challenging our assumptions, evolving our perspective, building a new approach, considering how we can harness the power of our business to influence social and environmental change and the power of that change to help our business grow. This report