Nike: Swooshing to Tackle Climate Change
How Nike Minimizes its Environmental Footprint
“A shoe can’t change the world, but an ethos can” 1
Nike is the world’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. In 2015, Nike shipped more than 1 billion units of shoes, apparel and equipment, generating $30.6 billion in revenues in the period. It has ambitions plans to become a $50 billion business by the end of 2020.2
Greenhouse Gas Emissions
We don’t often intuitively rank the environmental impact of clothing and footwear industry up there with coal-fired power plants, cement manufacturing and automobiles. Let’s break down the global warming potential (GWP) of a cotton T-shirt to illustrate a point. To understand the GWP of a cotton T-shirt, we estimate and express the greenhouse gas (GHG) emissions of all climate change relevant gases in CO2 equivalents (CO2-eq).3 A recent study revealed that for each cotton T-shirt produced, an estimated 2.1kg of CO2-eq of GHG is emitted.4 This burden is equivalent to driving a passenger car for slightly more than 5 miles.
In 2013, about 10 billion kg of cotton was used in making apparel globally. At this scale, the estimated impact within the apparel industry is 107.5 million tons of CO2-eq.5 This is equivalent in impact to more than 250 billion miles driven by the average car, or 1,300 round trips to the sun!
Impact of Climate Change on Nike
Nike has manufacturing operations in 49 countries, many in Southeast Asia. Back in 2008, severe flooding in Thailand forced Nike to shut down four of its factories in the country.6 At the same time, Nike remains concerned about rising droughts in regions that produce cottons. Dry spells, higher concentration of CO2 and an increase in temperatures have negative impact on cotton yield as a result of increased shedding of cotton flower buds, increased growth of weeds, and irrigation problems.7 The threat of reduced harvests translates to both cotton unavailability and higher cotton prices for Nike.
In its 10-K form filed with the Securities and Exchange Commission, Nike acknowledges the risks of climate change to its financial performance.8
Minimizing Environmental Footprint
What started as a response to issues with supply chain, such as the disruption it faced in 2008, has evolved into a core growth strategy for Nike. Through a combination of leadership, organizational design, market strength, market positioning and culture, Nike has positioned itself today as a leader in sustainability.9 Although Nike covers a myriad of strategies to reduce its environmental impact, two areas that are of particular interest are:
(1) product design and materials, and
(2) carbon and energy.
Product Design and Materials
In 2002, Nike started calculating its environmental footprint. Over time, this calculation has revealed that the most significant carbon emission impacts stem from the raw materials used in its products and the processing of those materials into textiles. Consequently, Nike had adopted a holistic approach to integrate greater innovation and sustainability into its product design and materials selection process. Among the breakthroughs that Nike achieved include the Considered Design boot developed with vegetable-based dyes and recycled rubber, and the Legend Pant that uses recycled polyester. Technology such as the Nike Flyknit, which enables designers to reduce waste by about 60% compared to traditional cut and sew footwear is also in the process of being scaled to high volume product lines.10 In 2015, Nike began collaborating with MIT on a Materials Challenge that attempts to discover revolutionary new ideas on innovative and low-impact fabrics and textiles.11
Carbon and Energy
Given that product manufacturing creates a significant impact to the environment, Nike utilizes renewable energy generation, including solar panels and wind turbines at its European Logistics Campus in Laakdal, Belgium, and solar panels at its logistics center in Taicang, China. Nike also works with contract factories to continuously reduce energy use and emissions. For instance, in 2015, about 20 of its contract factories used 500,000 MWh of renewable energy and are continuing to scale. Nike continues to have ambitious plans to use 100% renewable energy in its owned or operated facilities by 2025.12
No Finish Line for Sustainability
Nike realizes the need to continuously innovate to deliver more sustainable solutions. One challenge I see for Nike is the acceptance by the general public of the product it makes from recycled materials. Consumers may view these products as lower performance or quality goods. A significant mindset shift is required among consumers and Nike can play a bigger role in marketing performance, aesthetics and sustainability in a complete package.
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References:
- Nike, Considered Design video [https://www.youtube.com/watch?v=1WuyE_x8Vs8].
- Nike, Sustainable Business Report FY14/15.
- Randolph Kirchain, Elsa Olivetti, T Reed Miller and Suzanne Greene, “Sustainable Apparel Materials”, October 7, 2015.
- Ibid.
- Ibid.
- Petra Molthan-Hill, “The Business Student’s Guide to Sustainable Management”, 2014, p. 278
- “Cotton and Climate Change: Impacts and Options to Mitigate and Adapt”, International Trade Center 2011
- Nike, Form 10-K (filed July 23, 2015)
- Marc J. Epstein, Adriana Rejc Buhovac, Kristi Yuthas, “Why Nike Kicks Butt in Sustainability”, Organizational Dynamics Journal, Vol. 39, Issue 4, Oct-Dec 2010.
- Nike, Sustainable Business Report FY14/15.
- Joel Makower, “Why Nike and MIT see textiles as material to climate change”
- Nike, Sustainable Business Report FY14/15.
Wow, I had no idea that making apparel contributed so much to climate change! It’s interesting how you note that one of the impacts of climate change will be on cotton yield and that will make things difficult for Nike. While I agree with you that climate change will definitely impact cotton yield, I don’t think it will result in higher cotton prices for Nike.
If you check this Risky Business Report – http://riskybusiness.org/report/national/ – it goes on to say that production of crops will change regions as some areas become warmer than they were and others that were colder, now suddenly become the right places to grow those crops. So, in cotton’s case, maybe the production moves up by 1 or latitudes? If so, I would argue that maybe those regions which will in the future grow more cotton will help Nike and lower prices if those regions are close to Nike’s production facilities through lower transport costs.
I don’t know how climate change will play out on this – but it would certainly be interesting to see how companies like Nike plan for which geographic regions they should increase their manufacturing in!
Great post, Kenny! For Nike, I think it will be imperative that their sustainability is driven through design. I think the Flyknit example is a fantastic one. They were able to create a new design that worked well for their customers (and looked good)! This innovation is no longer just a better product, but also a product with a great story to tell. I think this combination is a powerful one as Nike shifts consumer mindsights to a more eco-friendly perspective.
Thank you Kenny for making me proud to own Nike Flyknit sneakers! It’s very exciting to read about Nike’s thought leadership in sustainable R&D and dedication to renewable energy generation. Nike’s plan to use 100% renewable energy at its owned and operated factories is incredibly ambitious– assuming Nike doesn’t outsource a large percentage of its manufacturing.
I tend to disagree with your opinion that Nike will face a consumer challenge marketing sustainable products, such as jerseys made from recycled materials, etc. I actually think these products provide a high level of cache in today’s society, and allow the consumer to feel like their purchase is contributing to a better world. One example of this is Lauren Bush Lauren’s FEED company, which has been very succesful selling bags that are made of environmentally-friendly materials and provide meals in the countries where they are produced. With Nike’s trusted brand, I think they will only face increased opportunities in selling products made from sustainable materials.
Kenny – Thanks for helping us understand the impact that the clothing and footwear industry has on climate change. I found the diagrams particularly useful as it is often hard to understand the impact when just stating large emissions or oil/gas numbers. I agree with @apedrajo above and think that Nike has created a loyal base of customers who would be excited that Nike is changing its product lines to be more sustainable. Nike has always innovated and this is a great next step. They could even do some great social media advertising on this front with their 66 million Instagram followers! I think this article [1] had a lot of great points about what Nike is doing and how consumers are more likely to welcome sustainable products.
[1] http://www.hbs.edu/news/articles/Pages/nike-sustainability-hbs.aspx
Great write up Kenny!
I’m a big fan of their brand and think that they can do a lot to inspire their consumers to go green.
In addition to the suggestions exposed in this post, I would like to encourage Nike to develop a recycle program. I also think Nike could do a lot to educate their customers on the impacts of climate change. By instituting program that increase awareness, they can inspire customers to demand more from other retailers – other retailers aren’t really pulling their weight to fight climate change!
-Jose