A proposal on worker pay may have failed to pass, but shareholders continue to call for transparency and supply chain due diligence.
Sportswear giant Nike is facing increasing pressure from investors on the effectiveness of its scrutiny of suppliers on social-related issues, following a shareholder proposal calling for transparency on working conditions in its supply chains.
The proposal, filed by activist investor Tulipshare, called for Nike’s board to issue a report analysing the effectiveness of its supply chain management infrastructure in ensuring alignment with the company’s human rights commitments and equity goals.
Separately, a group of investors, including ABN AMRO and CCLA Investment Management, wrote to the company this month asking it to address allegations of wage theft amounting to US$2.2 million at two supplier factories.
A June report published by NGO Worker Rights Consortium (WRC) alleged that Cambodia-based factory Violet Apparel dismissed over 1,200 workers in June 2020 with less than a week’s notice and without paying full benefits, such as damages for being dismissed without cause.
Before its closure, Violet Apparel was owned by global manufacturer and Nike supplier Ramatex.
WRC claims Violet Apparel was also a subcontractor for Nike until 2020.
“Nike either failed to exercise proper oversight over one of its suppliers [Ramatex] for subcontracting Violet Apparel, which improperly let go workers and failed to compensate them, or it is backing up Ramatex in its failure to provide workers with adequate recompense,” Chavi Keeney Nana, Director of Equitable Global Supply Chains at the Interfaith Center on Corporate Responsibility (ICCR), told ESG Investor.
ICCR is one of the supporters of the letter.
A separate WRC report noted that another Nike supplier, Thailand-based Hong Seng Knitting, refused to provide US$800,000 in furlough pay to over 3,000 workers during the pandemic.
This money remains unpaid.
Tulipshare failed to secure a majority vote at Nike’s annual general meeting (AGM) on 12 September; the company will disclose the final vote tally to the US Securities and Exchange Commission (SEC).
“While we are disappointed at the outcome of the voting at Nike, we [ICCR and its investor members] will continue to engage the company until workers have been fully compensated,” said ICCR’s Keeney Nana.
“It is important for investors to engage affected stakeholders across the spectrum, most crucially, workers and their affected communities,” she said.
Nike has denied the WRC’s allegations, claiming that it has not sourced product from the Cambodian factory since 2006, and that it has found no evidence it owes back pay to workers in Thailand.
“We take this lax treatment of basic evidence as another indication of how little Nike is taking when it comes to taking seriously the rights abuses in this case and their own due diligence responsibilities,” Thulsi Narayanasamy, WRC’s Director of International Advocacy, told ESG Investor.
Narayanasamy pointed out that Nike’s own published supply chain disclosures from 28 February 2007 and 28 April 2008 show it was producing products from Violet Apparel at this point. Further, there is a Thai court ruling determining that Hong Seng Knitting must back pay the workers.
Nike’s human rights and labour compliance standards outline that the company monitors its suppliers’ compliance with its Code of Conduct and Code of Remediation through “regular announced and unannounced audits conducted by internal and external parties”.
In instances a supplier’s facility has been found to have serious violations of Nike’s standards, “it is required to remediate all issues identified and have on-site verification of the remediation” or, if the concern is raised by a third-party, Nike “promptly investigates and requires corrective actions for any issues identified”.
In May, it was also revealed that Nike could be fined US$530 million for misclassifying thousands of temporary office workers across the US, UK, Netherlands, and Belgium.
Access to remedy
Going forward, Keeney Nana said that Nike should work to know what is in their supply chain and “should engage with suppliers in a robust discussion on sharing responsibility for the prevention, mitigation, and remediation of human rights abuses”.
This includes conducting supply chain mapping and engaging with the responsible contracting principles outlined in the Model Contract Clauses, as requested by Tulipshare and the signatories of the investor letter, she added.
The investor letter noted that the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct “include an expectation that companies that are linked or contributing to adverse human rights impacts have a responsibility to support access to remedy”. In this case, access to remedy means workers should be compensated for lost pay.
“We believe the sum that workers say they are owed is relatively small given the growing reputational risk to Nike and other brands involved in this dispute,” the letter said.
Kees Gootjes, Business and Human Rights Advisor at ABN AMBRO, told ESG Investor that the issue of access to remedy has “long been on our radar as something the financial sector needs to get more involved in”.
“Nike is an example of this issue being raised at a factory level by the workers, then a sectoral and national level, yet, three years later, these workers still haven’t received access to remedy – which is why it’s now important for the financial sector to get involved.”
Investors’ increasing focus on companies’ supply chain due diligence highlights how social-focused demands are deepening and evolving, according to Richard Kooloos, ABN AMRO’s Global Head of Social Impact and Human Rights.
“Companies increasingly expect investors to ask about their Scope 3 emissions, which involves visibility of their supply chains, and this is also happening on the social side,” he said.
“While it’s positive that companies are increasingly aware of their own employees, what about those working along their supply chain?”
Kooloos added that these issues will become increasingly relevant in the next two years, ahead of the EU’s Corporate Sustainability Due Diligence Directive (CSDDD), which will require companies to implement due diligence measures to identify, end, prevent, mitigate and account for negative human rights and environmental impacts of their actions, including in their value chains inside and outside Europe.
Nike will be sent a regular update on the letter’s signatories.
Last year, Nike committed to publishing its promotion and recruitment data by gender, race and ethnicity by the end of 2024.
A separate resolution filed by Massachusetts-based Arjuna Capital called for Nike to disclose more data on pay equity for female and minority employees. It also failed to secure a vote majority.
