Investor pressure is mounting on Nike as the company heads into its annual shareholder meeting. Norway’s sovereign wealth fund, one of Nike’s largest shareholders, has pledged to back a resolution urging the company to improve working conditions at its garment factories. This move comes as Nike faces challenges from declining sales and growing criticism over its supply chain practices.
The resolution, proposed by a group of investors including Domini Impact Equity Fund, highlights concern about persistent labour rights abuses in Nike’s supply chain. These abuses include wage theft, inadequate health and safety measures, and gender-based violence at garment factories. The investors argue that Nike’s current approach often fails to address these issues effectively.
Investment research firm MSCI downgraded Nike’s environmental, social, and governance (ESG) rating in both 2022 and 2023, categorising the company as a “laggard” in terms of labour standards within its supply chain.
The resolution asks Nike to explore whether creating binding agreements with workers in high-risk countries could improve its ability to address human rights issues. Despite sourcing from five factories in Pakistan, Nike has yet to sign the Pakistan Accord, a binding health and safety agreement that other brands like Adidas and Puma have endorsed.
Last year, Domini and more than 60 investors sent a letter to Nike, urging the company to pay $2.2 million in wages to workers in Cambodia and Thailand who were reportedly denied severance pay after factory closures during the COVID-19 pandemic. Although Nike denied the allegations, its limited response has raised concerns among investors.
In a statement, Nike acknowledged the proposal and said it had engaged with the co-filers of the resolution. “We greatly value the opportunity to engage with and solicit feedback from our shareholders, and we believe that maintaining an open dialogue strengthens our approach to corporate governance practices,” the company said.
However, some investors remain frustrated by Nike’s overall lack of engagement. Frank Wagemans, a senior engagement specialist at Achmea Investment Management, expressed his concern: “We signed the joint investor letter last year, we also reached out to Nike ourselves and we didn’t get a reply which was quite astonishing to me because supply chain is probably the key ESG topic for Nike.”
Norway’s sovereign wealth fund, Nike’s ninth-largest shareholder, has decided to back the resolution, contrary to Nike management’s recommendation to reject it. At the same time, Nike has urged shareholders to vote against a separate proposal from investor Tulipshare, which asks the company to assess its supply chain management effectiveness. Last year, Tulipshare’s proposal garnered 11.7% of the vote, but Norway’s fund has indicated it will not support the proposal this year.
Shareholder advisory firms Glass Lewis and ISS have recommended voting against both resolutions, while Frankfurt-based Union Investment has announced its support. “We would like to see concrete efforts to enhance Nike’s understanding of gaps in its strategies to mitigate legal, reputational, and human rights risks,” said Janina Bartkewitz, an ESG expert and analyst at Union Investment. “Protecting vulnerable workers is of paramount importance.”
Marie Payne, responsible investment officer at Cardano in London, highlighted the increasing pressure from new regulations, such as the European Union’s Corporate Sustainability Due Diligence Directive, which requires companies to strengthen their supply chain practices and reporting.
If any proposal garners 20% or more of the vote, it would signal to Nike that these issues are critical to its shareholders. “Part of the strategy is to get the company’s attention. But another part is to signal to other shareholders that a group of investors sees this issue as material, posing potential risks to the company,” said Caroline Boden, director of shareholder advocacy at Mercy Investments.
As Nike faces increasing scrutiny over its supply chain practices, the outcome of the shareholder meeting could mark a pivotal moment in how the company addresses its labour rights concerns moving forward.