With Harvard’s focus on climate change last week through a number of events throughout the University, sustainability is in the spotlight. One of Harvard Business School’s case studies is “Governance and Sustainability at Nike,” coauthored by HBS professor Lynn Paine, associate professor Nien-hê Hsieh, and research associate Lara Adamsons. A protagonist in that case is Hannah Jones, who joined the world’s largest athletic footwear and apparel company in 1998 and is now vice president of Nike’s Innovation Accelerator and its chief sustainability officer. In an interview with HBS’s Jim Aisner, she talks about the strides that Nike has made in sustainability and the strategy that enables innovation in the areas of sustainable materials and manufacturing methods.
The HBS case begins with a quote by CEO Mark Parker in Nike, Inc.’s 2011 annual report: “I believe that any company doing business today has two simple options: embrace sustainability as a core part of your growth strategy or eventually stop growing.” Nike has created a board-level corporate responsibility committee and made marked improvements, for example, in the use of water and the release of toxic substances in the dyeing process. Why this kind of commitment?
Nike has come to see that understanding and working on sustainability is crucial for our company’s growth. Beyond that, sustainability is an emerging staple in boardrooms. When I look at the companies that are taking sustainability seriously all the way up to the board level, it’s organizations that have a management team thinking about the short-, mid-, and long-term. Usually they’re doing scenario planning that quickly gets them into understanding why sustainability is such a key driver. Also, they are often the companies with a very close connection to their consumer. One of the things we’re seeing is that consumers, particularly young consumers, are increasingly prioritizing sustainability. I think you will find that sustainability will continue to rise up the corporate agenda in the future.
Let’s focus on consumers for a moment. Do they say they care about these things, but when push comes to shove, they buy the product that is best for them at the best price? In other words, a difference between what they say and what they do?
Let me explain where I see the journey with consumers going. They start by becoming aware of an issue, and then for quite a long period of time mainstream consumers may feel or think something, but that doesn’t necessarily translate into their buying decisions. The consumer finds it hard going if there’s a trade-off required of them. For example, if they have to pay more or if they believe the quality is less, that’s where you see some stagnation in terms of their behavior shifts. But if you take a look, you can see what some of the more recent shifts are telling us. Consider the food industry and how the move to organic products is becoming increasingly mainstream, with even big players in the so-called value markets starting to enter organic food. Look also at the car industry and think about how vehicles like the Toyota Prius have taken off, not to mention Tesla vehicles on the high end. Consumers now have a pretty clear idea about what is absolutely unacceptable for a company to do, and they’re starting to say and act upon their belief that sustainability has a role to play in their purchasing decisions. Now, is it as fully developed as we’d like it to be, with companies that are sustainable getting more and more consumers coming over to them? Not yet. But do we see that trend emerging over the years and continuing to grow? Absolutely.
"CONSUMERS NOW HAVE A PRETTY CLEAR IDEA ABOUT WHAT IS ABSOLUTELY UNACCEPTABLE FOR A COMPANY TO DO, AND THEY'RE STARTING TO SAY AND ACT UPON THEIR BELIEF THAT SUSTAINABILITY HAS A ROLE TO PLAY IN THEIR PURCHASING DECISIONS."
Nike has had a robust Corporate Social Responsibility program in place since the 1990s. How and why did it begin?
Nike began its sustainability journey in a very public way in the early 1990s, when we became one of the first companies to be campaigned against around the issue of supply chain and labor rights. If you zoom back to that time, there was no such thing as corporate responsibility, and there had been only a few major campaigns by NGOs [Non-Governmental Organizations] against brands – after the oil spill from the tanker Exxon Valdez in Alaska, for instance. The NGOs said they were going to place accountability on a brand’s shoulders, so to speak, and their protests helped them garner public, media, and political interest and support.
In the 1990s, we ran into criticism over labor practices at our contract factories, and so we really learned the hard way how important it is to embed sustainability into your business model and think about environmental and social impacts through your entire value chain. It took us awhile to emerge with some significant lessons learned. In hindsight, we wouldn’t be the company we are now, because it taught us relatively early on about something that is now becoming a mainstream norm and about a way of doing business that would help us grow in the future. In trying to solve these problems, we came up with a several important insights that helped the company greatly.
The first one was that we can’t solve these issues on your own. We need the help of others, so we have to create partnerships and work with NGOs and government agencies -- very different stakeholders from the ones we were used to dealing with. The art of collaboration becomes critical. The second insight was that despite the challenges presented by our large size and global presence, we couldn’t solve our problems without making changes throughout the whole system. And third, we began to realize that we would have to reduce our dependence on scarce resources while continuing to grow as a business. To do that, we would have to innovate much more than we had in the past. Which brings us to where we are today. For us sustainability is a source of innovation. This approach is now part of Nike’s DNA, in no small part because cofounder and then CEO Phil Knight wanted it to happen, as did former board member Jill Ker Conway, who played an enormous role in all this as the creator and longtime chair of our Corporate Responsibility Committee. When Mark Parker succeeded Phil as CEO, he continued the commitment.
What would be an example of sustainability-based innovation?
Once we determined that sustainability was going to be part of our growth and innovation agenda, we began to build a competency in things like strategic investments and strategic alliances and partnerships, looking to research labs and other organizations to help us. One problem we were concerned about, for instance, was the very significant use of water for dyeing apparel – 12 to 18 gallons of water per pound of fabric -- a process that demands a large amount of energy as well. We’d tried various incremental programs to alleviate the problem, but what we wanted was a disruptive solution. We discovered a small Netherlands-based startup called DyeCoo Textile Systems B.V., which had developed a new technology that could dye fabrics using no water, remove a significant amount of the energy footprint, and eliminate the need for process chemicals. So having made a minority investment in DyeCoo and developed a strategic partnership with them, we have been working with some of dye houses to prototype and develop a way to take this technology into the Nike supply chain first, and then out into the industry as a whole. We want this to become the new normal.
Are there areas where you wish you were moving along faster?
One of the areas that’s quite difficult to unlock and yet has huge potential is chemistry. At the end of the day, we need the world to move to a palette of green chemistries used for the manufacturing and making of fabrics for footwear and apparel. That’s a complex operation, and it means systemic change in partnership with the chemical industry and dye houses. That’s difficult, because as big as we are, we’re actually a very small part of that ecosystem. And so we’re doing all we can to help build alliances and partnerships, bring the industries together, and forge a common agenda for turbocharging green chemical solutions for our industry. We’ve recently been working with NASA, the State Department, and USAID [United States Agency for International Development] on an open innovation challenge around greener chemistry for materials called LAUNCH. We’re looking for ideas that have been developed to at least a prototype stage, if not a bit beyond. A panel of judges picked the top ten innovations earlier this year, which will be put through an accelerator program that includes mentors and help in scaling the innovations for use throughout the industry.
We’ve talked about the strategic commitment to sustainability that’s come from Nike’s CEO and board, along with a mandate to free yourselves from a dependence on scarce resources. What are some of the other keys to your sustainability success?
Our executives are accountable for elements of our sustainability strategy. On a regular basis, they present to the board’s committee on corporate responsibility and outline their execution plans. In addition, Nike establishes public targets for sustainability, and in the interest of transparency, we report against those targets through our Sustainable Business Performance Summary. As a result, the governance of all this is at the board level, our corporate responsibility report is in the public arena, and we hold each other accountable through internal performance metrics that are included in people’s end-of -year reviews. It’s this combination that ensures that this commitment remains high on our agenda. And we’re seeing the results; we’re seeing how sustainability and business can be a win-win. I think there’s a myth that sustainability is a cost to business. What we’re uncovering is that when you’re looking to dramatically reduce waste, as an example, it can be a business benefit as well, because waste means money lost. Every time we help Nike achieve its goal of reducing waste with a product such as our Flyknit running shoe, which is manufactured virtually waste free, it’s a similar theory to taking a portion of that money out of operating costs and putting it onto the bottom line over time.
Finally, what did you hope to accomplish by cooperating with the writing and teaching of this case?
With this and other cases in the sustainability portfolio, HBS is helping the next generation of executives understand that to be a great leader of a company--or any other organization for that matter--they will have to be well versed not only in the numbers but in a strategy that includes building sustainability and accountability into the core fabric of the firm.