highlights 2011 9 environment 19 2012 milestones 36...

12PERFORMANCE COUNTS / Sustainability Progress Report 2011

suPPlIers

ceo statement 3

our aPProacH to sustaInaBIlIty 5

HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


the clusters show that we moved closer to our target that by 2015 80% of strategic tier 1 suppliers will meet compliance expectations and a minimum performance rating of 3c.

suppliers who are rated 1c (with social compliance KPI scores of 29% or below) are viewed as having systemic problems. typically they are factories which have inadequate or underdeveloped management systems and are unable to support long-term sustainable compliance with the adidas Group’s Workplace standard. By the end of 2011, 8% of all suppliers were rated as 1c. this is a substantial decrease from 19% in 2010 and has been achieved through a focused effort on capacity-building.

We designed a comprehensive capacity-building programme that required suppliers to develop and improve Hr and Health, safety and environment management systems, as well as strengthen the capabilities of their personnel and organisation. the programme includes classroom training, project assignments and periodic progress reviews. members of the social & environmental affairs (sea) team were actively involved in providing consultation to suppliers where needed. In countries like India and Indonesia, the team also engaged and commissioned external experts to deliver tailored training. Progress was then measured and improvements noted for each of the unit of measures of our social compliance key performance indicators.

2012 MilesTonesIn 2012, our supplier KPI capacity-building programme will build on our experience and successes from 2011. We aim, by the year end, to:

• achieve 68% of our strategic tier 1 suppliers at 3c rating or better, and 15% at 4c rating or better

• 45% of all direct suppliers to meet 3c rating (good) or better

• target newly approved suppliers to help them achieve a minimum 2c rating

• Provide ongoing training and consultation for existing suppliers to improve their KPI rating to the next level.

DirECT SuppliErS

TArgeT 2015: 80% of sTrATegiC Tier 1 suPPlier fACTories To MeeT 3C (good) or beTTer under our soCiAl CoMPliAnCe kPi rATing And 25% of TheM To be in The self-governAnCe CoMPliAnCe Model

2011 mIlestone

tackle the lowest performers by improving 1c-rated suppliers to a minimum rating of 2c and exit those suppliers that do not meet this grade.

ProGress/Performance In 2011

In 2011, comprehensive capacity building was designed and implemented for suppliers who were at 1c rating in 2010 across asia. target countries included India, Indonesia, thailand and china. the capacity-building programme has resulted in more than 70% of 1c factories making the required improvements to achieve a 2c rating. those suppliers who failed to reach a minimum of 2c are to be phased out in 2012.

lArgely AChieved

AdditionAl comments

During 2011 we improved how we monitor supply chain compliance by customising programme activities with three redefined clusters of the supply chain. these clusters stressed more value-added practices by the fair, good and best compliance performers. the highest performing suppliers implemented “self-governance” activities, including more sophisticated reporting. fair, good and best performers participated in the “Partnership” cluster, focusing on collaboration with multiple buyers in shared factories (such as the sustainable compliance Initiative and the Brown shoe collaboration), and participating in multi-stakeholder initiatives (such as the fair labor association and Better Work). the poorest performing suppliers are in the “risk management” cluster.

• the risk Management cluster includes those factories scoring at 1c or 2c – about 61% of our supply chain

• the partnership cluster includes 3c factories – about 28% of our supply chain

• the Self-governance cluster is composed of 4c and 5c factories – about 11% of our supply chain.

suPPliers

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


iNDirECT SuppliErS

TArgeT 2015: sCoreCArds for business uniTs And inTerMedAries MAnAging our indireCT suPPliers To AChieve An AverAge PerforMAnCe rATing of 70% or higher

2011 mIlestone

Drive business entities’ accountability for their supply chains’ compliance performance by:

• expanding the number of strategic compliance plans (scP) and report card (rc) assessments.


the number of strategic compliance plans has increased by 29% from 31 to 40 and report cards by 13% from 55 to 62.

TArgeT AChieved

AdditionAl comments

our target is for our Group business units (Bu) and licensees, altogether known as our Business entities (Be), to achieve an average report card score of 70% or higher by 2015. By the end of 2010, 55 report cards had been completed and the average score for all the Bes globally was 63%. By the end of 2011, 62 report cards were completed and the average global score improved to 67%.

sea works with the Bus and licensees to develop their strategic compliance plans (scP) and report cards (rc). the rc evaluates the Business entities’ performance over the previous 12 months in integrating the Group’s ethical sourcing policies into their daily operations and throughout their supply chain. Gaps embedding the policies and practices are identified by assessing responses for defined standards and requirements. the final step develops and implements a forward looking strategic action plan. some of the report cards in 2011 remained desk top exercises and were not updated.

the rc assessment includes benchmarks to evaluate the Business entity’s collaboration with the sea team, the disclosure and accuracy of its supply chain data in the fair factories clearinghouse (ffc), compliance with sea standards and guidelines, and the effective management of supply chain audits and corrective actions. a final measurement benchmark assesses the overall compliance performance of its global supply chain. the report card score is a cumulative score up to 100%.

low scores indicate serious shortcomings in the Business entity‘s management of sea requirements within their organisation and in the supply chain. the sea team meets with low-scoring Bes more frequently to support the improvement of compliance processes and management systems. Business entities with high scores, in particular those who already have established a compliance programme and an internal audit team, operate in a self-governance mode.

this means that they are allowed to enter the results of their internal audit findings in the ffc database. the sea team conducts random audits in these factories to confirm the findings and to inform the regular KPI assessments.

2012 MilesTone• In 2012, scorecards to be reviewed and updated for

90% of our business units and licensees that have own sourcing arrangements.

2011 mIlestone

Drive business entities’ accountability for their supply chains’ compliance performance by:

• launching an environmental component to the scP.


an environmental component was integrated into the standard strategic compliance planning tool and launched globally for application to all core suppliers.

TArgeT AChieved (rollouT And iMPleMenTATion) for APPArel Core suPPliers

PArTiAlly AChieved (rollouT And iMPleMenTATion) for eMeA And AMeriCAs Core suPPliers

AdditionAl comments

factories are required to prepare and keep updated a three-year strategic compliance plan (scP) that directs their internal efforts to comply with the adidas Group Workplace standards, through the development of sound management systems, monitoring processes and training. recognising the need to align the environmental aspects of the programme into the sea core tools, we revised the scP to incorporate an environmental element allowing the factory to address sustainability as a whole. this is in line with the need for suppliers to be transparent in their approach to addressing their overall sustainable practices.

With the additional environmental element in the scP, suppliers are now taking a closer look at their internal environmental programme and initiatives. they are also challenged to look at their activities in a more comprehensive manner – considering the interactions between labour, health & safety and environmental issues.

2012 MilesTone• We will continue to promote the environmental component of

the scP to core suppliers in the emea and americas regions.

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


furthermore, the sea team and the ffc have started working with arts (association for retail technology standards) to create an industry-wide solution to interface compliance data between different database platforms. several other brands, multi-stakeholder initiatives and organisations such as nike, fla, GscP, seDeX and Better Work are also part of this project. the ffc plays a crucial role in this project and its recognition and visibility within the industry increased in 2011.

2012 MilesTone• In 2012, sea will continue to promote the ffc as an industry-

wide tool for sharing compliance information and harmonising corrective action plans.

2011 mIlestone

Integrate the next generation of monitoring tools by benchmarking our tools and practices against those of other brands in key industry alliances, such as the fla and GscP.


largely achieved and continuously acted upon. the launching of the sustainable compliance Initiative and the Global social compliance Programme equivalency process are still works in progress but we continue to mature our tools and methodology in collaboration with these programmes.

lArgely AChieved

AdditionAl comments

We leveraged industry and sectoral initiatives such as the fair labor association’s sustainable compliance Initiative (fla-scI), the fair factories clearinghouse (ffc), and the Global social compliance Programme (GscP) to continue calibrating our monitoring methodology, strategic compliance planning tool, and key performance indicators.

the fla’s scI methodology focuses monitoring on all of the stages of the employment life cycle, from recruitment through the termination of employment. the adidas Group actively participated in global testing of the scI tool in the americas, asia Pacific and emea. We are also working closely with brands like nike and Philips van Heusen to identify standards for a commonly used set of monitoring question sets derived from the scI tool. this will further advance the jointly applied monitoring content and practices with up to 100 shared factories.

the sea Human resources management systems (Hrms) programme was evaluated and harmonised to seamlessly integrate with the scI methodology. the fair Wage assessment project started in 25 factories (4 full assessments and 21 self-assessments in the Philippines, thailand, and latin america) and will collect and measure worker compensation practices against 12 wage benchmarks, and identify frameworks that sustainably improve wages. scI, Hrms and fair Wage assessment continue to be thoroughly tested and will be completely integrated into the sea team’s internal coverage and practice by 2013. see below for more on the fair Wage assessment exercise.

SySTEMS AND guiDEliNES

TArgeT 2015: esTAblish CoMMon indusTry-wide MoniToring PlATforM And Tools used To CheCk And MeAsure workPlACe CondiTions

2011 mIlestone

Promote the mainstreaming of the fair factories clearinghouse (ffc) as an industry-wide tool for compliance collaboration and harmonised activities.


the sea team is an industry pioneer in harmonising corrective action plans with other brands using the ffc’s data sharing platform.

lArgely AChieved

AdditionAl comments

We have been using the fair factories clearinghouse (ffc) as the adidas Group’s compliance database since 2006. In 2008, the ffc created a feature to enable its member companies to share factory audit reports, corrective action plans (caP) and other related documents. We have shared our audit results in the ffc with all the other members since then.

the sea team has been the leader in sharing the most number of monitoring documents in the ffc and in harmonising caPs with other brands in shared factories. With the consent of the factory management, the caPs of the two brands are harmonised into one caP, which allows the factory to respond to just one caP instead of two different ones. this saves valuable resources for the factory and for buyers, and creates consistency for everyone. It also reduces the number of audits in a factory as the brands can alternate audit responsibilities between each other and update the harmonised caP.

In 2011, the sea team asked the ffc to further improve and simplify its collaboration aspect and the ffc subsequently introduced new specifications to its members by end of 2011. In order to promote collaboration further, the ffc even introduced a new membership model with both “full membership” and “sharing only” membership. In this way companies do not have to be full members to collaborate and harmonise caPs with other members.

the adidas Group strongly supports the ffc data sharing capabilities because we believe that if there are more companies using the ffc to share audits and to harmonise caPs, the industry as a whole will benefit.

In 2011, we introduced the ffc to the “Brown shoe collaboration” companies. the “Brown shoe collaboration” consists of a range of brands within the business and casual footwear segment. most of them were not ffc members so the ffc provided them with trial memberships for six months to allow them to edit the harmonised caP in shared factories. We continue promoting the ffc as an industry-wide solution in our interactions with other brands, federations and initiatives including the World federation of sporting Goods Industry, Better Work, the fair labor association, the sustainable apparel coalition (sac) and the Global social compliance Programme (GscP).

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


We use the fair factories clearinghouse (ffc), a shared compliance monitoring platform that enables us to collaborate on activities in factories shared with other buyers, in other words, to more efficiently engage with factories. In 2011, we shared compliance data in the ffc for 913 of our factories. additionally, we engaged in 18 collaboration activities directly with other brands, and through Better Work. In many of these cases, we developed harmonised remediation plans with other buyers and established consistent messages for factory management. this clearly set expectations for suppliers to fulfil the benchmarks of the partnership compliance model and move to adopt practices for a self-governing compliance model. We have 93 self-Governance audits conducted by our 4c and 5c-rated suppliers, fla participating suppliers, and selected licensees.

In 2012, we will start applying the “equivalence Process” of the Global social compliance Programme. this helps companies and initiatives to benchmark their own systems, tools and processes against agreed best existing practices as described in the GscP reference tools. a more detailed description can be found on the GscP website at http://www.gscpnet.com/equivalence-process.html

2012 MilesTones• finalise the commonly shared (scI) monitoring question sets

with other brands and buyers.

• continue preparations to integrate scI, Hrms and the fair Wage assessment to internal sea practice by 2013.

• start applying the Global social compliance Programme equivalence assessment.

2011 mIlestones

Drive efficiencies and effectiveness in the monitoring and improvement of workplace conditions by leveraging our partnerships and collaborations with selected brands, multi-stakeholder initiatives and other stakeholders by:

• Promoting the harmonisation of corrective action plans at a factory level through brand collaborations and engagement with key suppliers.

• completing a fair Wage pilot in collaboration with the fla and Ilo by prototyping in the Philippines and central america.


the milestone was largely achieved and continuously acted upon. fair Wage piloting and collaborations met the 2011 target but the increase in the number of suppliers with harmonised corrective actions plans was less than expected.

lArgely AChieved

AdditionAl comments

the 2011 milestones were direct actions with the supply chain to achieve 2015 targets of 80% of our strategic tier 1 suppliers reaching a 3c KPI rating and 25% of them to take direct responsibility for their own social compliance performance. the 2015 targets for collaboration and partnerships with multiple stakeholders (multi-stakeholder initiatives, brands, and local civil society) included work in 2011 to find resolutions in several factory reports – ocean sky, style avenue, Pt Kizone. the fair Wage project, rolled out in five countries, supports the 2015 target that strategic suppliers transparently report on sustainability performance.

Stakeholder partnerships and collaborations

In 2011, we worked closely with the fair labor association and other brands to refine and finalise the sustainable compliance Initiative (scI). the scI is an innovative approach for assessing working conditions and developing corrective action that focuses on proper and effective human resource management systems. sea staff participated in pilot testing of the tool with suppliers in china, India, el salvador and Bulgaria. team members attended training to assess the value of the systems and practices in the workplace, including identifying the item to be assessed, and then evaluating that item in a way that leads to sustainable recommendations and remedies.

the sea staff participated in developmental working groups with the fair factories clearinghouse’s new programme (arts) to seamlessly share compliance data, and the sustainable apparel coalition’s sustainability Index content for the environment and social compliance.

notable collaborations with other brands included work on the fla–scI, and an increased number of corrective action planning with factories shared with another sports brand. shared corrective action planning is rolled out in seven countries –Indonesia, vietnam, turkey, egypt, Brazil, Honduras, and mexico. ongoing efforts in partnerships with eight other brands in the “Brown shoe collaboration” continued for the third year, with the development of common corrective action plans for multiple shared factories for a large scale shoe supplier in china. the collaboration also expanded coverage by looking at opportunities to set common standards and approaches for the safe use of chemicals.

active engagements with local civil society, other buyers and regulatory authorities led to prompt and successful resolution in the ocean sky and style avenue factory cases in el salvador.

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


STAkEhOlDEr ENgAgEMENT

TArgeT 2015: sTrATegiC suPPliers To hAve TrAnsPArenT rePorTing PrACTiCes AbouT Their susTAinAbiliTy PerforMAnCe in PlACe

2011 mIlestones

address external requirements for transparency and disclosure:

• fulfil locoG requirements and contract obligations on supplier disclosure and seDeX uploads.

• Publicly disclose olympic supplier list from mid-2011 and update quarterly to ensure it is current and accurate.


as a local sponsor of the 2012 london olympic Games, the adidas Group comprehensively met the requirements as outlined in the sourcing code of the london organising committee of the olympic and Paralympic Games (locoG).

Beyond these requirements we disclosed our olympic supplier list to the public and updated it quarterly. We also developed and delivered a legacy programme of outdoor sports facilities for local communities in the uK and ran the first ever sports event-focused stakeholder dialogue.

TArgeT AChieved

AdditionAl comments

engaging openly with stakeholders and establishing leadership approaches for transparency and disclosure is a fundamental part of our sustainability strategy.

Being so visible at major sporting events draws attention to how we do business, so the adidas Group has taken a proactive approach in engaging with stakeholders about its corporate responsibility practices for the london 2012 olympic Games. the approach has included specific actions:

• meeting the requirements of the locoG sourcing code and disclosing our olympic supplier list to the public

• Providing a sporting legacy to the uK and delivering a grassroots programme to the community

• seeking direct dialogue with uK-based labour and human rights groups about how events are organised and how the parties involved manage their wider responsibilities when it comes to protecting human or labour rights.

Fair Wage pilot

the fair Wage approach is based on assessing 12 complementary fair Wage benchmarks to gain a complete overview of wage practices at the enterprise level and to identify remedial needs. Different fair Wage tools capture the different aspects of the wage story in the enterprise and provide findings that are reliable and robust. these include an online questionnaire for managers, a table of statistics on wages, employment and company performance, quantitative interviews of workers and qualitative surveys of a few selected companies. In 2011, three suppliers in the Philippines and one supplier in mexico started full fair Wage assessments, and 21 suppliers in el salvador, Brazil, thailand and china worked on fair Wage self-assessments. In Q3 2012, a consolidated fair Wage assessment report will be completed and given to the adidas Group and the four factories which completed full assessments.

the opportunities in the fair Wage project will help individual suppliers, as well as the adidas Group, to identify the management practices required in fair Wage dimensions. the assessments evaluate compliance with legal wage provisions, wage levels and wage adjustments, and set a series of wage policy recommendations. these recommendations encompass the quality of pay systems, their fairness and efficiency, as well as the strength of communication and social dialogue.

2012 MilesTones• Integrate scI methodology into current monitoring practices

and tools; deeper application from 2013 onwards.

• complete and report on 25 full and self-assessments by suppliers using the fair Wage methodology and tools.

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42


leaving a legacy to the uk community

as a sponsor of the london 2012 olympic Games, we wanted to provide a sporting legacy to the uK that would get more people active and break down barriers to sport and physical activity. We engaged with local and central government, organisations like the youth sports trust, sport england, and locoG in the development and rollout of the adiZone programme. the adiZone programme revolves around creating innovative multi-sport venues that provide a social platform for members of the community to do a range of activities.

By end of 2011 the company has built over 50 adiZones spanning across every region in england equipped with sustainable facilities for both able-bodied and disabled users. Brand adidas is determined to increase the number in the uK by setting up more than 100 adiZones across the country by the time the Games start. the goal is to make sports participation accessible by offering everybody a chance to get active. each adiZone is a free-to-use, permanent “outdoor gym-like” installation measuring 625sq metres and is open 365 days a year, incorporating basketball, football and tennis areas, a climbing wall, an outdoor gym and an open area to encourage dance, aerobics and gymnastics, set up by the local communities together with adidas.

Stakeholder dialogue 2011

Building on previous engagements, in may 2011, the adidas Group hosted a stakeholder dialogue on the topic “respecting labour rights in Global supply chains: the Impact of major sporting events”. the dialogue included representatives from uK labour rights and human rights organisations, from the london organising committee for the olympic Games and Paralympic Games (locoG), srI analysts and senior staff from the adidas Group.

the feedback from the meeting helped to shape our approach to managing our supply chain for major sporting events, including the london 2012 olympic Games. the dialogue was hosted by an independent facilitator. a paper summarising views from the meeting is available on the adidas Group sustainability website.

2012 MilesTones• to share the findings from the stakeholder dialogue with

sports events organisers to raise the sustainability bar for future events where the adidas Group is a sponsor.

• to further promote transparent reporting practices about our suppliers’ sustainability performance, we will identify key jurisdiction where public listed supplier companies are required to conduct non-financial (esG) reporting; we will start engagements with partners who are listed in those markets.

Meeting the lOCOg Sourcing Code

the london organising committee for the olympic Games and Paralympic Games (locoG) issued a sustainable sourcing code to its partners. the code clearly outlines four key principles for commercial partners to follow:

• ensuring responsible sourcing

• using secondary materials

• minimising embodied impacts

• using healthy materials.

Ensuring responsible sourcing

all direct suppliers and sewing subcontractors selected to manufacture locoG-licensed products:

• are to meet the adidas Group Workplace standards

• are fully disclosed in seDeX (supplier ethical Data exchange)

• are subject to regular labour, health & safety compliance inspections by adidas Group sea compliance staff

• meet a defined key performance indicator (KPI) which rates a factory’s compliance performance

• Have a management plan in place that details a factory’s compliance programme and future targets

• are publicly disclosed via the adidas Group website.

using secondary materials

overall, 90% of the adidas Games products contain sustainable content including 100% of athlete village-wear, 100% volunteer-wear, and 73% of on-field performance products. the london volunteer’s uniform is a prime example. all items in the volunteer package contain, at a minimum, 35% sustainable content, with three-quarters of the volunteer clothing and accessories containing more than 50% sustainable content. additionally, all volunteers will be wearing the london version of the popular fluid trainer shoe. the fluid trainer is technically advanced in the area of sustainability, with pattern innovations and sustainable content that impact the whole shoe. the shoe contains recycled polyester mesh, recycled eva (ethylene vinyl acetate), as well as recycled rubber, and has achieved a 70% or greater pattern efficiency for every piece of the upper.

Minimising embodied impact

all direct suppliers selected to manufacture adidas-branded locoG-licensed products and their major materials suppliers have undergone environmental assessments of their sites. assessments are used for the development of individual factory improvement programmes. factories’ progress is tracked regularly.

using healthy materials

locoG-licensed products comply with the adidas Group restricted substances list and are in compliance with standards listed in the locoG sourcing code.

ceo statement 3


HIGHlIGHts 2011 9

suPPlIers 12

envIronment 19

emPloyees 32

2012 mIlestones 36

Performance 42

highlights 2011 9 environment 19 2012 milestones 36...

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