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Sustainability feeds growth

Sarah Severn talks on why environmental and sustainability policies are key to business strategy but may be ignored by consumers.

You've been at Nike a long time, seen the culture and values evolve and change, and probably had an influence on some of that yourself. Where did they come from and how they have evolved?

The founders of Nike were Phil Knight and Bill Bowerman: Phil was a runner and Bill his track coach at the University of Oregon. A strong running culture grew up in Oregon and Bill was one of the people who started the jogging craze. He was studying the positive effects of running on people who were not athletes but just ordinary individuals. His view was: ‘If you have a body, you’re an athlete’.

This reflects on the philosophy of self-improvement; the aspiration within American culture to "bring out the best in yourself". But how does this dovetail with your role and the growth of the CSR?

I came from a research and planning background and I was personally interested in the green movement and its influence on consumers. I was working for Nike in Europe when it set up its first Environmental Action Team in 1993. Two years later I moved from Europe to the US, to head that team up. It was a very small team and we were almost like a non-profit organisation in the way that we behaved. Our remit was to act as action-oriented agents of change within the business to champion environmental issues.

The significant change over the last few years is a shift away from a more restricted focus on compliance and risk management to one in which environmental and sustainability policies are at the core of business strategy, not just ‘nice to have’ but an imperative. We work hard to eliminate the environmental impact of our business

Nowadays the president and CEO, Mark Parker, is our greatest champion for sustainability to be the focus of our product design, resourcing and manufacturing. His background is in product design so creativity and innovation are part of his DNA. He has put sustainability at the core of the business’s future growth strategy, as a driver of innovation.

Changing the business model

So we have moved to a situation where sustainability is supported by a robust business case?

Look at what’s actually happening to resources around the world: the trends have been there for a long time but people are actually waking up to them. It always amazes me how much of a short-term vision we’ve had as a society. If you take climate change as one example, people are concerned about it but easily led, at least in the US, by people telling them nothing bad is going to happen. They really want to believe that, but all the data is pointing in the other direction. They’re also confused because they don’t know what they can do about something this global and complex.

We face a future with significant population growth and ever-increasing demand on scarce resources used in manufacturing such as water and energy. Industry’s use of these resources has historically been underpriced and undervalued in terms of the cost to the consumer of the end product. We’re very aggressive on what we call our ‘Closed Loop’ strategy, an aspiration towards zero waste sourcing and production. Throughout the supply chain we are trying to look for materials that we can continually re-use. We want to be able to take back materials post consumer, recycle, reuse them and so forth. That requires a significant change to the business model.

So how does this impact on the way you set out to develop new products?

We have developed a tool called the Considered Index. This is a design tool which fosters innovation. Designers, working on new products, are able to evaluate their ideas against an index or scoring system across several components. These include the sourcing and recycling of materials, the reduction of waste from manufacturing processes, the reduction in energy used, the elimination of toxins and the use of alternatives to the hydrocarbon based solvents and the glues that are traditionally used in manufacturing.

If this increases your cost base do you not run the risk of losing your competitiveness regarding price?

In the past all companies have been externalising the environmental cost of production on to society – the cost of carbon, the cost of water usage and energy – with the implication that the consumer has not been paying the full price. We now have to rethink the economics of this. Retailers and manufacturers have focused on the quality and price equation without factoring in the realistic costs to the environment and society. The new business case, however, is that when you make environmental goals your priority you also have to use design and innovation to create products in a way that can actually save you money rather than just transferring costs into the price consumers have to pay. That’s a whole new exciting challenge; we’re finding ways in which we can deliver to the consumer without increasing pricing.

For example, the premium that you might pay for an eco material can be offset by radical resource efficiency in the creation of the product, because reducing waste makes sense for everybody. In the very early days, when we assessed wastage in producing shoes, for every pound of materials used a half pound was wasted just through inefficiency. So when you get after that, that helps balance increased costs for environmentally superior models.

Collaboration is the key

Most big companies aim to reduce their carbon footprint, achieve greater sustainability and greater re-use of materials, etc. Are there some that you look to as your peers, or that you aspire to be more like?

We’re working with the Outdoor Industry Association and others in the footwear apparel industry to try and develop an index that could be used more generically across all companies so that we can start to have something which, from a consumer stand point, makes more sense. If every company comes out with their own version of this what happens is that it’s very confusing for the consumer.

We partner with companies like Starbucks, Timberland, Levi’s and others in sharing knowledge and technologies around sustainable practices and together formed organisations such as BICEP (Business for Innovative Climate and Energy Policy). We learn from one another and there is a huge spirit of collaboration in this phase, even if you take it down to an industry level.

I think other companies have also pushed the agenda in this area: Hewlett Packard has done a lot, while Marks & Spencer in the UK has adopted a very aggressive sustainability strategy. Companies like Walmart are beginning to do quite a lot of really interesting work in a short space of time and, because it’s so huge, it can get some significant shift from suppliers, so that’s important.

Business is for change

Does this shift -- from keeping your competitive secrets to yourself to collaboration -- mean that companies have to undergo a challenging transformation?

Well there are two threads; obviously if what are you doing in product development is truly innovative in a space that’s going to give you competitive advantage then you have to keep some of that to yourself. But then there is research whose application is broader and is going to help the whole industry rise up. This we can share and it’s the right thing to do from an environmental impact perspective.

Take one innovation that has never been a selling point to consumers, our green rubber patent: we have created a rubber formulation that eliminates five of the six toxic substances that go into synthetic rubber. It’s a huge piece of work and we have now put that patent up on something called the Green Exchange. This is a patent sharing platform which we’re helping to create, and it’s hugely innovative because nobody has shared patents in this way before, using a licensing platform. The business community has shown itself to have a greater urgency and to make more progress here than many government agencies.

It seems that the average consumer is way behind on the curve; specifically on sustainability initiatives but also more generally by being overly sceptical about ethical claims of global business. Your perception of consumers is that they are bombarded with brand messages and can only take simple information but isn't that also because no-one has successfully attempted to engage them in this dialogue? I'm not convinced that brand/marketing/advertising people are not part of the reason why the consumer is not as switched on as perhaps they could be.

Over recent years we have had a lot of dialogue in the company with our peers in the brand group. The prevailing view is that there will be a ‘right’ time and we need to know that there are sufficient numbers of consumers that really care about this. We do not want to be preaching at them.

We have to wait for the ‘right’ time, both for us and our consumers. The brand is very conscious of not promoting Greenwash, when corporations go public with statements about, ‘Aren’t we a great environmental company’ yet have nothing of substance behind them. There has been a huge amount of it from the oil companies, I would say, and there’s a backlash. You have to be absolutely sure that you can back up any claim. We have been very careful to make sure that we are not ahead of ourselves, that we really do have a good story to tell. We talk a lot about the authenticity of the company and the transparency of what we do.

Importantly, we need to make sure that we have something to say that isn’t so technical and, kind of, hard to understand and so ‘face down in the weeds’ of what we do that it’s just not going to resonate with them. There is now a realisation that consumers increasingly want to know that the products are environmentally sound across a range of attributes. Yet it’s also the case that very few of them have the patience to look at the detail of what’s behind a particular product, which is why we’ve got to create something that’s much simpler.

It's a tough "push me, pull me" isn't it? Because without the dialogue they can't get engaged, but without seeing that they're interested you can't generate the dialogue. Who is your prime target market and where are they in terms of wanting to relate to ethical and sustainable criteria for the brand?

We're very youth-orientated. The core target audience we talk about is the teenager, with teen boys being the classic Nike consumer. We talk about the millennial generation, and how their lives have been defined quite differently from the preceding ones. I think they’re really going to be much more active on this agenda. What we’ve found is consistently where we’ve looked now across the world, there is very much a united feeling among youth about how bad things are getting and how much they need and want to be part of the solution.

Sustainability, however, is just one aspect of our work. We really believe that sport has a role to play in the development of a number of different areas. Take our involvement with the RED campaign about AIDS. We’ve helped to create awareness about the need for AIDS education, particularly in South Africa, where a training centre was set up in Soweto and launched around the World Cup. The kids who go to the centre are learning skills from soccer stars that they wouldn’t otherwise have had the opportunity to meet, but they’re also getting education about AIDS prevention. It follows the Lace Up, Save Lives campaign. When someone buys a pair of Nike Red Laces, Nike contributes money to support Programs that offer education and medication on the ground in Africa.

Another initiative, non-sport but still linked to poverty, is the work of the Nike Foundation and ‘The Girl Effect’. This is about empowering girls, removing the barriers to them succeeding in life and actually changing the fortunes of entire communities.

Form of Holy Triad

But to what extent can you envisage a society where self-esteem surrounding wearing the brand is located in making a statement abot caring about the world, caring about employment conditions or caring about recycling? Is it always going to be secondary?

The products are created for the athletes first and foremost. They are about performance, and sustainability in general has become a part of that because we recognise that there are a whole host of business reasons why one has to move forward with that. For us, there is a sort of holy triad here involving performance, aesthetics and sustainability.

We are not going to make shoes that consumers dislike. Ten years ago, when people talked about a sustainable shoe, they imagined they would have to make a hemp shoe. There’s so much opportunity now, with increased innovation in this field, that we do not need to compromise on performance and are adding the sustainability benefit to create a bigger premium offering. It will become an expected characteristic of a premium offering but we’re not going to sacrifice performance or ethics for sustainability.

Will Nike ads continue to feature leading sports stars or, for example, will the concept of "considered design" be an idea or a phrase that you will introduce into consumer marketing?

I think that there’s no doubt that in branding campaigns sports stars and athletes still have the straight resonance with people. Everybody loves to see someone win, someone who is absolutely stellar in the sport that they represent. I think that will continue but I also think that athletes have to show a slightly broader perspective. Many have their own foundations, and Lance Armstrong is just one example. He’s a stellar athlete and, though less well known in Europe than here for it, has done amazing things for the world of cancer research with his Livestrong foundation and Nike has been a part of that.

Up to a point it has been easier to talk about things like access to sports or AIDS or cancer because these resonate with consumers. When you get down to details of the environment or sustainable production processes, then the issues appear more complex so we’ve really had to work very hard to think of ways to communicate these values.

So what changes can we expect to see to extend the environment/sustainable dialogue and to nurture the increasingly aware and involved younger consumer?

You will see more consumer-facing work next year. I can’t tell you much more about it, but we’ve got to the point where we believe we’ve had a good ten year-plus record of doing authentic work and having walked the talk we can now be more vocal about it. The first thing we believe consumers will want to know about is the activity around making an environmentally sound product. Then they’ll ask, ‘What are we doing around packaging?’ ‘What are we doing in our retail stores?’ ‘How do we connect to our local community?’ And so on, and so forth.

We are framing it around using the phrase ‘Innovate for a Better World’ because everyone has in their mind what a better world means. It means less environmental degradation, less poverty, less conflict and you could turn it into a much more positive framing when you say it’s a world where everyone has the ability to prosper.

We will address and engage with the consumer by saying, ‘Okay, here’s what we’re doing. Now, we would like you to get engaged in these issues. What are the things that you care about and personally would like to take action on?’ In a sense we’re offering them a partnership; there are always opportunities for people to get engaged in a multiple of different ways.

We also need to be transparent and to make clear that ‘We do what we do because it’s connected to our business’. It doesn’t mean we’re going to adopt every cause on the planet, it means talking about the things we are doing from the heart of our business.

And a final question. I noticed in the promotion film on your website some copy I have not spotted before in Nike ad campaigns: "There's no finish line". Does this sum up the way you are addressing innovation and development in respect of the environment and sustainability?

Originally it featured in a campaign some twenty years ago, when Joan Benoit won the first women’s marathon in LA. I think she was the key athlete for that campaign and it’s been used intermittently since then.

Among ourselves we always say ‘there’s no finish line in this work’. We never see there being a finish line. We’re always on a journey. Nobody ever sits still and says, ‘Oh yes, I just did that and I’m finished, we’ve got no more work to do on this.’ It goes all the way back to Phil Knight and Bill Bowerman and the idea that there is a potential athlete in us all. This whole culture is one of constant striving for improvement and innovation.

Nike CSR Report 2007/2009

In January 2010, Nike release a Corporate Responsibility report detailing progress and challenges against goals and public targets. This is a short extract from a release about the report:

The company’s increased focus on Sustainable Business and Innovation (SB&I) will be more seamlessly integrated across Nike’s business strategies, creating a more sustainable approach aimed at providing greater returns to its business, communities, factory workers, consumers and the planet.

“Sustainability is key to Nike’s growth and innovation,” said Mark Parker, NIKE, Inc’s President and CEO. “Making our business more sustainable benefits our consumers who expect products and experiences with low environmental impact, contract factory workers who will gain from more sustainable manufacturing and our employees and shareholders who will be rewarded by a company that is prepared for the future.”

Recognising the impacts of declining natural resources and the need to move to a low carbon economy, Nike also uses the report to share its vision of reaching a closed-loop business model where the goal is to achieve zero waste in the supply chain and have products and materials that can be continuously reused – no pre or post consumer waste. This vision is also designed to drive innovative and sustainable business processes and models.

“The link between sustainability and Nike as a growth company has never been clearer,” said Hannah Jones, Vice President, SB&I. “There are serious potential impacts of social, environmental and economic shifts on labor forces, youth sport, supply chains and products. This gives Nike the opportunity to use our power of innovation and our commitment to transparency and collaboration to tackle these complex issues.”

The report announces progress against Nike’s five-year targets set in 2007. It has made sound progress on many fronts, such as implementing Lean and Human Resource Management training in contract factory and reducing waste and toxics and increasing its use of environmentally preferred materials throughout Considered Design performance products.

 

Sarah Severn
Copyright © Association for Qualitative Research, 2010