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Nike Pushes Back on Calls for China Pullout

Should Nike freeze all sourcing and production in China in light of the Uyghur crisis? That’s a question shareholders will be pondering at the sportswear juggernaut’s annual meeting on Friday.

Filed by Domini Impact Investments, a women-led investments advisor, the proposal recommends that the Just Do It company suspend manufacturing in the Asian superpower until the U.S. government lifts or rescinds its advisory about the heightened risks for businesses with supply chain and investment links to the Xinjiang Uyghur Autonomous Region, where millions of Uyghurs, Kazakhs and other Turkic Muslim minorities have been arbitrarily detained and made to endure severe human-rights abuses such as forced labor, torture, sexual abuse and political indoctrination.

Nike’s ongoing sourcing and production relationship with China presents dangers “from various angles,” Mary Beth Gallagher, Domini’s director of engagement, told Sourcing Journal. Xinjiang contributes 85 percent of China’s cotton, which in turn makes up one-fifth of the world’s supply of the fiber. Coupled with the Swoosh‘s “lack of public disclosure or clarity” about its plans to trace its supply chain to the raw material level and the Chinese government’s involvement in mass labor transfer schemes that spread Uyghur persecution outside the province’s bounds, Nike would be hard-pressed to ensure that it is not violating its own policy, laws or human-rights norms, she said.

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The brand has stated that it does not source products from Xinjiang. Nor does it use textiles or spun yarn from the region. It has also expressed concerns about reports of forced labor in and connected to the province, a stance that has raised the hackles of Chinese state media and unleashed a profit-busting consumer boycott.

But Nike’s manufacturing data also suggests that roughly 30 percent of its materials hail from Chinese factories, creating significant exposure to potential issues, Gallagher said. Nike has also indicated that it relies on auditing, which is a “highly effective tool in most contexts but is proven to be ineffective in China, considering the PRC government’s involvement,” she said, using an acronym for the People’s Republic of China. She noted that a number of auditors have exited Xinjiang, citing restrictions that prevent the access they need to conduct satisfactory reviews.

“Nike says they do not source directly from the Uyghur region. That’s good news. But forced labor-picked Xinjiang cotton is shipped all across China,” said Laura Murphy, a human-rights researcher who will be speaking to shareholders on behalf of Domini and its resolution. A recent study led by Murphy at Sheffield Hallam University’s Helena Kennedy Centre for International Justice found that more than 100 global retail brands could be at risk of using cotton produced or processed in Xinjiang through an export strategy that “obscures cotton’s origin.”

“Uyghur forced labor-spun yarn is shipped all across China. Uyghur forced labor woven-fabric is shipped all over China,” she told Sourcing Journal. “Until apparel companies can show that their entire supply chains are free of Uyghur forced labor, there is [a] high risk that products made in China will be made with Uyghur forced labor.”

Though Nike did not respond to a request for comment, the Converse owner’s board of directors recommends that shareholders vote against Domini’s proposal.

“Nike does not directly source cotton or raw materials, and we are committed to responsibly and sustainably sourcing our products, including the materials used throughout our supply chain, in a manner that respects human rights and promotes sustainable innovation,” it said in an opposition statement. “That is why our sourcing approach focuses on foundational expectations, gender equity, health and safety, worker engagement and well-being and environmental responsibility.”

The company’s corporate responsibility, sustainability and governance committee, it added, helps ensure that its dedication to sustainable innovation, including environmental sustainability and human rights, shows up in its business operations.

“Nike runs our business in an ethical way, and that commitment extends to the contract manufacturers who make our products,” the Jordan maker said, noting 15-year relationships with the “majority” of its footwear suppliers. “We collaborate with suppliers who share our commitment to responsible manufacturing, as measured by compliance with the standards laid out in our supplier code of conduct and code leadership standards, and our current initiatives help to drive changes throughout Nike’s supply chain and promote human rights and responsible manufacturing.”

It went on to describe raw material-level traceability as “an area of ongoing focus and board oversight.”

“We are working closely with our suppliers, industry associations, brands and other stakeholders to pilot traceability approaches and map material sources to more proactively manage risks and opportunities and better track our sustainability efforts,” it added.

Still, forced labor is so prevalent in China that Domini believes it’s necessary to work under the presumption that all materials produced in the country have the potential to be tainted by forced labor, Gallagher said.

“Given the difficulty in conducting human-rights due diligence in China and addressing the risks, companies should closely evaluate the context and the effectiveness of their systems to address those known risks, and if necessary, consider what tools they might have to exercise their leverage or act to prevent or mitigate risks to reassure consumers, stakeholders and investors that their products are produced without forced labor,” she said.

This goes for brands that aren’t Nike as well, Murphy added. The United Nations human-rights office declared last week that China’s mistreatment of Uyghurs and other ethnic minorities may “constitute international crimes, in particular crimes against humanity.” In August, Tomoya Obokata, the UN special rapporteur on contemporary forms of slavery, said that it was “reasonable to conclude” that forced labor was taking place among Uyghurs in sectors such as agriculture and manufacturing.

Obokata said that the “nature and extent of powers” exercised over affected workers, including excessive surveillance, abusive living and working conditions, restriction of movement through internment, threats, physical and/or sexual violence and other inhuman or degrading treatment, could even be characterized as “enslavement as a crime against humanity.”

“For companies to source responsibly anywhere in the world, they need free, unfettered access to workers; they need to be able to make unannounced visits; they need to be able to trust auditors on the ground; they need a legal environment that doesn’t prohibit their suppliers from talking about where they source from,” Murphy said. “None of that exists in China when it comes to the Uyghur region. Only when that changes would it be ethical to source from China.”