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ModernGraham has identified Nike (NYSE:NKE) as appropriate for Enterprising Investors and, for these investors, I am providing another layer of research and analysis that provides insight into Nike’s environmental, social and governance (or ESG) performance. In particular, I thought it would be insightful for investors to see key environmental and social metrics for Nike alongside those for Adidas (OTCQX:ADDYY). ESG metrics have more meaning when used to compare companies that appear to be similar enterprises. In the tables below, see how key ESG data points or metrics raise questions and insights about company accountability and transparency, and company management of operations and natural resources, workforces, customers, and local community relationships. The ESG data in all the tables below represents 2013 ESG performance for both companies.
Companies, through annual reports such as the 10K and the corporate social responsibility (CSR) report, release corporate ESG data. Our primary source for ESG data is Bloomberg’s Professional Finance and ESG database (Bloomberg). Since 2009, corporate ESG data has been available through Bloomberg. If a company sees an error in their public ESG data, it should have a corporate representative contact Bloomberg and get it corrected, as it would with public financial data.

Table 1: Environmental Performance

Name

ESG Disc Score

Total GHG Emissions

Total GHG Intens/Sls

GHG Scope 3

Tot Wtr Use

Invest in Op Sust

NIKE INC

50

870

34

11630

48834

NA

ADIDAS

38

70

4

NA

325

NA


Table 1 provides key environmental metrics for Nike and Adidas. Column 2 provides an aggregate ESG disclosure score for each company calculated by Bloomberg, which provides a quick read on how accountable and transparent a company chooses to be when it comes to sustainability performance. ESG scores range between 0 (no disclosure) and 100 (full disclosure). Based on this, Nike’s ESG Disclosure Score of 50 compared to Adidas’s at 38 suggests that Nike is more accountable and transparent when it comes to disclosing ESG metrics.

Consider that Nike’s Total Greenhouse (GHG) emissions (Column 3), GHG intensity as a percentage of sales (Column 4), and Total Water Usage (Column 6) are all significantly higher than Adidas’. Nike’s GHG emissions are more than 10 times that of Adidas. Moreover, Nike’s GHG intensity as a percentage of sales is more than 8 times greater than Adidas'. Higher usage and intensity numbers for the same or similar product suggest one company has higher production costs related to the company with lower usages and intensities. When it comes to water usage, Nike uses 150 times more water than Adidas.
It is normal within the apparel and footwear industry for a company’s supply chain to account for the majority of its environmental footprint related to its products. Nike has measured its GHG emissions related to its supply chain (Column 5). Adidas has not. One thing we do know is that when one company’s GHG Intensity is nearly 8 times greater and water use 150 times greater than a near competitor, the situation is ripe for further inquiry. We suspect that data points to gaps in Adidas’ disclosures.

A final point about Nike’s environmental metrics is that the company appears not to have a budget to invest in operational sustainability (Column 7). This metric is the amount of money spent by the company, in millions, on operational environmental and social compliance and other internal environmental and social initiatives, as defined by the company. Many companies are not used to reporting this metric, but it helps make sustainability goals and budgets transparent.

Table 2: Social Metrics

Name

% Women Emp

% Women Mgt

% Women on Bd

% Minority Emp

% Minority Mgt

NIKE INC

48

41

17

48

NA

ADIDAS

49

28

17

NA

NA


Nike’s performance in key social metrics is impressive. Nike – along with Adidas – discloses ESG metrics that show parity in their workforce (Column 2) when it comes to total men versus women employed. Nike is also near parity when it comes to the percentage of women in management (Column 3). Neither company is near parity when it comes to women on the board (Column 4). Nike disclosed key metrics about the percentage of minorities in its workforce.

Who values this data? Investors seeking long-term investments in maturely positioned companies to absorb identifiable risks and opportunities value the data. Other stakeholders -- such as future and current employees and customers -- value ESG data, too. If you want a deeper explanation of this megatrend towards corporate disclosures, here is a PowerPoint on the subject.

Disclaimer: The author does not hold a position in any stocks mentioned in this article, and has no plans to change that position within the next 72 hours.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

Source: Nike: A Focus On Environmental And Social Metrics