Following the Thread: Engaging Nike to Respect Human Rights

Impact investing is action oriented. It means defining standards, conducting rigorous analysis, and working directly with companies to see that our shareholders are getting more from their investments. This last step—which we call engagement—is an integral part of our work at Domini. We engage with hundreds of companies each year through investor letters, dialogue, shareholder proposals, and proxy voting. Recently, we’ve urged Nike to assess and address human rights risks in its supply chain.

Supply chain transparency has been a critical issue for Nike over the years. Working conditions in its factories, especially in Indonesia, came under scrutiny in the 1990s.i Public pressure and student-led activism resulted in major improvements. Nike made strides to become a leader in supply chain transparency and began disclosing its independent factories in 2005.ii

The most significant human rights impacts, however, can occur at the very start of the supply chain, with the sourcing of raw materials. More than 20% of the world’s cotton comes from the Xinjiang Uyghur Autonomous Region in China.iii Home to China’s largest minority ethnic group, XUAR is the site of severe human rights abuses. There’s evidence that the Chinese government has detained more than one million Uyghurs against their will, many of whom are being subjected to conditions of forced labor.iv

After The Washington Post and an Australian thinktank linked Nike’s supply chain to forced labor conditions involving Uyghurs,v Nike committed to not using textiles or spun yarn from the XUAR The commitment matters—but without any evidence, it is hard to verify that conditions have improved. It must be accompanied by transparency at every level of the supply chain. Are there effective systems in place at Nike, starting with raw materials, that ensure the respect of human rights?

Our engagement with Nike began in May 2020, when we reached out to them sharing our concerns that Nike was linked to forced labor of ethnic minorities in China. We followed up with another letter in January 2021, with additional investor support behind it, and detailed our expectations for how we believed they should address human rights abuses.

At that point, we and our partners still had not received an adequate response from Nike, so we chose to file a shareholder proposal—which recommends action to be taken by a company’s board of directors. Investors vote on shareholder proposals at Nike’s Annual General Meeting. A Uyghur human rights advocate presented the proposal on behalf of Domini and the five co-filers, describing the alarming situation in XUAR. (You can listen to our statement at the 14:30 mark of the meeting recording.)

Our proposal received support from 27% of investors that votedvii—and while it didn’t pass, this represents a significant portion of shareholders who are asking Nike to do more to respect human rights. It allowed us to raise issues of worker oppression and exploitation to thousands of individual and institutional investors. And it further signaled to Nike how much attention there is on its connection to the XUAR region.

Going forward, the human rights risk in XUAR will continue to be pressing. Many of the traditional monitoring mechanisms in the region are not working, as reported recently by the Helena Kennedy Centre for International Justice.viii This clearly reinforces the need for companies to identify suppliers at every tier of their supply chain, down to the raw materials. We are leveraging the strong investor support we established through our proposal—and are continuing our engagement with Nike to encourage human rights impact assessments and meaningful protections for the highest risk workers, especially those who are subjected to forced labor.

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The Domini Funds are not bank deposits, are not insured, and are subject to certain risks. The market value of Fund investments will fluctuate and you may lose money. The Domini Impact Equity Fund is subject to certain risks including impact investing, portfolio management, information, market, recent events, and mid- to large-cap companies risks. The Domini International Opportunities Fund is subject to certain risks including foreign investing, geographic focus, country, currency, impact investing, and portfolio management risks. The Domini Sustainable Solutions Fund is subject to certain risks including sustainable investing, portfolio management, information, market, recent events, mid- to large-cap companies and small-cap companies risks. The Domini Impact International Equity Fund is subject to certain risks including foreign investing, emerging markets, geographic focus, country, currency, impact investing, and portfolio management risks. Investing internationally involves special risks, such as currency fluctuations, social and economic instability, differing securities regulations and accounting standards, limited public information, possible changes in taxation, and periods of illiquidity. These risks may be heightened in connection with investments in emerging market countries. The Domini Impact Bond Fund is subject to certain risks including impact investing, portfolio management, style, information, market, recent events, interest rate and credit risks.

The Adviser’s evaluation of environmental and social factors in its investment selections and the timing of the Subadviser’s implementation of the Adviser’s investment selections will affect the Fund’s exposure to certain issuers, industries, sectors, regions, and countries and may impact the relative financial performance of the Fund depending on whether such investments are in or out of favor. The value of your investment may decrease if the Adviser’s or Subadviser’s judgement about Fund investments does not produce the desired results. There is a risk that information used by the Adviser to evaluate environmental and social factors, may not be readily available or complete, which could negatively impact the Adviser’s ability to evaluate such factors and Fund performance.

As of 9/30/21, this security represented the following percentage of the Domini Impact Equity Fund’s portfolio: Nike Inc [0.60%]. The composition of the Fund’s portfolio is subject to change. The Domini Funds maintain portfolio holdings disclosure policies that govern the timing and circumstances of disclosure to shareholders and third parties of information regarding the portfolio investments held by the Funds.

Nothing herein is to be considered a recommendation concerning the merits of any noted company, or an offer of sale or solicitation of an offer to buy shares of any Fund or company referenced herein. Such offering is only made by prospectus, which includes details as to the offering price and other material information. Engagement statistics are provided on a best effort basis. Domini Impact Investments LLC (Domini) is the Funds’ investment manager. The Funds are subadvised by unaffiliated entities. DSIL Investment Services LLC (DSILD), Distributor, Member FINRA. 11/21.

Check the background of DSIL Investment Services LLC and its investment professionals on FINRA's BrokerCheck. Before investing, consider the Domini Funds’ investment objectives, risks, charges, and expenses. View or order a prospectus. Read it carefully.

DSIL Investment Services LLC (DSILD) distributor, Member FINRA.

Domini Impact Investments LLC (Domini) is the Funds’ investment manager. The Funds are subadvised by unaffiliated entities.

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