Adidas Group

The Leather Working Group is a group of brands, retailers, product manufacturers, leather manufacturers, chemical suppliers and technical experts that was created in 2005 to develop an environmental stewardship protocol specifically for the leather manufacturing industry. The environmental protocol that was developed is updated regularly - see www.leatherworkinggroup.com

Audits are carried out at all tanneries that supply leather to the LWG, and based on the outcome of this evaluation they are rated in Gold, Silver, Bronze, Compliant and Non-Compliant. We have made a commitment not to source from tanneries unless they have reached at least a bronze level.

Establishing hide traceability

Through a report issued by Greenpeace in 2009, we were made aware of the level of illegal deforestation in the Amazon rainforest caused by the increasing expansion of the cattle sector. The adidas Group and other companies such as IKEA, Nike, Timberland and New Balance responded to this report by working with Greenpeace and other NGOs to bring about improvements to the overall situation in the Amazon. We have channelled our efforts through the Leather Working Group. Our primary effort was to partner with the cattle and meat industry to develop a traceable and transparent system to provide credible assurances that leather used in adidas Group products is only from cattle raised on legally managed ranches.

The following decisions were made and actions taken:

1. To split the cattle-meat-leather supply chain in two parts, that would be handled separately:

• The down-stream supply chain from the slaughterhouses back to the farms to be monitored by the meat packers.
• The down-stream supply chain from the leather suppliers back to the slaughterhouses to be monitored by the tanneries through the audit protocol of the Leather Working Group.

2. Big meat packers have committed to only process animals from farms or fattening farms that comply with a number of requirements. These requirements include a detailed GPS perimeter mapping of the farm, certificates from the Brazilian Government for Environment, protection of indigenous lands and slavery-free certifications. Meat packers declared that, as of November 2010, most farms supplying animals to these big slaughterhouses are complying with the above.

3. Tanneries have agreed to mark their hides with a code that will allow them to trace back this hide to the slaughterhouse, which in time would link with the meat packer part (see point 2). This will allow us to trace back any leather used at our factories to the fattening farm.

4. Within the LWG protocol a classification for hide traceability was established. We are committed to only buy from tanneries that are able to tell us where their hides are coming from (down to the slaughterhouse). This practice is in place and followed by all our leather suppliers that undergo the LWG audit.

Please read the point of view from Greenpeace.

At the beginning of March 2010, the Worker Rights Consortium (WRC) wrote to the adidas Group, as well as US university licensees and other brands, calling for 'industry-wide solutions' to ongoing fire safety issues in factories in Bangladesh. The memo from the WRC had been prompted by the death of 21 workers, with many others seriously injured, following a fire at the Garib & Garib sweater factory in the Gazipur district of Dhaka. Although Garib & Garib did not produce for the adidas Group, we shared a common concern with the WRC regarding the poor state of fire and electric safety in many of the older manufacturing sites in Dhaka.

We provided a comprehensive response to the WRC's call to action and participated in subsequent multi-stakeholder calls. On the ground, we reviewed the conditions in each of the nine factories making Group branded goods in Dhaka at that time and provided additional training to safety officers in those factories. We also strengthened the capabilities of a local NGO, which has increased the frequency of fire safety inspections.

The National Labor Committee (NLC) published a report in early February 2010, alleging several breaches of labour standards and ineffective auditing at the Chi Fung factory in El Salvador, which makes NFL-shirts for Reebok.

The adidas Group learned of the allegations at Chi Fung in late January 2010 and commissioned a respected local member of the civil society to conduct an investigation. A team composed of experts in law, business management and health and safety, started their work on 23 February 2010. They reviewed payroll documents back to 2006, interviewed dozens of workers on and off site, evaluated factory management systems and processes, and conducted a thorough inspection of the production floor's mechanical infrastructure. The preliminary findings were given to us on 15 March 2010. Some of the NLC allegations proved to be true. In all cases of non-compliant activities, corrective actions are underway.

Taking action

Allegations of breaches in employment rights have been fully addressed. All overtime is being paid correctly and is strictly voluntary. All compensation will be registered with the government, including the incentive programme. Communication channels, one internal and one external, have been implemented to receive employee grievances including complaints of harassment by supervisors. In the instance of health and safety allegations, there are corrective actions in place for bathroom hygiene, the availability of personal protective equipment, electrical wiring infrastructure and ambient ventilation. Improvements have been made in preventative maintenance procedures, and additional staff assigned to repairs. A surveillance camera which had been installed near the production floor bathrooms as a security measure has been moved to another location.

However, the allegation of ineffective auditing is more complex. Previous audits by the adidas Group's Social and Environmental Affairs staff have identified and remediated non-compliant issues at Chi Fung since 2003. One persistent roadblock has been inconsistencies between the findings and enforcement actions from Chi Fung's buyers and the Ministry of Labor Inspectorate. We will continue to engage the El Salvador Government in efforts that promote the efficacy of national regulatory agencies and the enforcement of employment, health and safety laws.

Read our statement on the initial allegations on our corporate website.

Factory conditions and worker rights remained a topical subject during 2010, reflecting the mainstream concerns of many of our most vocal stakeholders. In June 2010, the Clean Clothes Campaign (CCC), Germany, published a report on two factories producing adidas Group products in China - one a footwear assembly plant, the other a component supplier. We followed our standard practice by launching an investigation to verify the claims being made and providing CCC with a detailed response to each allegation and issue. The majority of the concerns were focused on working conditions at Ching Luh, a large-scale athletic shoe supplier. Some of the allegations stated in the report were not corroborated, but others were confirmed through worker and management interviews, as well as document reviews. Ching Luh responded positively and took steps to remedy those issues, which we have verified. Improvements were made to hiring practices, the processing of worker leave applications, final payments of wages following a worker's resignation, bonus payments and the rotation of workers handling hazardous chemicals.

Oxfam Australia has been monitoring worker rights in Indonesia for more than a decade and has regularly communicated and campaigned for improved working conditions in adidas Group suppliers. In Indonesia, Oxfam Australia's principal concerns relate to workers' job security and their inability to exercise their fundamental right of association through trade union membership.

Read more about Oxfam Australia's campaign.

Our engagement in 2010 centred on three topics, all of which carried forward dialogues from previous years:

• We responded to calls from Oxfam Australia to 'live up to our promises', regarding support for the recruitment of former trade union officials and others who had lost employment due to factory closures.
• We held meetings and exchanged correspondence with Oxfam Australia on specific factory issues and the infringement of trade union rights, including the injury of workers by police when a picket line was crossed during a strike.
• We have been transparent in sharing information on the weaknesses of recruitment practices at our suppliers.

As one of the fastest-growing sourcing countries in Asia, the adidas Group has witnessed steady progress and improvement in the workplace conditions in Indonesia. Nevertheless, we also acknowledge and accept that our suppliers continue to face challenges as they strive to meet our Standards, as well as international NGO expectations.

In May 2010, we posted a statement responding to Oxfam Australia's concerns on our corporate website.

One area where we have been collaborating closely with Oxfam Australia and with the ITGLWF has been in the development of a Freedom of Association Protocol for Indonesia. The adidas Group has acted as the lead party in a supplier-brand caucus that has been formed to engage with Indonesia's trade union movement, to develop a basic framework for the exercise of trade union rights in the workplace. After one year of negotiations, agreement was finally reached on a draft protocol to be shared with other brands and suppliers in the sporting goods industry in Indonesia. We are hopeful that this will set an important benchmark for suppliers and that the provisions in the protocol will close the gap in expectations and reduce misunderstandings between factory managers and trade union officials with respect to trade union activities, rights of access and so on, thereby improving the overall industrial relations environment.